bank of england, london

Goodish Times isn’t the place to read about interest rates or banking in general, but we decided to make an exception for today’s news. For the first time in more than 10 years the Bank of England has raised interest rates. The official bank rate rises from 0.25% to 0.5%, and is the first increase since July 2007, effectively negating last August’s cut in rates made after the vote to leave the European Union.

We’re not worried about how it affects bankers, who will squeeze a profit out of it somehow, but how will it affect ‘normal people’?

Well, around 3.7 million households with variable rate mortgages will face a small rise in their mortgage interest payments, but it also means those with savings might benefit from slightly increased returns. And, in addition to the UK’s 45 million savers, anyone looking at buying an annuity for their pension should also see better deals.

Interest rates- effect of rises on mortgage payments

Of course, it’s only a quarter of a percent, so it’s not going to make a huge difference to anybody. In terms of mortgages, someone with the average outstanding balance of £89,000 have to pay approximately £12 more a month, according to UK Finance. Similarly, for the average saver, the (doubtless delayed) increase in returns will be truly negligible. Someone with savings of £100,000 will see a maximum increase in interest received of £250 a year, assuming banks pass on the whole increase.

TV journalists and Breakfast Show presenters will doubtless round up a dozen mortgage payers apparently at their wit’s end and facing destitution as a result of the increases, but the reality is that with interest rates at their lowest levels for centuries, it was always inevitable that they would go up. In simple terms, if this 0.25% increase is enough to push anybody out of their homes, they were already in serious financial difficulty.

uk interest rate history 1970 - 2017

The Monetary Policy Committee (MPC), which sets interest rates, justified the rate increase on the back of record-low unemployment, resilient consumer confidence and rising global economic growth. As a result, the pound fell about 1% against the dollar and euro, to $1.3120 and €1.1260 respectively. The financial markets are indicating two more interest rate increases over the next three years, taking the official rate to 1%.

Despite accelerating inflation, which the bank thinks is likely to peak this month at 3.2%, there has been reluctance to raise interest rates. THe bank believes that inflation has been boosted by the fall in value of the pound since the UK’s vote to leave the European Union in June of last year. The weaker pound has pushed up the costs of imported food, fuel and other goods, but the Bank says this effect is probably at its peak at the moment.

Brexit doom-sayers will of course say that this proves their warnings were correct and that the end is nigh. That almost the entire UK media industry has spent the past year talking down Britain’s ability to survive without guidance from the EU, whose politicians are absolutely not corrupt, never engage in sexual harassment, are not even vaguely hypocritical protectors of their own national interests, definitely don’t live the life of Riley on expenses and lavish salaries and plainly know a lot more than our dumb, corrupt sexual deviant MPs probably doesn’t have anything to do with it.

Anyway, the headline is that interest rates are back to where they were a year ago.

Stephanie Coulson

The office cat lady

My name is Stephanie Coulson and I am a 'normal' mum who writes a bit, builds websites for a hobby and helps manage the family business in an effort to make ends meet.

I qualified as a teacher at Uni and after a brief period in the UK, moved to Spain and Italy where I taught English and helped start up the insegnanti-inglese teaching groups in Milan and Rome. I returned to the UK in 2017.

Once a Labour voter, I no longer recognise what the party has become. I didn't vote in the Brexit referendum, living abroad at the time, but would have voted leave. I've seen the difference between the way the UK treats EU nationals and how some EU states treat UK nationals.