The Bank of England (BoE) has raised interest rates to their highest in 14 years and the bank’s Monetary Policy Committee (MPC) made the decision to address the soaring inflation rate.
Interest rates have increased from 1.75% to 2.25% which is the highest level since 2008, and the bank are now expecting a 0.1% fall in GDP over this quarter, meaning the UK is in a recession.
Ray Black, the managing director of Money Minder, explained how this will impact savers amid today’s decision from the Bank of England.
Black said, “Increasing interest rates have an effect on all areas of the economy. Interest rate increases are often good news for banks and those people with cash savings who will receive a higher return on their money.
“However, with inflation in double digits and the best easy access savings accounts paying less than two percent and the worst paying less than 0.5 percent, there would need to be many more increases in rates before savers are getting an inflation beating return on cash, and it seems very unlikely to happen in the near term.
“The long term low interest rate environment that we have been used to over the past couple of decades has meant that banks have not been able to generate the profits they used to enjoy on lending, because their margins were reduced.
“However, when interest rates rise they can charge their borrowers more which should increase profits and in turn their share price.”