Graphs at a glance: Interest rates rising? Whether they go up or down, we are the losers.

The Governor of the Bank of England has said the official Bank Rate, commonly known as the Base Rate of interest, is going to go up sooner than we think. 

The Bank of England website explains what this official rate is for:

“The Bank of England sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers.”

 
In 2009, in order to assist recovery from the banking crash, this official interest rate was brought down to 0.5%. The idea being banks would be able to borrow money cheaply, and lend it out to businesses and individuals cheaply. 

Bank of England Data

Cheap loans: to encourage investment and spending, to strengthen the economy. As it happened, the banks didn't lend as intended, contributing in part to the UK economy taking a record 6 years to get back to its pre-crisis peak.

So should we be afraid of the Bank of England raising its official rate? None of us actually have mortgages with the Bank of England, so why should we care? The high street banks don’t actually HAVE to change interest rates they charge us just because the Bank of England changes its official rate.

The question is “will they or won’t they” follow the Bank of England? Recent history, shown in Bank of England statistics, show that the banks both will and won’t.

1) They Will: 

The banks DID follow the Official Rate when it came to paying interest to us on our savings. For some reason the Bank of England statistics for interest paid on our savings stop from January 2013. Perhaps because savings rates became too small to measure?:

Bank of England Data

2) They Won’t: 

The banks DID NOT follow the Official Rate when it came to taking interest away from us on our borrowing. As the graph shows, when the official rate dropped to 0.5% in March 2009 the high street lending rates remained oblivious. Bank of England statistics show that in spite of the fall of the official rate in 2009, banks actually increased the interest rates for Credit Card and authorised Overdrafts.

Bank of England Data

So, should we be afraid?