12.05.2022 | 6 minutes estimated reading time | Print this article

When will interest rates rise again?

After years of historically low interest rates, the Bank of England (BoE) is steadily beginning to increase the base rate in a bid to tackle soaring inflation. With three consecutive rises announced in as many months, many savers will be wondering what the rest of the year has in store.

Read on to discover if and when interest rates are likely to increase again and what this could mean for savings accounts.

Key highlights

Rising inflation: The BoE has increased interest rates to help curb rising inflation
Future increases: With inflation expected to hit 8% this year, experts predict interest rates will need to rise again in the coming months
Savings boost: Increases in interest rates could mean you earn more from your savings

What’s on this page

What’s happened to interest rates over the last 12 months?
Will interest rates rise again?
Interest rate predictions for 2022
What does this mean for savers?

What’s happened to interest rates over the last 12 months?

The BoE cut interest rates to a record low of 0.1% in March 2020 following the onset of the coronavirus pandemic. With COVID-19 lockdowns causing economic growth to plummet, interest rates remained at this level until December 2021. It was at this point that the BoE increased the base rate to 0.25% amid concerns over rising inflation.

But it didn’t stop there. In February 2022, the BoE announced the base rate would increase to 0.5% as spiralling energy costs pushed inflation to a 30-year high. Interest rates rose again in April, and by a further 0.25% in May 2022 to reach 1.00% – the highest level in 13 years.

Will interest rates rise again?

In all likelihood, yes, interest rates will rise again. Raising interest rates is one of the main tools the BoE has to bring down inflation, with the rationale being that higher borrowing costs will mean people are less likely to spend and more inclined to save.

With Russia’s invasion of Ukraine pushing energy and commodity prices even higher, inflation is predicted to reach around 8% in the second quarter of 2022 – well above the bank’s target rate of 2%. Therefore it’s likely we could see further interest rate rises later this year to help limit inflation. The BoE itself has said it, “may need to increase interest rates further in the coming months.”

However, the Monetary Policy Committee (MPC) faces a delicate balancing act. It wants to encourage post-pandemic economic growth, but at the same time it doesn’t want this to lead to rising prices. Whatever happens in 2022, it’s fair to say that households and analysts will be watching the BoE’s next move very closely.

Interest rate predictions for 2022

Upon the May Bank of England announcement, Raisin UK co-founder, Kevin Mountford said that: “While we were expecting a small increase today, in line with previous increases, many now feel a larger and more substantial increase will be needed to make an impact across the entire economy, as we now look to combat the increasing pressure on households and threat of considerable recession and unemployment throughout 2023. That said, now is the time for those with nest-eggs or rainy day funds to make smarter money moves and look to maximise any returns they can on their savings and go for higher interest accounts – five minutes now could be a lifeline later on as the economy looks to squeeze consumer money.”

With inflation rising and the cost of living crisis worsening, many experts are predicting the BoE base rate could rise to between 1.5% and 2% by the end of 2022. Some analysts believe it could even exceed 2% by February 2023, and potentially reach 2.3% by the end of next year. Of course, there’s no guarantee this will happen and a lot will depend on global events, including the unfolding situation in Ukraine and subsequent economic fallout.

The MPC reviews and announces the base rate eight times a year (approximately every six weeks). You can view the upcoming dates for 2022 on the BoE website.

The indicators to watch

There are many factors that influence interest rates in the UK. These factors are all indicators of the strength of the UK economy, with things such as employment levels and financial growth acting as key metrics.

In the short-term, rising inflation and the ongoing economic repercussions of the pandemic are likely to have the biggest influence on the MPC’s interest rate decisions.

  • InflationThe Consumer Price Index (CPI) is the official measure of inflation in the UK. It measures the annual percentage change in the cost of living and is published by the Office for National Statistics.
  • Economic growth – GDP figures and independent growth forecasts show how well the UK economy is performing (or is expected to perform) and are a key factor when setting interest rates.
  • Unemployment figures – Labour market statistics can also offer an insight into the overall health of the economy. Interest rates are more likely to rise when unemployment levels are low.

It’s also worth keeping an eye on the MPC’s minutes, which are released following every bank rate decision. They can reveal whether there’s an appetite for interest rate rises or cuts among the MPC’s nine-strong members.

The minutes from March 2022 showed the MPC voted 8-1 to raise interest rates, indicating that the period of very low interest rates may be over – at least for now.

What does this mean for savers?

While rising interest rates may be bad news for borrowers, savers could stand to gain. When the base rate increases, banks typically launch more competitive savings deals, which means you can earn more on your money. And with research suggesting that savvy Brits are more inclined to save following the pandemic, now could be the ideal time to build on these new financial habits and grow your savings.

The best savings account for you will depend on various factors, such as if you have a lump sum to invest and whether you’ll need access to your money. If you can afford to lock your money away for a set period, you might want to opt for fixed interest rate products, such as fixed rate bonds. They offer the most competitive rates of all account types and are ideal for long term savings goals.

Alternatively, you could opt to open a variable rate savings account, such as a notice account, and be in line to take advantage of highly-anticipated interest rate rises as they occur. Not all banks will automatically pass on higher interest rates, however, so it’s important to compare the market to find the best possible rate.

Compare savings accounts

Start saving with Raisin UK

Regardless of what happens to the interest rate in the UK, there’s never a bad time to save. Whether it’s to take advantage of future spikes in interest rates or to protect yourself and your family from an unseen financial fallout, opening a savings account will give you more for your money.

To find the best savings account for you and compare interest rates on savings accounts, register for a Raisin UK Account and log in to apply.