{"id":553,"date":"2022-08-05T10:22:11","date_gmt":"2022-08-05T09:22:11","guid":{"rendered":"https:\/\/www.redstarwealth.co.uk\/blog\/?p=553"},"modified":"2022-08-05T10:22:11","modified_gmt":"2022-08-05T09:22:11","slug":"why-are-interest-rates-rising","status":"publish","type":"post","link":"https:\/\/www.redstarwealth.co.uk\/blog\/why-are-interest-rates-rising\/","title":{"rendered":"Why are interest rates rising?"},"content":{"rendered":"

With the cost of living constantly increasing, it can be difficult to understand why the Bank of England has chosen to increase interest rates. Why increase the rate of interest when this will make mortgages more expensive? Join us as we investigate why this is the case<\/p>\n

What is inflation?<\/h2>\n

Inflation is when an economy\u2019s goods and services see a general increase in price. The rate of inflation is a measure of the speed of this increase; a higher rate of inflation means prices are generally increasing quicker<\/p>\n

Inflation reduces the purchasing power of consumers\u2019 money. In a nutshell, they get less “bang for their buck”<\/p>\n

What is disinflation?<\/h2>\n

Disinflation is when the rate of inflation is reduced. This is the current aim of the Bank of England. In order to keep inflation stable, they aim to keep it at a rate of 2%<\/strong><\/p>\n

\"Rising
Source: Office for National Statistics<\/figcaption><\/figure>\n

The CPIH is the Consumer Price Index, taking into account housing costs<\/em><\/p>\n

As you can see from the above figure, inflation is currently far above this target. In fact, the Bank of England has predicted that the rate of inflation may reach over 13%<\/strong> this year<\/p>\n

For those who wish to look further into the changing inflation rate over the years, we recommend checking out the Office of National Statistics\u00a0<\/a><\/p>\n

Measures must be taken to reduce this inflationary pressure… this is where the increased interest rate comes into play<\/p>\n

The effect of interest rates on inflation<\/h2>\n

By increasing interest rates, the Bank of England is aiming to discourage consumer borrowing and encourage consumer spending. By saving more and thus spending less, the idea is that there will be less inflationary pressure stemming from consumer demand<\/p>\n

On the 16th<\/sup> June 2022, the Bank of England\u2019s base rate of interest rose from 1%<\/strong> to 1.25%<\/strong>. As of the 4th<\/sup>August 2022, this has increased to 1.75%<\/strong>, serving as the biggest rise in the last 15 years<\/p>\n

What does an increased interest rate mean for you?<\/strong><\/p>\n