The Bank of England’s Monetary Policy Committee has decided that the best course of action to support the economy is to rise the UK base rate to 3%.

This equates to a 0.75 percentage point increase, the highest the UK has seen in a single announcement since 1989.

Along with the rate announcement, the Bank of England made a prediction that the UK will be in recession for at least two years – news that truly emphasises the dire financial situation the UK is facing.

However, despite all the economic uncertainty, bills still need to be paid and life still goes on so I’m going to try and explain what all this means for your finances.

Mortgages

For those on variable-rate mortgages, the base rate rise will mean your monthly repayments will increase as your rate closely follows the base rate (same as a tracker mortgage).

For those with fixed rate mortgages, as the name suggests, your rate will not change however the rates for new fixes will be slightly higher than they are now due to the rise. Although, fixed mortgage rates are based on the financial markets’ predictions of what will happen and the rate for government borrowing (gilt rates/swap rates) so there will be a smaller rise than for other products.

Savings

A rate rise should lead to savers rejoicing however the banks take longer to raise savings rates than they do those of borrowing products (shock horror) so for those on easy access savings should be seeing some rise.

For those on a fix, obviously your rate will not change but the rates of new fixes are set to rise and look like very pleasing numbers compared to the lows of the previous years.

The high rate of inflation (10.1%) means that having savings is actually reducing spending power as interest rates cannot keep up with inflation. This means that you should try and maximise the rate of savings you have and consider paying off any expensive debts with the spare cash (of course leaving a cash emergency fund of around three months of bills).

Other Credit Products

Other credit products that you may have (credit cards, loans, etc) are likely to see an increase in rates at some point in the near future but not at the same level or speed as mortgages.

The UK is in a cataclysmic financial situation and there isn’t a great deal that individuals can do to counteract the impacts of that but trying to maximise every penny is at least some way to surviving the cost of living crisis.

Do comment your thoughts below.