Bank of England announces key interest rate decision – see how your mortgage, credit card and savings are affected
THE Bank of England has left interest rates unchanged for the sixth consecutive time.
Decision-makers on the Bank's Monetary Policy Committee (MPC) have left the base rate at a 16-year high of 5.25% today.
High street banks and lenders use the Bank of England (BoE) base rate to set the interest rates it offers customers on mortgages, loans and savings.
At its latest meeting, the MPC voted by a majority of 7–2 to maintain the Bank rate at 5.25%.
Andrew Bailey, BoE governor, said: "We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months.
"We need to see more evidence that inflation will stay low before we can cut interest rates.
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"I'm optimistic that things are moving in the right direction."
However, the MPC indicated it is still looking for more progress on factors including services inflation and wage growth, which have remained persistently high at about 6%, before cutting rates.
The CPI measure of inflation fell to 3.2% in March - down from 3.4% in February and the lowest since September 2021.
This means that inflation continues to edge closer to the BoE's 2% target.
Inflation is a measure of how much the prices of everyday goods like food and clothes, and services like train tickets and haircuts, are now compared to a year earlier.
Analysts and investors have previously said they think the BoE will only cut rates for the first time in the third quarter, probably at its August meeting.
However, the latest inflation figures suggest that rate cuts have the potential to arrive as early as June.
The bank rate previously increased from historic lows of 0.1% in December 2021, pushing up mortgage rates for millions of households - but giving savers better returns.
Higher rates are meant to dampen demand and spending to tackle high inflation.
Since September 2023, the bank rate has been held at 5.25% as inflation has slowed.
However, the easing cost of living crisis has left experts and homeowners anticipating that the Bank of England will cut rates.
When could interest rates fall?
ANALYSIS by Ashley Armstrong, The Sun's Business Editor.
The Bank of England has kept interest rates at 5.25% for the sixth time in a row because it wants more confidence that inflation is coming down and will stay down.
However, there are encouraging signs that rates could be lowered - maybe as soon as next month.
The Bank is softening its stance on keeping rates high.
Zero of its members voted to raise rates, and two of its nine-member rate-setting committee voted in favour of cutting interest rates.
This is the highest number since the Bank started raising them two years ago to tame inflation.
Governor Andrew Bailey even said he was "optimistic that things are moving in the right direction".
The Bank will have two sets of official inflation figures to consider before it decides on rates again on June 20.
And if that data shows the rate of price rises has eased from 3.2% to its golden target of 2%, the Bank will likely make its first rate cut.
The drop in inflation is largely driven by falling energy prices since the crisis caused by Russia’s invasion of Ukraine.
Some economists still reckon the Bank rate could fall to 4.25% by the end of the year.
The Bank has hesitated this time before cutting rates this time largely because wages are still rising at 6%. And it still thinks inflation will tick up again next year to 2.7%, suggesting there are still risks.
Higher wages are feeding into inflation because companies are passing on increased staff costs to consumers. This is most noticeable in pubs, restaurants and cafes with the hospitality industry responsible for about 80% of inflation.
Recent jobs reports also show that while employment vacancies are rising, and unemployment figures have inched higher, wages have kept increasing.
While most Brits would cheer higher wages and low unemployment, the Bank actually wants the opposite because that would mean its higher interest rates have cooled hot inflation.
Critics argue though that the Bank risks overdoing it and squeezing the economy too hard by keeping rates high even when there are signs inflation is coming down.
Business investment has shrunk because many companies can’t afford to take on extra debt with high interest rates and house purchases have also slumped because of expensive mortgage rates.
Below, we've explained exactly what another hold on rates means for your finances.
What does it mean for my mortgage?
When interest rates remain frozen, your current mortgage rate is unlikely to change.
Those on a fixed-rate deal will not see any change to rates as they are locked in at a set rate for a set period.
Those on tracker rates won't see a change as the rate stays the same.
This type of mortgage is tied directly to the BoE base rate and can rise and fall at any time.
Standard variable rate (SVR) mortgages are unlikely to change either, as the BoE rate has not changed.
However, it's important to remember that any changes are completed at your lender's own discretion.
What does it mean for credit card and loan rates?
Again, when the base rate is frozen, your lender will unlikely change the rates offered on your credit card or personal loan.
But certain loans you already have, like a personal loan or car financing, will usually stay the same anyway, as you've already agreed on the rate.
When the base rate is hiked, the cost of borrowing through loans, credit cards, and overdrafts can increase, as banks are likely to pass on the increased rate.
However, it's important to note that if your lender changes your credit card rate, you can still cancel as long as you pay off any outstanding balance within 60 days.
How to cut the cost of your debt
IF you're in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your money
Work out your budget - by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay
Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further
Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
What does it mean for my savings?
The Bank of England's interest rate also affects how much savers can earn on their money.
Savers are the main group that have benefited from the last 14 bank rate rises.
Banks tend to battle it out by offering market-leading interest rates.
However, now that rates have been frozen six times, banks will continue to use this to their advantage and maintain rates at their current levels.
There are still a number of good deals on the market, and experts have warned those with low paying accounts to shop around.
Victor Trokoudes, founder and CEO at smart money app Plum said: "The opportunities for savings continue as rates remain high, even without having to lock away the money in a fixed rate account.
"Cash ISA rates are particularly high and make these a really attractive and tax-efficient option for savings.
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"Alternative saving products such as money market funds are also gaining ground as people look to maximise on high rates while they are here."
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank's rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country's GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially - the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises - consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower - but their bills could drastically increase when it's time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.