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Will the Bank of England increase interest rates?

Will the Bank of England increase interest rates?
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The Bank of England’s Monetary Policy Committee is set to meet this week to decide what will happen to interest rates. With the latest figures showing a rise in inflation, are we heading for an increase in the base rate?

Let’s take a look.

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Are interest rates about to go up?

Interest rates have remained at record lows for the past year. In an effort to support households during the Covid-19 pandemic, the base rate was reduced to just 0.1%.

However, each month the Monetary Policy Committee (MPC) decides whether interest rates need to change. The committee’s aim is to meet the government’s target to keep inflation below 2%. And in May 2021, inflation in the UK crept up to 2.1%.

This has led some to speculate that we could be heading for a rise in the base rate in order to combat increasing inflation.

At the time of writing, this is unlikely to happen. The Bank of England doesn’t think that the UK’s economic recovery is embedded enough to warrant this type of move just yet.

Are interest rates set to rise later this year?

If the UK economy continues on this trajectory, then some economists see inflation exceeding 3% later this year. The Bank of England forecasts it will be more like 2.5%. Either way, it will be above the 2% target.

Not many think that interest rates will rise this year. But there are quite a few who think it will happen in 2022. In fact, Bank of England policymaker, Gertjan Vlieghe, said he expects rates will need to rise in late 2022 if the economy grows as expected.

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What does it mean if interest rates do rise?

The interest rate set by the Bank of England typically dictates the cost of borrowing, and how much you can earn on your savings.

The base rate is what the Bank of England charges other banks and lenders when they borrow money. So it usually has a direct impact on the interest rates available on the high street.

If you borrow from a bank, the base rate influences the interest rates the bank will charge you for borrowing. And if you save with a bank, it is what they will pay you for allowing them to use your money.

So, if the base rate was to rise, we may see the return of competitive cash savings accounts. However, borrowing may become more expensive. This will particularly be the case if you are on a variable rate mortgage, as your rate will probably rise in line with the base rate.

What can you do?

If interest rates rise, then it’s worth doing a financial health check.


Have you got your money saved in a high-interest paying account? If not, it may be time to shop around as there could be better deals available.


If you think interest rates are set to rise, it could be a good idea to get yourself on a fixed-rate mortgage while they are still low. Your rate would then be fixed for a set period of time, protecting you from any base rate increase.

Other debt

Credit card interest rates are notoriously high anyway. So the main thing to beware of is leaving a balance on a card. If you don’t pay off your balance in full each month, you open yourself up to costly interest charges.

Meanwhile, if you already have a personal loan, the likelihood is that you are already tied into a repayment schedule. But if you are shopping around for a loan, make sure you compare like for like to get the best possible deal.

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