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It seems quite different this time. Inflation isn’t rising because of an overheating economy. Inflation is rising because of a lack of supply.

Article by Akwasi Duodu

Five ways to prepare for interest rate rises

Concerned about interest rate rises? Now, I don’t claim to be any sort of economist, but my logic works like this: Inflation usually rises when the economy overheats. This happens when people have more disposable income. Demand goes up and therefore prices go up. The Bank of England controls this buy using interest rates. Raising interest rates increases everyone’s expenditure, especially borrowers, which in turn reduces spending. With less spending and less demand, prices return to normal, the economy cools, and inflation falls.

What is the impact of raising interest rates?

It seems quite different this time. Inflation isn’t rising because of an overheating economy. Inflation is rising because of a lack of supply. Oil, gas, wheat, food – you name it. Almost everything we need to live our day to day lives is scarce and therefore more expensive. Increasing interest rates, in my opinion, won’t bring prices down. It’ll only serve to rub more salt in the wound by making the cost-of-living crisis worse. How is increasing everyone’s borrowing costs going to help at a time when no one can afford anything?

All we can do is hope the Bank of England knows what it’s doing. That’s out of our control. There are however things in your life that you can control and influence. Here are five.

1: If you have a mortgage

…and your mortgage is on a variable rate, you may have received a letter from your lender notifying you that your monthly repayments will be going up. Those with a fixed rate on the other hand won’t be affected. With interest rates likely to go up even further, it may be worth contacting your lender or broker to arrange a fixed rate mortgage if you don’t fancy paying more. Best to do this now while rates are still at reasonable levels.

Related reading: Should I overpay my mortgage?

2: If you have short term debt

This may be a good time to review your options. Credit card rates are usually high even when interest rates are low. Some credit card companies will take over your debt at zero percent interest for a period of times – sometimes several months. This is worth exploring and could give you the opportunity to clear your outstanding balance. Right now, we are all looking at ways to manage money better during the cost of living crisis. Where possible, paying off your debt is definitely one of them.

3: If you have savings

You may be disappointed to find that the interest rate rises haven’t been passed onto your savings or deposit accounts. This seems quite unfair to me – borrowers suffer almost immediately whilst savers must wait to benefit from interest rate rises. Nonetheless, this could be a good time to review your savings options, especially for longer-term money.

4: If you’re nearing retirement

Finally some good news! Annuity rates pay a guaranteed income for life or for a fixed term. Interest rate rises almost certainly lead to better annuity rates meaning a potentially higher income in retirement. Buying an annuity, however, may not be for everyone and is an important, one-off, irreversible decision. If you are nearing retirement and would like to know all your options, speak to your financial adviser. You may be wondering, how much money you need to retire on – they will help you calculate this.

5: If you’re a first-time buyer

It may be worth remembering that lower interest rates mean lower monthly mortgage repayments. This means more people can afford to buy house. The more people can afford to buy a house, the higher the demand, and therefore the higher the corresponding prices. House prices therefore tend to be higher when interest rates are low. The converse is also true, increasing interest rates could push down the value of houses. Don’t get excited – UK house prices have a mind of their own! If interest rates continue to rise, we may see an effect on the value of house prices but don’t count on it! If you are unsure of what you should do, consider getting some independent mortgage advice.


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