Rise expected and what that means for you

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  • Gee mong 1 week ago

    Rise expected and what that means for you

    Interest rates are expected to rise for a seventh time in a row when an announcement is made later on Thursday.

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    The Bank of England is widely expected to increase rates by half a percentage point, or possibly more.

    Last month's half a percentage point rise to 1.75% was the largest increase for 27 years.

    Such a move would be an attempt to slow the rate of rising prices. The last time interest rates were this high was during the 2008 financial crisis.

     

    Why does raising interest rates help lower inflation?

    Prices are going up quickly worldwide, as Covid restrictions have been eased and consumers spend more.

    Many firms have problems getting enough goods to sell. And with more buyers chasing too few goods, prices have risen.

    There has also been a very sharp rise in oil and gas costs - a problem made worse by Russia's invasion of Ukraine.

    One way to try to control rising prices - or inflation - is to raise interest rates.

     

    How high could interest rates go?

    Analysts have predicted UK interest rates will rise this month, but further increases are also expected later in the year and into 2023.

    Last year, the Office for Budgetary Responsibility (OBR) - the government's independent economic adviser - looked at what might happen if the UK were to experience higher and longer lasting inflation.

    This can happen when people think price rises will continue - businesses raise prices to keep making a profit and workers demand wage increases to keep up.

    If this happens UK interest rates could hit 3.5%, the OBR said.

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