Base or interest rates don’t necessarily make for conversation starters, especially in our everyday lives. However, when the Bank of England changes its rate, you need to keep up regardless of your financial situation.
That’s because the rates directly impact how much you pay for everyday items and how much money you spend each month.
Here is what you need to know about the Bank of England rate announced in August 2024 so you can manage your money confidently.
What is the Bank of England's Base Rate?
The Bank of England base rate is currently 5% - so what exactly does this mean?
Simply put, the Bank of England sets the interest rate (the bank or base interest rate) to control inflation.
As we’ve experienced in recent years, when the inflation rate becomes too high, our everyday expenses also rise. We’re encouraged to spend less and save more whenever the base rate increases.
In contrast, when the Bank of England lowers the base rate, it signals that it is safer to spend money and that any savings will generate fewer returns. Earlier in 2024, the base rate was 5.25%, so a slight fall to 5% is good. However, the aim is to get as close to 2% as possible, which means the rate is still high.
Why Do Interest Rates Matter To Me?
Even if financial topics aren’t something you spend much time thinking about, the reality is that interest rates impact everyone.
Interest rates can affect things such as:
- The cost of everyday goods and services
- How much your loan repayments will cost
- The amount your credit card repayments will cost
- If you can afford a mortgage
- The jobs market (i.e. if companies can afford to take on new staff or give existing staff a pay rise)
- What your savings will be worth
As someone on a low income, you may have less ‘wiggle room’ in your budget to manage if costs go up due to inflation.
When the Bank of England doesn’t lower rates (i.e., when rates are above the target of 2%), it signals to people to be cautious with their money.
For anyone looking to get on the housing ladder, waiting until interest rates fall can make sense. Even for everyday expenses, it’s good to be aware that higher rates will make the cost of goods more expensive so that you can budget accordingly.
When is the Next Bank of England Interest Rate Decision?
The next Bank of England rate decision is expected on the 19th of September in 2024.
If you’re reading this post long after this date, visit the Bank of England website to check the current rate.
What Can I Do to Protect My Finances?
Regardless of your financial situation, keeping an eye on your money is essential.
Ultimately, if you struggle to manage your money, you are vulnerable to sudden interest rate spikes, especially if food or fuel costs rise. Here are some tips to improve your financial outlook today.
Check your bank balance daily - It’s not easy to confront your bank balance - especially when money is tight - but getting over your bank balance fear is the only way to stay in control. Remember, even if things are difficult now, that doesn’t mean they will stay that way, especially if you make active steps to improve your situation.
Pay off your debt - It’s easier said than done but essential nonetheless. When you become debt-free, you can finally begin to rebuild your finances, including saving for your future. Prioritise paying off any debts before making any big purchases.
Improve your credit score - The higher your credit score, the more trustworthy you’ll appear to lenders. There are lots of ways to show you are a responsible borrower. Even if you currently have a low credit score, you can work to improve your situation.
Get financial advice - Seeking financial advice is not just for the wealthy, as everyone can benefit from a checkup of their finances. NatWest has put together a guide on places where you can get free financial advice, including if you are struggling with debt.
Fair for You - How Can We Help?
Interest rates affect everyone, but for those on low incomes, they can have a huge impact on the cost of everyday items.
At Fair for You, we help low-income people afford the things they need for their homes and families. As a non-profit lender, our flexible repayments can help you spread the cost of a new appliance or furniture.
Regardless of what interest rates are doing, we’re here to help. Discover our products, including our Shopping Card and Food Club Card, by browsing our website. You can also follow us on social media or sign up for our newsletter to keep updated with our latest news.