When will interest rates go up?

The Bank of England increased interest rates to 3% earlier this month, marking the eight consecutive increase since December 2021. It is also the biggest single increase since 1989,

Interest rates are currently the highest they have been since 2008, and the Bank’s chief economist has warned further hikes are on the card. 

Inflation is currently sitting at a 41-year high of 11.1%, five times the Bank of England’s 2% target. Huw Pill, the Bank’s chief economist, said the Bank has “more to do” to get inflation under control. 

So when will interest rate changes get announced, when will rates rise, and what does it mean for your finances?

When is the interest rate announcement?

The Bank of England’s Monetary Policy Committee meets eight times a year to discuss whether it should raise or cut interest rates, or keep them the same.

The MPC last met on Thursday 3 November, and will meet again on 15 December. Next year, its first meeting is on 2 February.

Will interest rates rise?

The Bank remains committed to increasing interest rates despite warnings higher interest rates could lead to an extended recession. In his autumn Budget this month, chancellor Jeremy Hunt confirmed that the UK is officially in recession.

Pill, the Bank's chief economist, said the Bank could be at blame for the recession, but added there are other factors driving prices up such as Russia’s invasion of Ukraine which has pushed energy costs up. The Bank has also warned the UK could face its longest recession in a century if interest rates hit 5.25%, which is currently what markets are expecting. 

A hike in December would mark an entire year of interest rate increases, which would mean those with mortgages, credit cards and personal loans should prepare for higher payments. Those thinking of purchasing a home might also start to wonder whether now is really the best time to buy a house.  

However savers will have something to look forward to as banks increase the returns on savings accounts and cash Isas, though interest rates still remain significantly lower than the rate of inflation.

How much will interest rates rise in November and December?

The consultancy Capital Economics is expecting rates to soar by as much as one percentage point at the December meeting.

If that happens, it will represent an enormous rise. Interest rates tend to move by 0.25 percentage points – or less – although the last two rate increases have been by 0.5 percentage points.

A one percentage point change has not happened since the financial crisis, when the MPC repeatedly cut rates in 2008.

But a rate rise of a whole percentage point is even rarer. You have to look back in the history books to October 1989, when rates increased from 13.75% to 14.75%.

What will happen to interest rates next year?

The markets are currently pricing in interest rates rising as high as 5.7% by next spring. Some experts believe rates will reach 6% in the summer, while Capital Economics is forecasting a peak of 5%.

Again, a lot can happen between now and then, so these are just predictions at the moment, and given the market turmoil, they are frequently changing.

To decide whether to change interest rates, and by how much, the MPC looks at the level of inflation as well as what’s happening in the markets and wider economy, such as wage growth and unemployment figures.

What will an interest rate rise mean for my mortgage?

Raising interest rates will affect homeowners on variable mortgage rates, those whose fixed rates are about to end, and first-time buyers taking out a mortgage.

About two million homeowners are on a variable-rate mortgage deal, such as a tracker or standard variable mortgage.

For someone on a variable deal with £200,000 of borrowing, a rate rise of one percentage point will add another £1,296 onto their mortgage costs each year – or £108 a month, according to calculations by the investment platform AJ Bell. On £400,000 of borrowing, that same 1 percentage point rise will mean a £2,616 increase in the annual mortgage bill, or £218 a month.

“That’s a dramatic increase for households who are already finding their finances under pressure from price rises elsewhere,” notes Laura Suter, head of personal finance at AJ Bell.

Those with fixed rates that are due to finish in the coming months could be in for a big shock when they remortgage. They will have taken out their mortgage several years ago, when rates were a lot cheaper. 

The average two-year fixed mortgage rate is now 6.46%, according to the data analyst Moneyfacts, while the average five-year fixed deal is 6.32%. Both of these are the highest since 2008.

What will it mean for my savings?

Savings rates will undoubtedly go up as interest rates rise, spelling good news for savers. However, savers should remember two important points here.

First, banks and building societies are under no obligation to raise savings rates. They may not do so for weeks, or even months, after an MPC announcement. They also don’t need to pass on the full rate rise. It’s quite common for a lender to pass the full rate rise onto mortgage customers, but only a fraction of it onto savers.

Second, it is still vital to shop around for the best rate. Don’t assume your provider will raise your rate. You’ll need to proactively look for the top rate and switch your account to take advantage. There are some good rates out there, but due to the current market mayhem, savings rates are changing quickly, with some deals pulled in a matter of hours. So you need to be quick if you spot a decent rate.

At the time of writing, the best easy-access rate was 5% (for balances up to £1,500), from Nationwide, while the best two-year fixed savings rate was from DF Capital at 4.75%.

See our article on the best savings accounts for the latest deals.