The Bank of England has tipped interest rates to 1% tomorrow – how that would affect you

The Bank of England will hike rates again from 0.75% to 1%. This will affect people’s savings, mortgages and pension funds. Here’s how you might be affected

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Bank of England rate hike discussed by Halligan

The Bank of England is expected to hike interest rates to a 13-year high tomorrow in a bid to control inflation.

Interest rates are expected to rise back to 1% from 0.75%, the highest level since 2009, as people in the UK face a crippling cost of living crisis.

Fears of a recession in the UK are also growing now, as the economy grew just 0.1% in February this year, on top of the biggest fall in living standards since the 1950s.

Inflation means that prices at the pumps and tills are rising and they were already rising in Ukraine before the war, which made the situation even worse. If the price of a bottle of milk is £1 and increases by 5p, milk inflation is 5%.

The Bank of England said in March: “If the recent rise in energy futures prices continues, it means Ofgem’s utility price caps could again be significantly higher when they reset in October 2022.

“This could temporarily push CPI inflation later this year above April’s forecast levels, which were previously expected to peak.”

A rate hike by the Bank of England is likely to affect the British


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Martijn van der Heijden of mortgage broker Habito said: “At the moment all signs point to another rate hike on Thursday.

“British inflation was 7 per cent in March – the highest since 1992, but that was before Ofgem’s 54 per cent hike in April’s energy price cap was factored into the calculations.

“Inflation is likely to be higher now and this will put even more pressure on the Bank of England to act again.”

How will the rise in interest rates affect you?

How will interest affect my mortgage?

Those with fixed-rate mortgages should avoid the rate hike, but others won’t be so lucky


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The increase in interest rates will affect people with certain types of mortgages, such as lender revert rates or standard variable rates (SVRs). People will have to wait and see whether their lenders will pass on all or part of the rate hike.

If you have a fixed-rate mortgage, this should not be affected, but you should find it difficult to restructure your debt.

Bank of England interest rates affect everyday people because the bank sets a base rate or “bank rate”. This sets the rate that other banks charge borrowers, although they are not required to comply.

Martijn van der Heijden of broker Habito said: “For the quarter of UK homeowners who have a variable, tracker or standard variable rate, any vote to raise the base rate means their repayments will increase; With tracker mortgages, the change is instant and safe, but with a variable rate, it’s up to the lender.

“If you haven’t rescheduled for a while and switched to your lender’s standard variable rate – there’s a good chance you’re going to be paying more now.

“The average adjustable rate mortgage (SVR) rose 0.10% to 4.71% in April, hitting a two-year high, according to Moneyfacts.

“The better news for 74 per cent of UK homeowners on a fixed rate contract is that the increase in the base rate will not result in any immediate financial damage. However, if the bank has to raise rates again – and financial markets think that could happen over the summer – when you come to mortgage we could see mortgage prices higher than they are now.”

How do interest rates affect my savings?

The Bank of England is pulling levers to control inflation, but that means changes for savings as well


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When interest rates are low, it costs people less to borrow money, but people earn less from their savings.

A rate hike is good for saving. However, in the face of a livelihood crisis, some people may find it difficult to put money aside these days.

People should check the fine print on their savings accounts to see if their interest rates are actually going to increase.

When the economy grows, so does inflation, so raising interest rates is one way to control this.

It directly affects people’s savings and how much money they have. If a person has £1,000 saved and the interest rate is 1%, they will get £10 over a year.

But with inflation, the money in your savings account actually loses value despite low interest income.

How does interest affect my pension?

Interest rates are having an impact on pensions, but the rise could be a good thing for retirees


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A rise in interest rates could negatively impact people’s pensions due to falling bond prices. Annuity bonds are easily affected by interest rates and tend to rise when interest rates fall, not rise.

KLO Financial Services stated: “A less positive aspect of the rise in interest rates could mean that retirement savers will see the value of their retirement funds fall. This is likely due to falling bond prices, which often happens when interest rates rise.”

However, increasing interest rates can have a positive impact on your retirement pot by increasing its value.

How does raising interest rates lower inflation?

When interest rates are high, it becomes expensive to borrow money. If a mortgage charges 2% interest and the base rate increases by 1%, the same mortgage will charge 3% instead.

When this happens, consumers and businesses are more likely to save and not spend, slowing the economy and bringing inflation with it.

When interest rates are low, borrowing is cheap – but savings rates are low, which means we spend rather than save. This means that the economy is growing rapidly but can mean spikes in inflation

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