UK interest rates: How high could they go?

Interest rates are predicted to rise sharply on Thursday as the Bank of England continues to use its powers to tackle soaring prices.

The Bank is expected to increase its benchmark rate from 2.25% to 3%, reports BBC.

That would be its eighth consecutive increase since December, pushing the rate to its highest level for 14 years.

It would also mark the biggest single increase since 1989, and could have a big impact on the cost of living and people's finances.

How high could interest rates go?

On 22 September, the Bank of England raised rates by 0.5 percentage points to 2.25%.

Analysts suggest rates could reach 4.75% next year.

However, that peak is lower than predictions had suggested a few weeks ago, when the government was in some turmoil after its mini-budget was badly received.

The Bank's monetary policy committee meets eight times a year to decide interest rate policy.

It is under pressure to put rates up because it has a target to keep inflation at 2%, but prices are currently rising at about five times that level.

Considerable uncertainty remains around the government's economic policy, with a key Autumn Statement due to be delivered by the chancellor on 17 November.

How do interest rates affect me?

Mortgages

Just under a third of households have a mortgage, according to the government's English Housing Survey.

After a period of ultra-low rates, many homeowners are now facing the possibility of much more expensive monthly repayments.

When interest rates rise, about 1.6 million people on tracker and variable rate deals usually see an immediate increase in their monthly payments.

If the Bank rate increases from 2.25% to 3%, those on a typical tracker mortgage will pay about £73.50 more a month. Those on standard variable rate mortgages would face a £46 jump.

This comes on top of increases following the previous recent rate rises. Compared with pre-December 2021, average tracker mortgage customers would be paying about £284 more a month, and variable mortgage holders about £179 more.

There is also an impact on fixed deals, which about three-quarters of mortgage customers hold.

Their monthly payments may not change immediately, but with lenders now anticipating higher rates, any new deals will be more expensive. That means new house buyers - or anyone seeking to remortgage - will also have to pay more.

There has also been considerable upheaval in this market since September's mini-budget, even though most of the policies that were announced have now been ditched.

An average two-year fixed deal which was 2.29% in November 2021 is now 6.47% - a difference of hundreds of pounds each month in repayments for a typical borrower.

You can see how your mortgage may be affected by rising rates with our calculator below.