On Thursday 2 August 2018 the Bank of England raised interest rates from 0.5% to 0.75%. Interest rates have been at very low levels since the financial crisis in 2008 so while 0.75% is still low, it is the highest level the base rate has reached since 2009, almost a decade ago.
The reason cited for the increase, which was unanimously agreed by the Bank’s monetary committee, was the low unemployment rate, which risks reigniting wage pressure. The long term expectation for interest rates is they will rise incrementally over the next few years as the economy continues the long recovery from 2008’s crisis, albeit the expectation is they will level off at around 2-3% rather than the 5% that was the pre-crisis normal.
Mark Carney, the Governor of the Bank of England, has however made it clear the Bank will remain flexible and while there could be further increases if the economy continues to recover, there is also a willingness to reverse any increases in the event of a disorderly Brexit.
For most doctors the rate rise will not have a noticeable impact. 65% of mortgage-holders are on a fixed rate, so their payments won’t change. For the remaining 35%, those on a tracker mortgage that matches any rise in the base rate will see their rate rise by 0.25% - the equivalent of an extra £12 a month on a £100,000 repayment mortgage.
While mortgage rate rises tend to go through immediately, banks can be slower to raise interest rates for savings. The average interest rate on easy access accounts from big name providers is currently 0.23% and it has been estimated that the most savers are likely to see is an increase to 0.3% or 0.4%.