Interest rates are a tool used by central banks to implement monetary policy. They represent the percentage rate at which a borrower pays interest for the privilege of using the money loaned to him or her, and interest may be paid at various time intervals. Higher interest rates will impact inflation and employment and could lead to reduced consumer spending and investment. The Bank of England meets every month to set the UK bank rate. There are nine members of the Committee and they evaluate all the latest data on the economy and business conditions. Their job is to keep inflation below 2% but above 1% for the next two years. In the UK the current interest rate, also known as the base rate, set by the Bank of England, is 0.5%. This is a historically low level that has been in place for the past 5 years to help the country recover from the recession caused by the financial crisis. It is expected that interest rates will have to rise as soon as possible, although there is much speculation about the date of the first rate increase, which is expected to take place in the first half of next year. The new normal level of rates is expected to be between 2 and 3 percent, well below the 5 percent seen from the late 1990s until the financial crisis. In 1976 interest rates reached 15% and double-digit interest rates were not uncommon between 1975 and 1991. Mark Carney, the governor of the Bank of England, and Charlie Bean, the outgoing deputy, have both indicated that rates will peak around 3% in 3 to 5 years, below the pre-crisis average of 5%. There have been indications that rates could start to rise in the next 12 months and in the latest Bank of England meeting minutes it looked like a... middle of paper... rest rates would hit 1.75% i Annuity rates could be as high as 12.5%. The value of the pound would rise if interest rates rose. International investors would be more likely to use UK banks for their savings if interest rates in the UK were higher than in other countries. A strong pound also makes UK exports less competitive, which could have the effect of reducing exports and increasing imports, thus reducing the interest rate. overall demand in the economy. Interest rate increases also have the overall effect of reducing both consumer and business confidence, which has the effect of discouraging risk-taking and investment. Predicting when rates are likely to rise is difficult. One indicator that can help predict when interest rates are likely to rise are overnight swap rates which often influence fixed rate mortgage and savings bond market rates.