The Bank of England has increased what is known as the base rate from 0.25% to 0.5%. This is the first base rate increase since July 2007.
Much has been said and written about it already so, we’d like to focus on two pieces of good news.
Should you worry about the base rate increase? At the moment, no.
First, this is only a small increase, so the effect will be minimal and, for a lot of people, it will take a while to filter down to the consumer. Forecasters are not expecting there to be regular further rises and any increases are likely to be small.
If you’re a saver…
It’s not all bad news when interest rates go up. If you’re a saver you could see an increase in the rates you are getting on variable rate saving accounts and Cash ISAs.
Banks and building societies will compete to offer the best interest rates on savings accounts. This means it’s very important to shop around to make sure you are on the right account for you with the best interest rate.
Winter sun for less…?
Typically an interest rate rise is associated with an increase in the pound, and therefore cheaper holidays for Britons travelling abroad. However, the pound actually fell against the dollar and the euro after the BoE’s announcement on Thursday, because interest rates now look likely to rise more slowly in future than had previously been predicted.
If the Bank were to signal that it is looking to raise rates again in the short-term, this would likely send the pound higher. If the BoE remains on hold in the long-term, the pound will likely fall.
The UK currency is still well below the $1.48 and €1.30 figures from before the Brexit referendum of June 2016. And many analysts say that – with Brexit uncertainty so high – the pound won’t be returning to those levels any time soon.
Warning: It’s important to understand how this, and any potential increases in the future, will affect your finances. The Money Advice Service can help you prepare for future rate increases.