Base rate rises to 4%: what the Bank of England’s first hike in 3 years means for your money
The Bank of England (BoE) has raised the base rate to 4%, its first increase since 2023. Learn more about how your money could be impacted.
The rate rises by 0.25 percentage points to 4%, having been held at 3.75% since December 2025.
The last base rate increase was in 2023.
UK inflation stood at 3.5% in September, well above the Bank's 2% target.
The rise was widely expected, and markets anticipate further increases into 2027.
After six consecutive holds, the BoE's Monetary Policy Committee (MPC) has voted to raise the base rate for the first time since 2023, increasing it from 3.75% to 4%.
The base rate is the Bank's main tool for managing inflation: raising it is intended to cool spending and bring price rises back towards the 2% target over time.
In September, UK inflation rose to 3.5%, up from 3.1% in August, largely driven by higher energy costs. The Bank has said it expects inflation to rise a little further in the coming months, peaking slightly above 4% in early 2027.
Today’s base rate decision was widely anticipated, with markets expecting further rises through 2027.
Here's what the latest decision means for your finances.
How a base rate rise impacts your mortgage
If you're on a variable-rate or tracker mortgage, a base rate rise tends to feed through to your payments quickly, often within a month or two.
As a rough guide, a 0.25 percentage point increase adds around £25 to £30 a month to a typical £200,000 repayment mortgage, though the exact figure depends on your balance, rate and term.
If you have a fixed-rate mortgage, your repayments won't change until your current deal ends.
According to Rightmove, the lowest two-year fixed rate was around 4.78% and the lowest five-year fixed rate around 4.89% on the morning of the base rate decision, for borrowers with larger deposits.
Remember that the base rate is a key benchmark for the deals lenders offer.
When your fixed term ends, the rate available then will shape the cost of your next deal. So, if you're within around six months of your renewal, it's worth reviewing your options early.
A mortgage broker can help you compare the whole market and increase the likelihood that your application is approved.
How a base rate rise impacts your savings
For savers, a rising base rate is welcome news.
Savings rates have been climbing in recent months as providers anticipated today's decision, and a higher base rate supports the case for them staying competitive. However, this isn't guaranteed, and variable rates may still fall.
According to MoneySavingExpert, some of the most competitive rates currently available are:
Easy-access savings accounts: 5%
Two-year fixed-rate: 5.3%
Easy-access cash ISAs: 4.77%
If you're comfortable taking on more risk and don't need immediate access to your money, investing is an option. Returns can be higher, but so is the risk, and your investments can fall as well as rise.
If you do decide to invest, professional advice can help. Unbiased can connect you with a financial adviser who can help you build an investment strategy, review your portfolio, or plan how to manage your tax position.
How a base rate rise impacts your annuity
For those approaching retirement, a higher base rate helps keep annuity rates strong.
Annuity rates are closely linked to long-term interest rates and gilt yields, so the shift towards higher rates has kept them near an 18-year high.
At current rates, according to Hargreaves Lansdown, a healthy 65-year-old using a £100,000 pension pot to buy a single-life level annuity can secure around £7,750 a year on average, with the most competitive deals paying closer to £8,200.
That's a significant improvement on the income the same pot would have provided just a few years ago.
Annuity rates can move from day to day, so it's worth getting an up-to-date quote before you decide.
Also, as the rate you take is fixed for life, it's important to shop around the whole market before you commit.
Get expert financial advice
With the outlook for interest rates still uncertain, making informed financial decisions is more important than ever. Whether you're managing your mortgage, growing your savings or planning for retirement, professional guidance can provide clarity and confidence.
A qualified financial adviser can create a personalised plan to help you navigate a changing rate environment and work towards your long-term goals.
Unbiased can connect you with a financial adviser who can empower you to make the most informed decisions.
We’ll find a professional perfectly matched to your needs. Getting started is easy, fast and free.
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