The Bank of England has announced plans to raise interest rates in the UK again.
Although Bank policymakers voted unanimously today to keep interest rates on hold at 0.5% for the time being, they believe rates would need to rise ‘earlier’ and by a ‘greater extent’ than they initially thought.
As reported by The Mirror, economists think that next rate rise could happen as soon as May.
The Bank of England explained: “With a strengthening world economy and more people in work, the UK economy now needs a little less support from us.
“We raised interest rates in November from 0.25% to 0.5%. If the economy continues to perform as expected, we think we will need to raise them further.”
The value of the pound jumped by about 1% against both the dollar and the euro in reaction to the Bank’s comments, but many families and businesses were left wondering about the future and how the future rise would affect their bank balances and loan repayments.
Unfortunately, higher interest rates mean more expensive credit cards, overdrafts, loans and mortgages. Anyone with existing deals could find their rates affected.
However, it should be noted that many rates offered to customers are fixed. So if you move quickly, you may be able to lock into the current rate before the change in May and escape the higher costs for a few more years.
For those paying interest on a credit card, now would be a good time to consider switching to an introductory 0% interest offer.
People looking to lock into a cheaper mortgage rate, however, will probably not have until May to make a decision.
Experts believe that while interest rates may not climb for a few more months, mortgage rates may go up sooner than that as a result of the Term Funding Scheme coming to an end on February 28.
That means both first-time buyers and existing homeowners looking to switch mortgage should use this month to try and lock in a lower fixed-rate deal which could save thousands in the long run.
In theory, rising interest rates should mean better returns for savers.
But according to experts, prices are rising far faster than return rates on savings, and that isn’t likely to change any time soon.
It means that those looking for a positive return on their money would need to look at alternative options and more risky ventures such as putting money in the markets or trying out peer-to-peer accounts.
At least in the short-term, one positive outcome is that the value of the pound being up is good news for anyone going on holiday in the next couple of weeks.
So if you’re heading off on your travels soon, it’s probably worth getting some cash changed now to make the most of the boosted pound.