Following mounting fears ahead of its recent Monetary Policy Committee (MPC) meeting, the Bank of England (BoE) increased interest rates for the first time in more than 10 years on Thursday 2 November.
The move, which saw the BoE’s base rate rise from a record-low of 0.25 per cent to 0.5 per cent, will have many ramifications for individuals and businesses, despite the seemingly negligible change in terms of percentage points.
After the rate rise was announced, Mike Cherry, of the Federation of Small Businesses (FSB), warned that small and medium-sized enterprises (SMEs) would face increased “cost pressures” – particularly those that are already battling “spiralling prices and flagging consumer demand.”
He said that that the rate rise could threaten investment, growth, and job creation going forward.
Meanwhile, it is thought that millions of individuals across the UK will also be affected by the rate increase, but not necessarily in a negative way.
Britons who hold pension annuity products, for example, will benefit from the new higher rates. These products, which can provide income for life if purchased alongside a pension pot, see individuals paid at a rate which follows the BoE’s base rate.
This means that, for example, a 65-year-old buying a joint annuity for £100,000 today will receive an annual income of £4,468. Prior to the rate rise, that same individual would have received just £4,086 a year in comparison.
Mortgage holders may also be affected by the historic change, particularly those who hold variable rate mortgages – which also follow the Bank’s base rate.
Anyone with a variable rate mortgage will inevitably see their monthly payments rise in line with the rate rise, but those who hold fixed rate mortgages will not be immediately affected.
Up-to-date figures suggest that some 4.5 million people in the UK have variable rate or ‘tracker’ mortgages, which follow the BoE’s base rate fluctuations.
According to BBC News, an average household which owes around £89,000 on a variable rate mortgage is likely to see monthly payments increase by approximately £11 to £12 a month.
Meanwhile, hundreds of individuals that owe money on credit cards, overdrafts, personal loans, and car finance will also be affected by the BoE’s decision to hike interest rates. Such individuals potentially face paying as much as £465 million in additional costs as a result of the rise, the BBC has estimated.