Interest rates rise set to put a further ‘squeeze’ on families

Expert gives cash savers tips to beat inflation

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Interest rates are expected to rise as the central bank’s Monetary Policy Committee will convene tomorrow, with some experts expecting an 0.15 percent increase, and two additional 0.25 percent rises in the next year.The idea of raising interest rates is to keep those current and predicted price rises, measured by the rate of inflation, under control.

With inflation predicted to rise to four percent by the end of the year, the prices of goods such as food and energy will also increase putting a further “squeeze” on families.

The Institute for Fiscal Studies said the Chancellor Rishi Sunak’s Budget spelled a “worrying outlook for living standards”, warning rising inflation rates and higher taxes would cancel out any increase in wages that was introduced.

It comes after the Government’s economic forecaster warned the cost of living could rise at its fastest rate for 30 years.

Everyone in the UK will be affected by rising prices – from a higher electricity bill to harder choices during the food shop.

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This records how much it would cost to buy 700 commonly-bought items including food products and household goods.

Britons were forced to pay nearly £6 more on their shopping over the past month than during the same period in 2020 because of rising inflation, analysis suggested by the British Retail Consortium.

According to market insights firm Kantar, grocery prices rose by 1.7 percent during the past four weeks compared to 2020, leaving the average shopper paying an extra £5.94.

“The typical household spends £4,726 per year in the supermarkets, so any future price rises will quickly add up and put a further squeeze on families” Kantar said.

In August, wholesalers also warned that the cost of basics such as cooking oil and vegetables had soared.

Additionally, higher interest rates make borrowing more expensive. For households, that could mean higher mortgage costs.

Some 74 percent of mortgage holders in the UK are on fixed-rate deals, so would only see a change in their repayments when their current term ends, according to UK Finance.

They suggested that of the remainder 850,000 homeowners that are on tracker deals, and the other 1.1 million that are on standard variable rates, these are the people likely to feel an immediate impact were the Bank rate to rise.

If their rates mirrored a Bank rate rise to 0.25 percent from its current level of 0.1 percent, then a typical tracker mortgage customer’s monthly repayment would go up by £15.45.

The typical standard variable rates customer would be paying £9.58 more a month, UK Finance figures show.

If the rate rises to one percent, and lenders raised their rates by the equivalent amount, then the average tracker customer would pay £93 a month more, and the typical standard variable rates customer would pay £57 a month more.

That would be a further squeeze on their household budget at a time when people have been used to years of cheap borrowing and relatively slow-rising prices.

A rise in interest rates is usually bad news for borrowers and good news for savers; however, with around 80 per cent of mortgage payers already on fixed-rate deals that last between two and five years, any rise will not be felt for some time.

Savers may not feel the benefit as banks are unlikely to want to boost savings rates if any rise from the MPC does materialise tomorrow.

Asked if the interest rate should rise Dr Eamonn Butler, co-founder and director of the Adam Smith Institute said: “One hundred per cent. The question is when.

“It’s likely that there will be a sizeable jump in the inflation figures in November, possibly to twice the two percent target, or more. The Bank would look negligent if it did not act.”

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