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Credit card providers have started increasing their interest rates ahead of an expected rise to the Bank of England Bank Rate.
American Express has announced it will increase its interest rate for purchases on its flagship British Airways credit card by 2 percentage points from February, from 20.09pc to 22.06pc. A customer with a £1,000 outstanding balance would be charged £18.38 interest per month from February, compared to £16.74 today. Other Amex interest rates will also rise by a similar amount.
Experts have warned other card providers could shortly follow suit in anticipation of a Bank Rate rise before the end of the year. Sarah Coles of stockbroker Hargreaves Lansdown said: “Markets are anticipating rates rising.”
She said this anticipation had already meant the cost of short-term borrowing has risen for banks and other lenders.
“It looks like Amex has decided to pass this extra cost on straight away,” she said. “These higher costs are affecting all the lenders, so we can expect more credit card rate rises over the coming weeks and months”.
American Express told its customers it was planning the increase, which will come into force in February, as its own costs had risen.
Andrew Hagger, a personal finance expert at Moneycomms, a consultancy, said consumers carrying a balance from month to month, rather than paying off their debt in full, should transfer to a 0pc balance transfer card if they can, as this will be a much cheaper way of paying off the debt.
Investors are betting on interest rate rises to about 1.2pc by the end of 2022 as policymakers try to combat inflation.
Bank of England governor Andrew Bailey delivered a strong hint earlier this week that increases to the rate will come, saying the central bank “will have to act”.
Prices have risen 3.1pc in the past year, above the target of 2pc the central bank is sanctioned to try to maintain.
Inflation is expected to rise to a high of 4.6pc next year, according to estimates by Citibank, before dropping off again.
An American Express spokesman said: “American Express regularly reviews its cards to ensure that we continue to offer our Cardmembers competitive credit cards that represent good value and provide a range of benefits. Following a recent review, we are making changes to the interest rates on our personal credit cards, to reflect the cost of providing rewards, product benefits and loyalty programmes, which have increased in recent years.”