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Borrowers on red alert as BoE raises interest rates by 0.25% to 13 year high

If you’re covering the Bank of England’s decision to raise interest rates today, the following comments from James Andrews, personal finance expert at Money.co.uk, may be of interest:
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“Rate rises are a double edged sword and it remains to be seen whether a succession of increases will steer the UK away from a crisis next year or accelerate us towards a different one. 

“There’s no doubt, however, that runaway inflation is incredibly damaging and a wait-and-see approach now could prove catastrophic come the end of the year. Signs of nervousness were already emanating from the FCA, which wrote to City bosses the very morning that the MPC was meeting. It sent up a flare, warning them against being caught with their hand, elbow and shoulder in the till while households start going to the wall. A quarter of the population lacks financial resilience and the regulator points to IFS data that shows inflation is already as high as 14% for the most vulnerable.

“This rate hike won’t bring the cost of living down, in fact it will drive it up in the short term, but the hope is it will cool domestic demand for other products.

“That should lower the risk that rampant inflation continues after the current energy and supply chain problems subside. The problem is that this strategy increases the risk the UK will head into recession, as increasing the cost of borrowing hurts growth. 

“How serious this is for households really depends what kind of household you are. Those with safer, well-paying jobs, with no remortgaging need for several years, could come off lightly. Everyone else may have reason to be concerned but it’s always better to be proactive about dealing with any financial stress you might be expecting. 

“Making sure interest payments are cut back as much as possible should be the focus. Those with unsecured debts, particularly with high rates of interest like credit cards, should pay them down to a comfortable level if they can or move to a cheaper deal if possible. All homeowners on a fixed-rate mortgage should check how long they’ve got left and work out whether remortgaging early — and paying the Early Repayment Charge — could leave them better off. For those really struggling, the first step is to speak to your lender and if that doesn’t work out, take advantage of the free debt advice available before problems escalate.”

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About James Andrews

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