Well we can’t say we weren’t warned, can we? The Bank of England raised base rate from its all time low of 0.25% to 0.5% in November – the first rise since July 2007 – in a move that had been widely predicted for many months. It set Money Matters thinking back to July 2007 and what was happening in the world the last time we saw such an event.

Quite a lot was going on actually. Smoking was banned in public places in England for the first time. Apple had just launched its iPhone – yes that was only ten years ago and I wonder how many trillions of dollars have been banked by Apple since, and how much tax they paid on those dollars of course. Venus Williams and Roger Federer both appeared in their respective Wimbledon finals as they did this year – OK, so some things never change!

Enough of reminiscing. What does the change in base rate mean for the man in the street and those of us trying to run a business? Easy I hear you say – more expensive to borrow but better return on our savings. You would think so, wouldn’t you? But that relies on our banks playing fair by everyone and that’s where the problems start.

Passing on the full cost of the rise to anyone that was borrowing money

Within 24 hours of the Bank of England’s announcement, every single bank in the country had announced that it was passing on the full cost of the rise to anyone that was borrowing money. Immediately (actually some of them only implemented it with effect from the start of December) our mortgages and bank overdrafts became more expensive. It shouldn’t hurt too much unless this rise is the first of many and this becomes a trend, in which case borrowing will become more expensive to the extent that many younger borrowers will never have seen rates at the levels they could become.

The immediate issue, however, is for savers. As quick as the banks were to charge us more for our borrowings, they have been noticeably slow in passing the benefit on to savers. In fact at the time of writing this article, none of them had. Whatever “business case” they may put forward for not doing so, their behaviour is outrageous, yet not surprising. Those of us who can remember back to the events of July 2007 will know that they did the same thing then.

For those of you who are borrowing – keep an eye on what happens over the next few months of Bank of England meetings, which take place on the first Thursday of every month, and keep your borrowing agreements under regular review. For those of you with savings, live in hope that one day the banks will see fit to play fair.

To all of you, a very Merry Christmas!