By Fatma Younis
The Bank of England has raised interest rates for the first time in more than three years, increasing the base rate from 3.75% to 4%. The move aims to curb inflation but will have mixed effects on households and businesses.
Jobs and pay
Higher rates are intended to reduce spending and limit price rises, but they also increase borrowing costs for companies. Many small businesses rely on variable-rate loans tied to the Bank rate, which can restrict their ability to create jobs or raise wages. Mitchell Barnes, founder of Ryse 3D, said the reality of rising rates forces firms to examine labour costs, potentially accelerating automation and robotics across sectors.
Boost to savings
Savers stand to benefit as higher Bank rates feed through to better returns on savings products. Experts advise moving money to accounts offering the best rates rather than staying in old, closed accounts. Rachel Springall of Moneyfacts noted that loyalty to outdated accounts has cost savers significant lost interest over recent years. Fixed-term deals typically offer higher returns, though rising rates may also push up rental costs as landlords face higher borrowing expenses.
Mortgages and loans
Borrowers on variable-rate mortgages face immediate cost increases. About 500,000 homeowners with tracker mortgages will see monthly repayments rise by roughly £31. Another 500,000 on standard variable rates may see a £14 increase if lenders pass on the full rise. The 87% of mortgage holders on fixed deals are unaffected until their current term ends, but new fixed-rate deals are already priced higher than earlier in the year, meaning those remortgaging face steeper payments.
