What to do with your money now interest rates have risen

Posted by Gemma Godfrey on November 7
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Moola’s CEO, Gemma Godfrey, tells Channel 5’s Matt Barbet what people can do to save money in the face of rising interest rates. (Video below)

 

 

It's been 10 years since the UK last saw an interest rate rise. Therefore, the Bank of England's move to raise rates to 0.5% was historic. 

 

What’s happening? Inflation has hit a whopping 3% - which means that the cost of living is rising by the most in 5 years. 


Why? This is being driven not by a healthy growing economy, but by our weak currency. It means we need more pounds to buy the same amount of petrol or imported food - so it’s costing us more to fill our car up or shopping basket. 
 
Why does this matter? 2% inflation is the Bank of England’s inflation target. With inflation a percent higher than this target, they decided to raise interest rates to 0.5% to try and limit any further moves higher.
 
- Why did this happen? The fall in our currency has had much more of an impact than expected (a 10% fall in the pound increases prices by almost 4%, which is twice the Bank of England's assumption). 
 
What's the downside? A weak labour market means raising interest rates risks drives up unemployment (stagflation). Recent falls in unemployment were driven by lower-paid jobs and people are still feeling the squeeze. 
 
How could this affect your money? Borrowers may lose out. Flexible mortgage payments will go up, as will other debt payments. Household debt is rising five times faster than earnings and is more than £200bn so this will affect a lot of people. If this adds more cost pressure to companies, people’s jobs could be at risk.
 
- The Bottom Line: The rate rise is small and future increases likely to be gradual, with interest rates likely to be limited to 1% by 2020. Nevertheless, with life becoming more expensive, it's important to make smart decisions with your money - with savvy saving tips and putting extra money to work by investing it. 
 

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Written by Gemma Godfrey

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