‘While the rise itself isn’t huge, the signal is’
Martin Lewis, founder of MoneySavingExpert.com, said: “A UK base rate rise was widely flagged last month, but didn’t happen. This month with the rise of Omicron and a hit on the economy, far fewer expected it, but the Bank surprised us.
“While the rise itself isn’t huge, the signal is. For the bank to overcome its inertia says a lot. This is the first rate rise in three years – and I suspect (unless we move back into lockdown and the economy tanks again) it’s indicating it’s only the beginning, more are to come.
“The rise is of course driven by high UK inflation. Prices are rising at their fastest rate for years, and the Bank of England is charged with preventing that happening. By increasing interest rates, the theory says you encourage saving and discourage borrowing, taking cash out of the economy, and slowing things down.
“The problem is that it’s the price of fuel and energy which is driving inflation. That is a global problem, unlikely to be fixed by unilateral UK moves. Plus we know already that come April, there will be a likely 40% rise in the energy price cap regardless of what the Bank of England does. So we have to wait and see if its interest rate lever is powerful enough to lift things back in to place.
“In practical terms, I’m afraid it is likely mortgage holders stand to lose more than savers gain. For variable rate mortgage holders, the typical £8/month rise per £100,000 of mortgage, will be far from welcome amidst the other huge price rises we’re seeing in energy bills and fuel. So it’s important, especially for those on the standard variable rates (SVR), where lenders have the freedom to increase rates by more than the 0.15% – to see this as a spur to check if you can save by getting a better mortgage deal.
“For savers, we may see some easy access rates rise at the big high street banks, but they’ll still be crap – often less than 0.1%. There is a chance fixed rates may rise a smidge more on the back of the announcement, so there’s no rush to do it (just don’t forget), but if it does happen it’s not likely to be a substantial rise in the short term.
“Instead, for most people the impact of the rate rise is trivial compared to just switching to the best easy-access accounts on the market at over 0.7%. In fact a far cuter move right now for most savers, if you won’t need the money for the next year or so, is to consider putting some money in a top fixed savings – where you’ll get nearly double the rate of even the top easy access accounts.”