How high could interest rates go?.................

How high could interest rates go?

Many people expect UK interest rates to reach 1.25% this year - but they could go higher.

The Office for Budgetary Responsibility (OBR) - the government's independent economic advisor looked at what might happen if the UK were to experience higher and longer lasting inflation. This can happen when people think price rises will continue - businesses raise prices to keep making a profit and workers demand wage increases to keep up.

If this happens UK interest rates could hit 3.5%, the OBR said.

How do interest rates affect me?

About a third of UK adults have a mortgage. Of those, three-quarters have a fixed mortgage, so will not be immediately affected. The rest - about two million people - will see their monthly repayments rise.

Those on a typical tracker mortgage will have to pay about £25 more a month. Those on standard variable rate mortgages will see a £16 increase.

This comes on top of increases following other recent rate rises.

Compared with pre-December 2021, tracker mortgage customers could be paying about £90 more a month, and variable mortgage holders about £57 more.

Even if you don't have a mortgage, changes in interest rates could still affect you.

Bank of England interest rates also influence the interest charged on things like credit cards, bank loans and car loans.

Even ahead of this latest rise, the average annual interest rate was 20.3% on bank overdrafts and 18.01% on credit cards in March. Lenders could decide to increase these fees now that interest rates have risen.

The Bank's decisions also affect the interest rates people earn on their savings.

Individual banks usually pass on any interest rate rises - giving savers a higher return on their money.

However, for people putting money away, interest rates are not keeping up with rising prices.

How does the Bank of England set interest rates?

Interest rates are decided by a team of nine economists, the Monetary Policy Committee.

They meet eight times a year - roughly once every six weeks - to look at how the economy is performing.