What are they and how high could they go?

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What are they and how high could they go?

Interest rates have been raised from 0.5% to 0.75% - their highest level since March 2020.

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The Bank of England announced its decision a day after US interest rates were raised for the for the first time since 2018.


Why are interest rates going up?
Adjusting interest rates is one of the many ways the Bank tries to manage the UK economy.

Sine the global financial crisis of 2008, UK interest rates have been at historically low levels. In March 2020 the rate was just 0.1%.

The aim was to encourage firms and individuals to borrow or spend money - to get the economy moving.

But there is a balancing act to perform. The Bank wants to encourage spending and growth, but also to make sure that this does not lead to rising prices.

Raising interest rates - to encourage people and firms to borrow and spend less, or to save money - is one of the tools it uses to limit inflation.


How high could interest rates go?
Few had been expecting UK interest rates to top 1.25% this year.

But the Office for Budgetary Responsibility (OBR) - the government's independent economic advisor - looked at the impact of higher and more persistent inflation.

This can happen if people think price rises will continue. Businesses could raise prices to keep making a profit and workers could demand wage increases to maintain living standards.

The OBR has suggested that if this occurs interest rates could reach 3.5%.