With the cost of living continuing to increase across the board, whether it’s energy prices, used cars, or the weekly shop, UK inflation has hit a 10 year high of 4.2%.
Over the last 12 months in particular the cost of living in the UK has increased significantly.
Recently the Bank of England (BoE) resisted the calls of many economists to raise interest rates. But since then, inflation has continued to increase, and some economists are predicting it will get as high as 5% in 2022.
The BoE’s benchmark for inflation is 2%, so we’re currently double that level. Increasing interest rates is seen as a good way of reducing inflation, but the BoE decided not to do so as it was thought the issue may resolve itself over time.
However, calls to increase interest rates will be growing with the latest data on inflation and it will be tougher for the BoE to resist them when they next meet in December.
Right now, the base rate is so low that we are seeing near to historic interest rates on loans. Currently, you can borrow from as low as 2.8% APR with certain lenders, assuming you meet their eligibility criteria
What happens if interest rates go up?
Now we can’t predict what will happen, but if the BoE increases the base rate in December, it is highly likely that lenders will increase their APRs.
This means that now could be a great time to take out a loan if you think you need to borrow money in the next few months.
Mo will guide you through the process of searching and comparing loans that are right for you. We even have a free eligibility check which will tell you how likely you are to be approved before applying - and it has no impact on your credit rating.
The truth is right now nobody knows what will happen with interest rates when the Bank of England next meets up in December. But right now interest rates are near historic lows, so taking advantage of them now could save you money in the long run.
All this talk of inflation rates and interest rates can be confusing, so you might find some of these answers helpful.
What does the inflation rate mean?
Inflation is the measure of how much prices are rising. If a tank of petrol costs you £50, but increases to £55, then fuel inflation would be 10%, as it’s now £5 more.
The inflation rate is calculated by the Office of National Statistics who looks at the prices of a range of everyday goods and services. Each month they analyse prices and calculate how much they have fluctuated.
Why is the inflation rate so high in the UK right now?
Economists point to many reasons for this, Covid recovery, Brexit, rising gas prices, rising oil prices, and supply and demand issues being the biggest culprits.
Some of these are expected to resolve themselves to an extent, which is why the BoE hasn’t made any changes to the base rate yet, but with inflation continuing to increase they may be forced to act soon.
What does a high inflation rate mean for me?
Unfortunately, a high inflation rate means that the prices you pay for products and services are increasing. You’ve probably already noticed it when you’ve done your weekly shop or filled up with petrol. And if you’re on a variable rate energy tariff you’ll have noticed an increase in your energy bills.
What are interest rates?
Interest rates refer to the amount of money you pay to borrow money. For example, if you borrow £1,000 for 1 year and the interest rate on that borrowing is 10%, you end up paying back £1,100. The higher the interest rate, the more you pay to a lender for borrowing money.
What happens if interest rates increase?
If interest rates increase you may end up paying more on any borrowing you currently have. Now most loans have interest set for the duration of the loan term, so there should be little impact on you. However, if you are thinking about taking out a loan you may find that the great deals and low APR offers start to get a little worse. Also, if you have a variable mortgage you’ll find that your monthly repayments increase, this is why there has been a lot of media coverage recently around people switching to fixed mortgages.
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Tags: Your Money