Higher Interest Rates: How Central Bank Decisions Impact Borrowers, Savers, and the Economy

Money Tips Daily by Charles Kelly, former IFA and author of

Central banks in the US, UK, and EU have recently raised base interest rates in response to rising inflation. In the UK and EU, interest rates have gone up by 0.5%, while in the US, they have increased by 0.25%. This move by central banks is aimed at combatting inflation and maintaining the stability of the economy.

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Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When inflation rises, it erodes the purchasing power of money, making it more expensive to buy the same goods and services. Central banks raise interest rates as a means of slowing down economic growth, reducing inflation, and maintaining the stability of the economy.

Higher interest rates have already had a massive impact on borrowers and savers. For borrowers, such as those with mortgages, personal loans, or credit cards, higher interest rates can mean higher monthly payments and increased debt. On the other hand, savers benefit from higher interest rates as they earn more interest on their savings deposits.

The recent interest rate hike by central banks is likely to have an impact on the stock market and the real estate market. Higher interest rates make borrowing more expensive, which can slow down economic growth and reduce consumer spending. This can lead to a decrease in the demand for stocks, potentially leading to a decline in stock prices. In the real estate market, higher interest rates can increase the cost of borrowing, which can slow down the pace of home buying and reduce demand for homes.

In conclusion, the recent interest rate hike by central banks in the US, UK, and EU is aimed at combatting inflation and maintaining the stability of the economy. It is important for both borrowers and savers to be aware of the potential impact of these interest rate increases and adjust their financial strategies accordingly.

Hundreds of thousands of UK mortgage borrowers are reaching the end of fixed rate deals each month. Many will face difficulty paying much higher rates and some will not even qualify for a new rate under the lender’s ‘affordability’ criteria based on higher payments.

If you are experiencing difficulty in keeping up with your mortgages, loans or credit cards, there are a number of steps you can take.

1. Firstly, talk to your lender and explain the situation, rather than waiting for them to chase you.

2. Secondly, you can ask the lender to temporarily switch your loan to interest only or a cheaper rate.

3. Set up a plan to clear or reduce your higher interest debts, like credit cards.

4. Finally, you can talk to regulated debt advisory firms or charities to negotiate with your creditors.

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