Bank rates have increased – what you need to know

You will no doubt have seen the headlines that the Bank of England have raised the base rate to 0.5% and inflation has risen to 3%.

The question is: could this be the start of a sequence of quick rate increases, as witnessed in the USA? Or is it simply a one-off adjustment until the ultimate increase to 1% within the next two years?

What will the market make of this latest change?

Market anticipation had been building since September, to the extent that there may have been an adverse effect had the interest rate increase not occurred.

What can we expect next from interest rates?

Alongside the rate increase, Mark Carney’s accompanying statement suggests that the interest rates will increase further. This is expected to be around 1% by the end of 2020.

However, this could be subject to change depending on the UK’s progress throughout the Brexit transition period.

What does this mean for investments?

The marketplace was expecting an interest rate increase, so the likelihood of a major shift in the market is minimal.

Lending institutions will be positively affected, receiving higher rates on reserves and short-term investments.

Historically, higher interest rates make shares less attractive. However the rate increase is only 0.25% and investors will continue to witness significant yield differences between stocks and cash. Those wishing to make a ‘real return’ on their investment will still need to turn to stocks over cash, at least for the immediate future.

What about borrowers?

The impact on borrowers will be limited, as the increase is relatively small.

However, borrowers with either variable or tracker mortgages will see a moderate increase in their mortgage repayments. Data obtained from the Council of Mortgage Lenders demonstrates that 45% of borrowers are on a variable rate and will be affected by the change in interest rates (as of Q1 this year).

Thankfully, recent market data suggests that home owners have opted for fixed rate mortgages. This means that they won’t feel the impact of the interest rate increase.

Contact us

Tait Walker Wealth Management (TWWM) is part of Tait Walker Chartered Accountants, one of the largest accountancy practices in the North East. TWWM are independent Financial Planners who offer impartial advice to both individuals and business. We have offices across the North East including Newcastle, Teesside, Northumberland and Durham.

Please contact us if you would like more information on the recent interest rate increase and how it affects your financial plan. We would be delighted to offer you a free initial consultation.

You can contact our advice team by emailing

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.