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Interest Rates Rise Both Sides of the Pond

With a keen interest in British politics this writer is never afraid to share her opinion

Bank of England announce interest rate hike via Twitter

The rate is now the highest since 2009! Is this just for starters?

The rate is now the highest since 2009! Is this just for starters?

Curbing inflation

Traditionally the Bank of England has raised interest rates to curb rising inflation.

It is complicated but you do not have to be a financial whizz kid to currently experience the ever increasing cost of energy, oil, gas, food, transport, clothing, and more, and realise the ‘domino effect’ has a negative spiral.

Prices increase - workers demand higher wages - production costs increase - and up go prices again.

People are caught in that Catch 22 situation.

Yesterday the government financial institution of the U.S.A, the Federal Reserve, announced the biggest interest rate in 20 years but in real terms it is peanuts.

The rate in the U.S.A was doubled from 1/2% to a full 1% but even such a relatively small increase will send shivers down many backbones.

Here in the U.K today the Bank of England followed suit and hiked interest rates to 1% also.

Historical U.K. Interest Rate Chart


What does this mean for folks?

Ahead of the rate hike in the U.K. record profits by the energy, gas and oil industries were already making eyes water. The rate hike has now made these companies oodles more cash in the blink of an eye.

However, for most of us it will mean some financial pain and few gains.

If you can afford to save any money the interest it will earn will be more but in real terms still peanuts for most of us.

If you have a mortgage the cost of borrowing may give you more than a headache. Borrowers on fixed deals will be OK in the short term but trying to fix a future deal may become more costly and tricky and it is almost a roll of the dice if you win or lose.

In the U.K. the government broke its election promise last year to triple lock state pension increases. Instead it announced that promise would be scrapped, possibly just for one year, as reportedly some inflation figures had resulted in a misleading headline rate of inflation.

As we all know now that rate of inflation was simply a sign of things to come.

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How high could interest rates go?

Older citizens in the U.K may rightly laugh at the outcry over a rate rise to 1%. Many of us can remember interest rates going up and up and peaking at around 17%. Great for savers, terrible for borrowers.

Interest rates began to rise again towards the end of the 1980s, partly under the pressure of house price rises. Interest rates had gone from 17% in 1979 down to 9% in 1982, and were back to 14.88% in October 1989.

Where will it all end?

Working out what happens next is not easy, even for financial gurus, let alone for ordinary people such as you or I.

The Covid19 pandemic is still out there. Add to this the conflict in Ukraine alongside Russia’s apparent quest for power, and we are on a rocky road.

The U.K exit from the European Union is also causing supply chain problems and pushing up prices.

The price of everything seems to be on an upward trend. So we are back to that Catch 22 situation. Unless inflation falls interest rates will rise again, the mega-rich will be laughing all the way to the bank whilst the poor get poorer.

A society struggling to make ends meet is rarely a happy society which can lead to a range of problems.

If you can afford to put some money by for a rainy day now might be a good time to do so. Less personal spending helps inflation fall but also offers you some protection if it does not.

This writer is not a financial expert but simply an older, English woman who has experienced all of this previously.

In the 1980s/1990s the bottom fell out of the housing market. Borrowers were left in a negative equity situation and houses repossessed by banks and sold for a fraction of the original cost.

Keep an eye on interest rates and spend and save accordingly if you are able.

Look for the best interest rates available for your savings and become price aware and a savvy shopper.

Escalating energy prices in the U.K. are set to be an ongoing issue at least in the shirt term. Getting a good price deal is now difficult. Cut back and economise to save cash and you will also help the environment.

This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.

© 2022 Ethel Smith

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