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Bank of England holds interest rates at 5.25%: how it may impact mortgage and savings rates

Updated 09 May 2024

3min read

Lisa-Marie Voneshen

The Bank of England (BoE) has held interest rates at 5.25% today, 9 May.

While this was widely expected, there appears to be a growing appetite for a base rate cut as UK inflation is anticipated to get closer to the 2% target in the next few months.

Two members of the BoE's Monetary Policy Committee voted for a 0.25 percentage point cut to 5% (up from one in the last meeting), while the remaining seven members voted to keep the base rate unchanged.

Over the last two years, the BoE has hiked the base rate 14 times to combat high inflation.

This appears to be working as inflation started falling at the end of 2023, but it’s declining at a slower rate than expected.

In March, inflation rose 3.2% (against expectations of 3.1%). However, it was down from 3.4% in February.

Over in the US, inflation recently rose more than anticipated. This impacts UK interest rates as the BoE will consider US inflation when deciding to cut the base rate.

Currently, many experts are expecting a base rate cut from this summer, although some speculate it could be autumn.

There has been much debate over when the BoE should cut the base rate as inflation has been falling.

"There is a significant risk in doing nothing," comments Dr Roger Barker, director of policy at the Institute of Directors.

"Interest rate cuts will only impact the real economy with a significant time lag, and once definitive evidence of lower inflation has been gathered, it will already be too late.

"A cut in the base rate is the single most important step that could be taken at the current time to boost business confidence and create the conditions for meaningful economic growth in 2024 and 2025."

We’ll now explore what this latest interest rate decision means for you, including your mortgage and savings rates.

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How will mortgage rates be affected?

Today’s decision will be a relief for variable-rate mortgage holders, as a rise in the base rate usually leads to higher rates.

Falling inflation late last year prompted mortgage lenders to reduce fixed-rate deals as expectations for a base rate cut rose, but the latest inflation stats in the UK and US have complicated this.

While interest rates are still expected to fall, the BoE may act later than initially expected in the summer or even the autumn, prompting many lenders to hike their rates.

The average mortgage rate is around 5.8%, according to Moneyfacts.

While rates may fall later this year, it depends on many factors, such as inflation and swap rates.

If you’re looking to get on the property ladder, it’s now more expensive to buy your own home; however, house prices are expected to fall this year.

If you’re applying for a mortgage soon, make sure you can afford it, have a good credit score, and clear any outstanding debt beforehand.

A mortgage broker can boost your chances of a successful mortgage application. Click below to find a regulated broker via Unbiased.

How will savings rates be affected?

One of the few groups that benefit from higher interest rates is savers.

Savings rates recently peaked and are now on a downward trajectory. Those who have already locked in their rates can enjoy higher returns as rates fall.

While you can beat inflation (3.2%) with an easy access or fixed-rate account offering around 5%, those looking for higher rates may want to consider investing.

If you are considering a fixed-rate account, you should open one now before savings rates fall further.

If you have long-term financial goals and don’t need immediate access to your cash, investing is an option.

While your investments can rise and fall in value, you may be able to ride out any potential volatility by investing for a few years.

You can quickly connect with a financial adviser via Unbiased, who can help you with an investment strategy or review your existing portfolio.

What about annuities? 

Annuity rates have soared by 30% over two years, driven by several interest rate hikes.

Annuities offer a fixed income for your retirement or a fixed period to provide peace of mind.

However, as a base rate cut is on the cards soon, it’s worth finding an annuity with the best rates now, as these may fall alongside interest rates.

You can quickly connect with a qualified financial adviser via Unbiased, who can help you find the best annuity for your circumstances.

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About the author
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.