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The Bank Rate Rise is pretty depressing news

Vicky Parry 6th May 2022 No Comments

Reading Time: 3 minutes

The 1% bank rate rise means there has been a tenfold increase in Base Rate since December, with rates at the highest level for 13 years: e.g. March 2009 was the last time we saw a 1% rate rise, which is going to be pretty depressing news for a lot of people.

Someone with £400,000 variable rate mortgage, for example, will pay £612 a year more: Mortgage rates have also risen, but the good news is that you can still save hundreds by switching banks: savers will finally be getting higher rates – just as many cash-in to pay for cost of living rise. But beware the fix: BoE predicts rates will hit 2.5%, which means that anyone who fixes their savings rate will miss out.

What the experts say

The bank rate rise is only just starting

Laura Suter, head of personal finance at AJ Bell, comments on th bank rate rise: “The move by the Bank’s ratesetters to increase rates lumps even more pain on households struggling with the cost of living crisis. With inflation at 7% and expected to hit double digits in October, when the energy price cap rises again, it might have seemed like the Bank’s hand was forced. The global nature of the drivers of inflation means that this increase to 1% is very unlikely to beat inflation into a hasty retreat, but what it is certain to do is pile more misery on people already having to rely on debt just to pay their bills.

What MoneyMagpie say

“The tiny rise in interest rates shows that the Bank of England would like to tackle inflation but it is too afraid to. Inflation is at 7% now, according to the Consumer Prices Index, although my feeling is that it is really at twice that. In order to bring prices down we should really have interest rates at at least 10% but that would break the economy. With a weak economy we have to keep money moving around the system so raising interest rates would stop that.

“However, while we have super-low interest rates (1% is barely a blip on the screen) we will have to accept ever-increasing prices.

“I don’t believe the Monetary Policy Committee when it says that this inflation is short-term. I think we are in it for a few years now simply because of the astounding amount of quantitate easing (money printing) that has gone on in the last couple of years. Billions of pounds have been created out of thin air and it’s almost impossible to reverse. I suspect, given past performance, that as soon as things get a bit more difficult the government will be demanding that the Bank produces yet more money. Really, I wouldn’t be surprised, but that would just pour petrol on the flames.

“We are already, I think, in a time of stagflation and it’s us, the citizens, who will pay the price in ever higher costs. Sorry to say it but until we have courageous and honest people running the economy we will continue the current decline.”

Will this even help beat inflation?

“Last time rates were at 1% they only sat there for less than a month, before being cut again to 0.5%. Anyone with borrowing will fear that the same will be true this time around, and that the Bank will increase rates again to 1.25% at the next meeting in June. That seems almost inevitable, with the Bank now predicting that rates will hit around 2.5% by this time next year.

“This fourth increase in a row by the bank means that in the space of less than five months we’ve seen rates leap from 0.1% to 1%. And that means anyone with debt has seen a significant increase in their costs.”

Financial Help

We certainly recommend the debt charities to get free help, advice and even emotional support. We particularly recommend, of course, Community Money Advice of whom our founder Jasmine Birtles is a patron.