How do interest rates affect me?

Interest rates set by the Bank of England affect mortgage, credit card and savings rates for millions of people across the UK. The base rate, currently 5. 25%, is what it charges other lenders to borrow money. It has a target to keep UK inflation at 2%.

The Bank may decide to raise rates to encourage people to spend less. The idea is that this helps to bring inflation down by dampening demand. About three-quarters of mortgage customers have fixed-rate deals. Their monthly payments aren’t immediately affected when the Bank changes rates.

Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans. About 1. 6 million deals will expire in 2024, according to banking trade body UK Finance. You can see how your mortgage may be affected by interest rate changes by using our calculator.

The Bank rate is currently at its highest level for 16 years. The rate was higher than this for much of the 1980s and 1990s. There have been plenty of questions about why interest rates have not yet been cut. Inflation was running at 3.

4% in February, down from 11. 1% in October 2022. Governor Andrew Bailey said he had seen further encouraging signs. He said policymakers had to be sure inflation would fall back to 2% target.

However, further falls are expected in the rate in the coming months. The Bank has to balance the need to slow price rises against the risk of damaging the economy by keeping rates high. The UK has had one of the highest interest rates in the G7. However, in recent months, other central banks - including the US Federal Reserve and the European Central Bank - have also paused their rate rises.

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