Your guide to interest rates, debt and what they mean for you and the economy

How much do people owe?
According to the latest figures from the Bank of England consumers owe almost ?784bn on mortgages, and more than ?172bn through unsecured lending, including over ?53bn on credit cards. They are expected to have outstanding debts of more than ?1 trillion by this summer.

Why are people borrowing so much?
The main reasons are that interest rates are low, so it is relatively cheap to borrow money, and employment is high, making people feel secure about their jobs.

What impact will an interest rate rise have on people's ability to repay their debts? A single interest rate rise on its own will have very little impact on people's ability to keep up with their debts. The average mortgage is around ?65,000 so a quarter point rise would raise monthly repayments by only ?10. The rates charged on personal loans and credit cards do not tend to move up and down in line with interest rates.

Most loan rates are fixed and credit card rates tend to respond to competition, rather than rises or falls in the cost of borrowing. However, if interest rates increase from their current level of 4% to 4.75% by the end of the year someone with a ?65,000 mortgage will have seen their monthly repayments rise by ?50 since rates first began to increase, while someone with a ?100,000 loan will be paying ?77 more.

How high could interest rates go?
Most economists think interest rates will have risen to 4.75% by the end of this year, but some think they could rise to 5%.

Does it matter that people have such high levels of debt?
The Bank of England's Monetary Policy Committee is concerned that the rate at which consumers are taking on debt is unsustainable and if they keep borrowing at this rate people will end up with very high levels of debt, which could lead them to cut back on spending.

High levels of debt would also make it very difficult for the MPC to stimulate borrowing if there was a shock to the economy and it needed consumers to spend more, while it makes consumers vulnerable to rising unemployment.

High levels of borrowing tend to indicate high levels of spending, which could be pushing the economy to grow at a rate above trend and may lead to inflationary pressures.

Is there any evidence that people are having problems keeping up with their debts?
No, the level of mortgage arrears and house repossessions are currently at record lows, while defaults on unsecured debt are also low by historic standards. However, Citizens Advice said it had seen a rise in the number of people contacting it for advice on debt.