Published: Sun, August 05, 2018
Business | By Eloise Houston

What the interest rates increase means for you

What the interest rates increase means for you

Speaking in November, he said: "Clearly it's a competitive market, banks are competing for savers and what I'd encourage savers to do is to look at the market, use that competitive pressure and if their bank is not offering them the increase then look for another back that is". A rise in these interest rates, generally pushes banks to hike their loans and deposit rates, though not always as cost of borrowing from the RBI increases. However it doesn't actually change too much on the ground.

The BoE has been preparing the market for a rate rise during 2018. Even though rates are very low and will remain so for the foreseeable future, they can still move down if there is an economic shock to the system.

Here's how the proposed rise will affect millions of people in the UK.

In theory, when interest rates go up, so should your saving rates.

Minutes from the MPC meeting noted: "Taking these influences together, and conditioned on the gently rising path of Bank Rate implied by current market yields, CPI inflation remains slightly above 2% through most of the forecast period, reaching the target in the third year".

The hike will make United Kingdom mortgages and loans more expensive, but should boost returns on cash tucked away in domestic savings accounts.

At lunchtime today, United Kingdom time, the Bank of England looks set to raise interest rates for just the second time since the financial crisis.

Dheeraj Singh, Head of Investments & Fund Manager - Fixed Income, Taurus Mutual Fund: "The decision to hike rates has, quite clearly, been driven by the persistent increase in headline and core inflation that we have witnessed in the last couple of months".

If you have a variable-rate mortgage on a property, your monthly payments are expected to increase. MCLR hikes, however, will not immediately impact most existing home loan borrowers as they will continue to pay their existing lending rates till the next reset date of their loan.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "The MPC's economic forecasts haven't changed much since May and its key guidance phrases are unchanged, but the unanimous vote suggests that the committee's resolve to implement a tightening cycle has increased". But he has also stressed that all bets on where BoE rates are headed will be off, if Britain fails to get a trade deal.

Wraith doesn't believe that such data will stop the Bank of England from hiking rates but believes it should, particularly when considering that this behaviour is going against the bank's own forecasts.

Sir Dave Ramsden, one of the Bank's deputy governors, warned savers "never" to expect banks and building societies to fully pass on rate rises.

With expectations of a rate hike nearly entirely priced into the market, investors are mostly focused on what message the Monetary Policy Committee sends on Thursday about its intentions for further increases in borrowing costs.

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