Bank of England Base Rate Hike Adds to Borrower Concerns
August 2, 2018
The Bank of England has voted to increase its base rate of interest from 0.5 per cent to 0.75 per cent in a move which could be bad news for indebted consumers across the UK.
Costs of borrowing are currently at historically very low levels, as they have been since soon after the Financial Crisis of 2007/8 but the Bank’s base rate hike could still have a notable impact on personal finance situations nationwide.
Lenders throughout the country set their borrowing costs in relation to the Bank’s base rate and so the latest increase is likely to be passed along to consumers and users of a wide range of loan and credit-based financial products.
On the flipside, savers can expect to see any money they set aside in their saving accounts accruing interest at a slightly faster rate in the coming months as a result of the Bank’s decision.
A fundamental responsibility for the Bank is to restrain levels of inflation across the UK, with a rise in interest rates the main way in which it aims to achieve that goal.
The Bank’s target is to keep inflation below 2 per cent but they’ve frequently been tracked above that level in recent quarters, including in June when consumer price inflation was running at 2.4 per cent.
Hopes are that an increase of 0.25 per cent in the base rate of interest will ultimately be good for the British economy and will help to bring down inflation rates in the coming months.
For debtors though, the rate rise could make it more difficult to manage incomings and outgoings in the weeks and months to come as lenders add to their interest rates and borrowing costs.
“While a rise in interest rates might be right for the wider economy, from a consumer debt perspective many households are walking a precarious budget tightrope, as their incomes don’t stretch to cover the basics each month,” said Phil Andrew from the debt help charity StepChange in a statement.
“Government and policymakers need to take parallel steps to ensure support is there for those who are negatively affected, especially if more rate rises are coming.”
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