Is it time to panic?

With a rise in interest rates a possibility for the coming months, we answer key questions on how it could affect you.

The Governor of the Bank of England, Mark Carney, has hinted interest rates could rise by the end of 2015. Should we be worried?

Should I panic?

No, not at all. However it will be a break from the norm - remember, bank rates have been at their record lows of 0.5% since March 2009. Although rate rises will mean higher borrowing costs there is no reason to panic, as Mr Carney has repeatedly insisted that any rises would be "gradual and limited".

Last week he signalled that a rise could be as soon as the turn of the year but caveated that any external shocks could further delay a tightening (rise). Most economists expect a rate rise in early 2016 so this wasn’t much of a shock to the markets.

He also flagged that the new normal is half of what it historically was, by which he essentially means rates will rise gradually to around 2.5% over the medium term, or the next five years. 

Doesn't he warn about this all the time?

Yes, and he often has to go back on what he says. Only this week did a member of his nine-person strong committee - who had previously been against rising rates - signal that the time to start raising rates was "soon" and "not something to shrink from".

David Miles, the member in question, who retires from his post in August, had always been keen to keep rates low, so this change of tune is especially pertinent.

In June 2014, Carney signalled that rates might rise within the next six months. They didn’t, so we certainly shouldn’t take his word as gospel. 

Why do rates need to go up anyway?

The economy is buoyant and - although it crept up slightly this week - the unemployment rate is at historically low levels, just 5.6%.

The danger is, if the economy "overheats" inflation could take a foothold and asset bubbles could emerge - this essentially means that people start paying more for things than they are actually worth - with painful corrections needed to realign, as we saw in the financial crisis.

But isn’t inflation 0%?

Yes, inflation is at very low levels, so the chances of overheating are small, but prices are being held back by falling oil prices, a global market over which the UK has scant control.

Won't millions of mortgage customers suffer?

Those on variable rate tracker mortgages will suffer, yes. On a hypothetical tracker mortgage monthly repayments for a £200,000 house, with a £150,000 mortgage, would increase by about £19 - or £230 a year.

If bank rates were to rise to 2.5% interest payments would rise by £165 per month, it is for this reason why many people are considering fixed-rate mortgages, which can still be acquired at very low rates.

Any good news?

The chances of a rate rise means that the pound will strengthen as global investors will earn more by parking their money in the UK than they would in say Europe. This will make imports from Europe and holidays abroad become cheaper.

Last Thursday the cost of a euro fell below 70p for the first time since autumn 2007, so at least our summer holidays are likely to be cheaper as a result. Salud!