The interest rate in the UK has increased again. If the previous indicator was 1,25%, now it has grown immediately by 0,5% and has already reached 1,75%. Experts give not too rosy forecasts for the British economy. It is believed that it will decrease already in the third quarter, and the decrease itself will last until the end of 2023. And if the forecasts come true, then the country will face a colossal recession, which will be the longest since 2008, when the whole world was shaken by a powerful financial crisis.
Update 22.09.2022/2,25/XNUMX interest rate increased to XNUMX%.
Update 03.11.2022/3/XNUMX interest rate increased to XNUMX%.
Update 15.12.2022/3,5/XNUMX interest rate increased to XNUMX%.
Update 02.02.2023/4/XNUMX interest rate increased to XNUMX%.
Update 23.03.2023/4,25/XNUMX interest rate increased to XNUMX%.
Update 11.05.2023/4,5/XNUMX interest rate increased to XNUMX%.
Update 22.06.2023/5/XNUMX interest rate increased to XNUMX%.
Update 03.08.2023/5,25/XNUMX interest rate increased to XNUMX%.
Update 21.09.2023/5,25/XNUMX the interest rate remained at XNUMX%.
Update 02.11.2023/5,25/XNUMX the interest rate remained at XNUMX%.
Rising electricity prices in the UK
This is the first thing that will affect the increase in interest rates. The British have already been warned that in October, most likely, electricity bills will break all records. And this will already be the reason for the increase in overall inflation in the country. Today it is at the level of 13%. And this figure is considered the highest for the UK over the past 42 years.
Such a decision by the Bank of England, in theory, should prevent inflation from rising in the future. After all, a higher interest rate makes loans much more expensive. As a result, people will take less of them, spending will also be reduced accordingly. However, no one denies that such a measure will make the lives of people with low incomes even more difficult. However, the head of the Bank of England is confident that an alternative course of events will bring even more deplorable results for the entire country.
How to change the interest rate on a loan in the UK
This year, this increase will be the sixth in a row. The Bank of England believes that this measure will help bring inflation down to 2%. But what happens to loans?
British monthly spending on a typical mortgage will increase by almost £52 (that's about 63 euros). With floating rate loans, things are even more complicated. Payments on them will increase by 59 pounds (about 71 euros).
The well-known economist Faisal Islam made a statement that only confirms all the negative forecasts. He believes that the expected recession of the UK economy will not only be very long, like the 2008 crisis, but also deep, like in the very early 1990s.
And this will certainly be felt by all segments of the population of the state. Purchasing power will decrease, as wages will remain at the previous level. Against this background, financial problems will affect the manufacturing and commercial sectors of the country. But whether the UK will be able to stop the growth of real inflation with the help of such measures - time will tell.
The impact of high interest rates on the lives of UK citizens
The high interest rate set by the Central Bank of Great Britain can affect the inhabitants of the country in the following ways:
- Deposits and Savings: High interest rates make savings and deposits more attractive as people earn more interest on their savings. However, this can lead to people spending less money, which will negatively affect the economy as a whole.
- Mortgages and loans: Mortgages and other loans become more expensive when interest rates rise. This may result in some people not being able to pay their mortgage payments, which may cause an increase in the number of unpaid debts.
- Investments: When interest rates are high, debt financing for investments becomes more expensive. This could lead to lower investment in the economy and possibly slow down economic growth.
- Exchange rate: High interest rates can strengthen the exchange rate as they attract foreign investors looking for high returns. While this can make imports cheaper, it can also make exports more expensive and negatively impact companies involved in exports.
- Inflation: Finally, the Central Bank can use interest rates to control inflation. If inflation is too high, the Bank may raise rates to slow the economy and reduce inflation.
As a consequence, while high interest rates may be good for some people (for example, those with significant savings), they can be harmful for others (for example, those with large debts or mortgages). The impact will depend on the individual circumstances of each individual.
