Higher interest rates mean I need to spend more on my mortgage. So how will that bring down overall spending (and inflation)?
It might sound odd that higher interest rates will bring down inflation. The reason they will is because we target Consumer Price Index (CPI) inflation. CPI measures the price of a broad range of goods and services that people often buy.
People are already having to manage higher costs on food and household bills. And businesses, public services and charities are finding conditions difficult too.
We didn’t take the decision to raise interest rates lightly. But there is no easy way to fix to the problem of higher inflation.
Higher interest rates will make sure inflation comes down by affecting spending habits in the UK.
This happens most directly if you have a mortgage, rent from someone who has one, or you are paying back a loan.
Either way, you will have to spend more on these things. And that means you will have less to spend on other things.
Food, housing, transport, and household bills are everyday essentials. You can’t choose not to spend on those. But you may put off buying other things that CPI inflation measures.
Also, higher interest rates may mean you are less likely to want to take out a new loan to buy things unless you need to.
If you can save money, you might be more tempted to as interest you will get on any savings rises.
So even though your outgoings are higher your overall spending in the shops or online on other things will tend to go down.
