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- By Kevin Peachey
- Cost of living correspondent
The Bank of England has held interest rates for a third time in a row following a run of 14 consecutive increases.
The Bank rate, set by the Monetary Policy Committee, will remain at 5.25%.
Another hold may bring some relief to homeowners who have seen mortgage rates rise but savers are unlikely to see a boost.
When might interest rates go down?
The Bank rate is currently at its highest level for 15 years.
The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and inflation.
Rates had risen 14 times in a row since December 2021 as the Bank tries to bring inflation closer to its target of 2%.
Prices rose by 4.6% in the year to October, according to the Office for National Statistics (ONS). This was slower than the increase a month earlier and also down from the peak of 11.1% in October 2022.
Although that is still more than twice the Bank’s target, falls have influenced the decision to pause the run of Bank rate rises. The latest decision was split, with six of the nine-member committee voting for no change.
Policymakers will keep a close eye on the “core inflation” rate – a measure which strips out volatile factors such as food and energy.
The chances of rates actually starting to fall again look slim before next summer.
At one point, UK rates were expected to rise above 6%, but that peak is now expected to be lower, even if there is a rise at a later date.
The Bank has to balance the risk of damaging the economy, which has shown little sign of growth, with the need to slow price rises.
How do interest rates affect me?
When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.
Despite the pause in rises, compared with December 2021, those on a tracker mortgage are still paying £540 more a month, and those on an SVR are paying £299 more a month.
Around three-quarters of mortgage customers hold fixed-rate deals. Lenders may now have some confidence to lower mortgage rates, although they are still much higher than much of the last 10 years.
Comparatively high interest rates mean homebuyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a year or more ago.
As people roll off cheap fixed-rate deals on to products with much higher rates, monthly repayments can soar by hundreds of pounds. Banking trade body UK Finance says there are about 1.6 million deals expiring next year.
You can see how your mortgage may be affected by using our calculator:
Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England in the future.
Image source, Getty Images
Low interest rates are good for borrowers, but bad for savers
Individual banks and building societies have been under pressure to pass on higher interest rate rises to customers.
There are some good deals on the market already, so analysts say that customers should shop around, as many will have accounts paying little or nothing.
Why have prices been going up?
Inflation has been relatively high worldwide, after Covid restrictions eased and consumers spent more.
Many firms experienced problems getting enough goods to sell. Oil and gas costs were also higher than they had been – a problem made worse by Russia’s invasion of Ukraine.
Although many elements of inflation are global, there are also domestic factors at play in the UK, including rising wages.
Are other countries raising their interest rates?
Interest rates have been increasing across the world, although in recent months other central banks, including the US Federal Reserve and the European Central Bank, have also paused their rate rises.
The UK has had one of the highest rates in the G7 – a group of the world’s seven largest so-called “advanced” economies.
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