The Bank of England has been raising interest rates in an effort to combat inflation.

Inflation is a measure of how much prices are rising, and it has been rising sharply in the UK in recent months. The rate of inflation in the UK was 8.7% in April 2023, down from 10.1% in March and 11.1% in October.

The Bank of England believes that by raising interest rates, it will make it more expensive to borrow money and stop people spending which will in turn slow down the economy and help to bring down inflation.

However, raising interest rates also has the effect of  increasing rates for savers, quite often helping those who don’t have liabilities such as a mortgage.

The Bank of England has raised interest rates 12 times since December 2021, and it is expected to raise them again this month.

The current Bank Rate is 4.5%, which is the highest it has been since 2009.

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In a speech at the British Chamber of Commerce (BCC) conference, Bank of England Governor, Andrew Bailey reaffirmed the Bank’s unwavering commitment to the UK’s 2% inflation target, cautioning that elevated food prices and a tight labour market could prolong the squeeze on the cost of living.

During his address, Bailey addressed concerns over high inflation levels, which the central Bank has been combatting through interest rate hikes. He identified elevated food prices as a significant contributor to the surge in inflation.

Nonetheless, Bailey expressed optimism that inflation would sharply decline in the coming months, attributing this anticipated decrease to the decline in energy prices.

It is important to note that the impact of rising interest rates will vary depending on your individual circumstances.

If you are a borrower, you will likely see an increase in your monthly payments. If you are a saver, you may see an increase in the interest rate you earn on your savings.