The Bank of England raised interest rates to 4%, and the Bank Rate Rise Impact On Savings is immediate because borrowing now costs 0.25 percentage points more. For households already running on low savings, that means less room to absorb higher loan and mortgage payments.
0.25 percentage points is the full size of the move, taking the Bank of England’s rate to 4% during a cost of living crisis. Inflation hit 3.5% in September, while the Bank expected inflation and growth to rise more strongly than the OBR did.
David Bharier on the rate rise
David Bharier, the deputy director of the British Chambers of Commerce, said he was “dismayed” by the decision. Businesses are already described as quite weak, and that pressure feeds directly into whether firms can absorb another jump in borrowing costs or need to pass it on.
David Miles, the OBR chief economist, said “the state of UK businesses, which he judged to be quite weak” and added that “there would be little appetite to pay high wage settlements and the imperative would be to rebuild margins.” He said businesses had absorbed a large slice of the rise in energy and fuel costs, with profit margins falling from 13% to 14% to 10% to 11%.
OBR 1.6% growth versus Bank 4.9%
1.6% is the OBR’s growth forecast for 2027, while the OBR said the consumer prices index would peak at 3.75%. The Bank expected economic growth next year of 1.6% and inflation of 4.9%, a gap that leaves households and companies facing a tighter path on prices than the OBR expects.
Four years of high inflation have already left households bearing the scars, and the backdrop is different from 2022, when savings were higher after lockdown. With savings low today, the practical test for borrowers is how quickly lenders reprice credit and how much of the 4% policy rate filters through to monthly repayments and new deposit offers.
