Inflation is up, as are energy costs already, and there are concerns that a rise in wages will not sufficiently deal with this problem.
Here, the Daily Mirror's Head of Business Graham Hiscott answers all your questions as Brits face up to the biggest squeeze on living standards in 30 years.
Why is the Bank of England choosing now of all times to put up interest rates?
A: One of the bank’s big jobs is to try to keep inflation at around 2% – and December’s 5.4% was more than double that. Increasing rates is supposed to up borrowing costs and deter us from spending, and by spending less, it takes some of the heat out of inflation.
Will putting them up to 0.5% really make any difference to inflation?
A: In practice, not a great deal. And it adds a chunky sum to interest payments on government debt.
But even a small-ish rise sends a signal. Expect more to come.
Won’t energy prices going up just add to inflation anyway?
A: They will, and it’s one of the reasons inflation could peak at more than 7% in the spring. Raising interest rates is one way to counter that pressure.
Why can’t they just bring inflation down a bit?
A: The problem for the Bank of England is that a lot of the inflationary pressure is global, so out of the UK’s control, whether the wholesale energy prices or supply chain problems.
So it’s good news for those with big savings accounts then, is it?
A: Yes, but don’t expect banks to pass the rate rise on in a hurry – if at all. They’ve been swamped with savings during the pandemic so don’t need to up rates to attract more.
Is there a risk my house price will go down if interest rates go up?
A: Competition for mortgage customers is intense so, while some home loan rates will rise, expect the cheap deals to continue.
Why does it feel like all this is happening at the same time?
A: A number of increases will happen in April, including energy, National Insurance and social rent rises. Plus, firms which have absorbed a lot of rising costs are now passing them on.
My energy bill is nothing like the current £1,277 average, why?
A: Because Ofgem quotes an average household using 2,900kWh of electricity and 12,000kWh of gas per year.
All homes have different uses, and it’s that which determines the bill.
How will I know how much my energy bill will rise by?
A: If you’re on a standard tariff, the new cap for a typical customer paying by direct debit will be 28p per kWh for electricity and 7p per kWh for gas.
Look at your estimated usage for the year ahead and multiply it.
But why has my energy bill already rocketed?
A: Many household direct debits have risen far more than 50%, some more than doubling. It could be they came off fixed-rate deals and went on to a standard tariff, or their supplier may have gone bust.
