The Bank of England has increased interest rates by half a percentage point from 1.25% to 1.75%.
The move is the largest single increase for 27 years and is an attempt to slow down the rate at which prices are rising.
Why have interest rates gone up and why is inflation so high?
Higher energy prices are one of the main reasons why inflation is so high. The Bank of England says price rises across all sectors will push inflation even higher over the next few months, to around 13%.
Parliament tasks The Bank of England with keeping the rate of inflation at 2%. Putting up interest rates is the main thing it can do to stop prices rising so fast and bring down the rate of inflation. The Bank of England rate often influences the rates charged by lenders and paid to savers.
How do the changes impact your savings?
The Bank’s decisions also affect the interest rates people earn on their savings.
Individual banks usually pass on at least part of any interest rate rises – giving savers a higher return on their money.
However, for people putting money away, interest rates are not keeping up with rising prices.
How do the changes impact your mortgage?
If you have a loan or mortgage that charges you a variable interest rate, you might find that the cost of your repayments goes up.
If you’re on a fixed rate you won’t see any change until the end of your fixed period.
It’s important to understand how a change in interest rates could impact your ability to pay. You can use a mortgage calculator to work out how your monthly payments might be affected.
How do the changes impact your general expenses?
Higher interest rates make it more expensive for people to borrow money and they also encourage people to save. The result is that, overall, people will tend to spend less. If people spend less on goods and services overall, then the price of those things tends to rise more slowly. Slower price rises mean a lower rate of inflation.
PayPlan is here to support you during the cost-of-living crisis
With bills increasing, along with food prices and fuel costs rising too, it’s understandable many people are wondering how they’re going to make ends meet.
For most people these increases in day-to-day costs will have a far bigger impact than the rise in interest rates. We’d encourage everyone to head over to our Financial Wellbeing hub which has a range of money management tips and information about looking after your financial wellbeing.
It isn’t just household budgets that are suffering. The worry and stress of struggling to keep up with changing costs is having a very real impact on mental wellbeing too.
Where should I go if worrying about money is impacting my mental health?
The thought of talking about your debts or money worries for the first time can be really daunting, especially when you’re not sure where to go or who to turn to for support.
With 30 years’ experience as one of the leading providers of free debt advice, we’ve found during this time that there’s often a strong link between financial wellbeing and mental wellbeing – and dealing with one can often help the other.
Helping people get their finances back on track with free debt advice and suitable solutions is our bread and butter, but our help doesn’t stop there. We also ensure, at the same time, you receive the additional support you need when it comes to improving your overall wellbeing too.
Everyone’s situation is different – and we all have unique needs. That’s why we work closely with a wide range of support organisations to ensure you get the tailored help you need, when you need it.
Whatever your situation, it’s important to us that you feel supported every step of the way, not just with your debts, but your bigger wellbeing picture too. Some of the charities and organisations we partner with to provide holistic support include Bipolar UK and Samaritans [for mental health support], GamCare [for support with gambling-related financial harm], Refuge and Broxtowe Women’s Project [for support with domestic abuse] and many more.
Communicate with us in a way that suits you
We offer a range of communication channels to ensure you can reach us in the way that’s most convenient to you – so whether it’s talking over the phone, email, or live chat, we’re able to help you tackle your debts in whatever way suits you.
The sooner you get in touch, the sooner we can help.
You can also find us on Facebook and join our community of people who want to become debt-free.