Interest rate adjustments

When you hear about the Bank of England adjusting interest rates, it means it has changed the rate at which it lends money to banks, known as the discount rate. Usually, other interest rates - such as the rates on your credit card or a variable mortgage - will follow the adjustments, because they pass on the extra costs of borrowing to the end consumer.

Effects on the economy

Investors watch changes in interest rates very closely. An increase in interest rates not only slows down consumer spending, but will also hit the future performance of companies. Higher interest rates make it more expensive for firms to borrow money or issue debt. This is because they have to pay a higher interest rate on their loans.

High interest rates have a secondary effect of encouraging investors to switch out of equities and into lower-risk cash investments, further lowering share prices.