No reduce! Bank of England holds base fee at 5% – what it means for you
The Bank of England held base rate at 5 per cent today, as it opted not to cut despite the US Federal Reserve’s half percentage point chop yesterday.
Last month, the Bank of England made a move, cutting interest rates to 5 per cent from 5.25 per cent.
Meanwhile, the latest CPI inflation data revealed it held steady at 2.2 per cent – but despite this, UK’s ratesetters held firm.
Eight of the nine members voted for a pause, and one for a cut. The next meeting is on 7 November, after the Budget.
We explain what the Bank of England’s decision to stick at 5 per cent means for your mortgage and savings – and whether rates will be cut again soon.
The Bank of England today held the base rate at 5% after cutting it from 5.25% last month
What does this mean for mortgage borrowers?
Today’s decision to hold the base rate at 5 per cent comes a year after the Bank of England paused its interest rate hiking cycle.
Base rate peaked at 5.25 per cent in September 2023 after 14 consecutive hikes from December 2021.
As the rate cycle turned, mortgage rates began to fall and the decline accelerated over the summer, with money markets anticipating more rate cuts to come and lenders seeing their own funding costs decrease.
Mortgage rates have been falling in recent weeks, and borrowers looking to remortgage or move will be pleased to hear that today’s base rate hold is unlikely to bring a stop to that.
However, mortgage experts have said that the pace of lenders’ cuts may slow temporarily.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: ‘Today’s announcement does not change the clear, medium-term downward trend in mortgage rates.
‘While we can expect a temporary lull in the competitive rate cuts seen in recent weeks, this will be just that – a lull, not a reversal in direction.’
Capital Economics is forecasting that the Bank of England will cut base rate all the way to 3% by the end of 2025
In general, mortgage rates rise when the base rate is rising, and fall when it is falling.
But lenders usually base their pricing on the longer-term trajectory of interest rates, rather than reacting to individual base rate decisions – and therefore this hold is unlikely to change things substantially.
While it has been held today, the base rate is still forecast to go to 4.75 per cent by the end of the year and then continue to fall after that, to around 4 per cent by the end of 2025 before eventually settling at around 3.5 per cent.
However, some analysts such as Capital Economics believe it could go as low as 3 per cent by the end of 2025.
These future reductions are already largely baked into fixed-rate mortgage pricing.
If the base rate continued to be held beyond the end of this year, or there were signs that inflation was rising substantially, then mortgage rates may begin to be affected as this would represent a change in the priced-in trajectory.
> Mortgage calculator: Check the best rates based on your property value
What are today’s mortgage rates?
According to rates monitor Moneyfacts, the average two-year fixed mortgage rate is 5.56 per cent, and the average five-year fix is 5.2 per cent.
It is a significant improvement on this time last year, when the average two-year fixed mortgage rate was 6.58 per cent and the average five-year fix was 6.07 per cent.
However, it is still much higher than in 2020-21 when, at times, average rates were less than 3 per cent.
Cuts continue: Mortgage rates have been on a downward trajectory since July
Many borrowers can get rates lower than today’s averages if they shop around, especially if they have substantial equity in their home and a good credit history.
The best two-year purchase rates are around 3.99 per cent and the best two-year remortgage rates around 4.14 per cent, with the five-year equivalents around 3.77 per cent and 3.88 per cent.
David Hollingworth, associate director at broker L&C Mortgages said: ‘Inflation holding steady at a rate of 2.2 per cent […] was in line with forecasts so shouldn’t create any waves in what the market expects.
‘[Today’s decision] shouldn’t undo any of the progress in mortgage rates which have once again been shifting rapidly as lenders have cut their fixed rates with gusto.
‘The level of competition between lenders remains intense and they’ve continued to reprice regularly to try and keep up with peers.’
Most people with a mortgage won’t be immediately affected by any base rate changes, as they are on fixed rates which won’t change until the end of their fixed term.
There are around 700,000 fixed-rate deals due to end in the second half of this year, according to UK Finance.
Those on tracker mortgages will be disappointed not to see a base rate cut, however, as these rates follow the Bank of England’s base rate plus a set percentage, for example base rate plus 0.75 per cent.
Borrowers on variable rates such as ‘discount’ rates and also standard variable rates (SVRs) could also have benefited from a base rate cut.
Standard variable rates are lenders’ default rates that people tend to move on to if their fixed or other deal period ends and they do not remortgage on to a new deal.
These can be changed by lenders at any time, and will usually rise and fall when the base rate does – but they can go up or down by more or less than the Bank of England’s move.
What next for mortgage rates?
Market interest rate expectations are reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange a stream of future fixed interest payments for another stream of variable ones, based on a set price.
These swap rates are influenced by long-term market projections for the Bank of England base rate, as well as the wider economy, internal bank targets and competitor pricing.
Current swap rates suggest that interest rates will be lower over the coming years, but not dramatically so.
Five-year swaps are now around 3.4 per cent and two-year swaps at 3.7 per cent – both trending well below the current base rate.
Roughly this time last year, five-year swaps were close to 5 per cent. Similarly, the two-year swaps were coming in above 5.5 per cent.
Any borrowers hoping for a return to the rock bottom interest rates of 2021 will likely be disappointed, but this suggests rates have some way to fall yet.
No more rises: Savings rates have been falling further since the base rate was cut last month
What does this mean for savers?
The base rate affects how much interest savers can earn on their money. In general, savings rates rise when the base rate is rising, and fall when it is falling.
Savings rates have been falling over the last month, as providers have been busy passing on last month’s drop in interest rates to their savings deals.
However, it can take a few weeks for providers to make a move in response.
The fact that the base rate has been held at 5 per cent means it is unlikely savers will see any more stellar savings rates paying more than 5 per cent. These were available as recently as last month.
What next for savings rates?
There are two more base rate decision meetings this year and experts forecast that the base rate will fall to 4.75 per cent by the end of the year.
Savings rates have been falling this year and unfortunately for savers this issue is only going to get worse in the coming six months.
On 1 June there were 25 one-year fixed-rate bonds offering over 5 per cent – now there are none.
It’s a similar story with easy-access access account – six months ago there were 15 easy-access accounts paying 5 per cent or more – now there are none left.
Andrew Hagger, director at Money Comms, said: ‘Easy-access products will tend to fall in line with base rate cuts for many providers, although those brands fighting for best buy coverage may swallow some of the rate reduction in order to remain competitive.
‘With fixed-rate products some of the longer term deals have already factored in some future rate cutting, but we’ll still see rates continuing the downward trend.’
Many experts are still predicting at least rate cut from the Bank of England Monetary Policy Committee before the end of 2024, so the outlook for savers isn’t great with rates continuing to edge lower.
Hagger said: ‘If you’re thinking about switching some or all of your nest egg to a better paying fixed rate bond then I’d recommend taking action as soon as you’re able.’
Rachel Springall, finance expert at Moneyfacts Compare said: ‘There is an expectation that base rate will be cut twice more before the year is over, so savers need to prepare themselves for more interest rate cuts.
> Find the best savings rates using This is Money’s independent tables
Which banks offer the best savings rates?
According to rates monitor Moneyfacts, the average easy-access rate is 3.07 per cent, and the average one-year fix is 4.38 per cent.
Average rates across easy-access, notice accounts and their cash Isa equivalents have fallen in the last month, but remain higher than a year ago.
The average easy access rate has fallen from 3.15 per cent since August 2024 while the average easy access Isa rate has fallen from 3.36 per cent.
Savers can get rates higher than today’s averages if they are willing to shop around.
The best easy-access deals, without any restrictions, pay around 4.9 per cent. If you’re getting a lot less than this at the moment, you should consider jumping ship to a provider that pays more.
Oxbury Bank is now offering a market-leading easy-access deal paying 4.87 per cent.
It has a minimum deposit of £25,000. Someone putting £20,000 in this account could expect to earn £1,245 in interest after a year.
Those with cash they won’t immediately need over the next year or two should consider fixed-rate savings.
The best one-year deal is offered by Union Bank of India, paying 4.95 per cent. A saver putting £10,000 in this account will earn a guaranteed £507 interest over one year. It comes with full protection under the Financial Services Compensation Scheme up to £85,000 per person.
Other top one-year savings accounts are Kent Reliance which is paying 4.81 per cent, while Access Bank and Stream Bank are both paying 4.8 per cent. All offer FSCS protection.
Savers should strongly consider using a cash Isa to protect the interest they earn from being taxed.
With interest rates higher and the personal savings allowance stuck at £1,000 for basic rate taxpayers and just £500 for higher rate taxpayers, it’s become much easier to fall into the savings tax trap.
Meanwhile, if you pay 45 per cent tax, you get no personal savings allowance at all.
Those wishing to keep their money in an easy-access cash Isa which they can dip in and out of can get 5.1 per cent with Trading 212’s flexible cash Isa.
The top one-year fixed-rate cash Isa is paying 4.67 per cent interest, while the top two-year fix is paying 4.4 per cent.
