Bank of England holds rates at 5.25% AGAIN - what it means for mortgages and savings
- The base rate has been held at 5.25% since August 2023
- Inflation target of 2% has now been reached and cuts could come later this year
- We ask experts what the latest pause means for your mortgages and savings
The Bank of England has opted once again to hold the base rate at 5.25 per cent, despite inflation falling to the 2 per cent target.
The decision marks its seventh pause in a row, after the Monetary Policy Committee first voted to hold the base rate in September 2023.
Prior to that, there had been 14 consecutive base rate hikes since December 2021.
Seven members of the Bank's Monetary Policy Committee voted to hold the base rate at 5.25 per cent, while two voted to lower it to 5 per cent.
We explain why the Bank of England has paused interest rate rises and what it means for your mortgage, savings and the wider economy.
![The Bank of England has held base rate at 5.25% since last summer, despite inflation now reaching its 2% target - but the expectation is that it will soon begin to cut rates](https://i.dailymail.co.uk/1s/2024/06/20/09/86357501-13547351-image-a-19_1718873593670.jpg)
The Bank of England has held base rate at 5.25% since last summer, despite inflation now reaching its 2% target - but the expectation is that it will soon begin to cut rates
Why has the bank paused rate rises?
Today's base rate decision was widely expected. The aim of increasing the base rate, and then holding it at its current level, was to reduce the rate of inflation.
Inflation peaked at 11.1 per cent in October 2022 and this has led to higher costs in many areas of household spending including energy bills and food shopping.
By raising the cost of borrowing for individuals and businesses, the Bank of England hoped to reduce demand, slowing the flow of new money into the economy.
More expensive mortgages and better savings rates encourage people to save more and spend less, further pushing down inflation.
The Bank of England will argue that the plan has worked with yesterday's inflation reading showing that prices rose by 2 per cent in the 12 months to May - the lowest level in almost three years.
Inflation reached a peak of 11.1 per cent in October 2022. From February 2023 to November 2023 it consistently fell, and there were hopes a base rate cut may be on the horizon.
However, a surprise rise in inflation in December 2023 made that far less likely.
Consumer price inflation edged up from 3.9 to 4 per cent, which disappointed against forecasts of a fall to 3.8 per cent. It then remained at 4 per cent in January, once again disappointing based on forecasts.
But inflation is now back at the central bank's target of 2 per cent and it is projecting CPI inflation to fall to slightly below the 2 per cent target next month.
This could pave the way for the central bank to begin cutting rates.
![Inflation watch: Inflation has hit the Bank of England's 2% target. This is the first time since July 2021 that inflation has reached this level](https://i.dailymail.co.uk/1s/2024/06/20/09/86304573-13547351-Inflation_watch_Inflation_has_hit_the_Bank_of_England_s_2_target-a-1_1718873501036.jpg)
Inflation watch: Inflation has hit the Bank of England's 2% target. This is the first time since July 2021 that inflation has reached this level
When will the Bank of England cut rates?
At present, markets are pricing in one or two interest rate cuts in 2024, with the first coming in either August or September.
If forecasts are correct, this could mean base rate will fall from 5.25 per cent to 4.75 by the end of 2024.
Looking even further ahead, the market-implied path for base rate in the Bank of England's Monetary Policy Report is that it will fall from 5.25 per cent to around 3.75 per cent by the end of 2026.
Some economists are slightly more bullish. For example, Capital Economics is predicting base rate will fall to 3 per cent by the end of next year.
Capital Economics thinks the first base rate cut will come in August, though it says this relies on better news on services CPI inflation and wage growth.
![Capital Economics is forecasting that the Bank will cut base rate to 3% by the end of 2025](https://i.dailymail.co.uk/1s/2024/06/20/09/84362129-13547351-About_to_fall_Capital_Economics_is_forecasting_that_the_Bank_of_-a-20_1718873678859.jpg)
Capital Economics is forecasting that the Bank will cut base rate to 3% by the end of 2025
Ruth Gregory, deputy chief economist at Capital Economics said: 'The fall in CPI inflation wasn't enough to persuade the Bank of England to cut interest rates.
'And with services inflation nudging down only slightly, this leaves our forecast that the Bank will cut rates for the first time in August looking a little shakier.
'For now, we are sticking with our forecast that the Bank will first cut interest rates in August, although that relies on better news on services CPI inflation and wage growth in the coming months.'
Others believe the Bank should already have begun cutting interest rates.
Julian Jessop, economics fellow at the free market think tank, the Institute of Economic Affairs, said: 'The current interest rate of 5.25 per cent risks unnecessarily slowing down the economy and is higher than necessary to bear down on remaining inflationary pressures.'
'With inflation now back on target, the MPC should not hesitate to cut interest rates, even during an election campaign.
In January, financial markets were forecasting that the Bank of England would begin cutting the base rate in March.
However, disappointing inflation readings, both here and in the US, have caused the Bank of England to hold rates for longer than expected.
What does this mean for mortgage borrowers?
Mortgage rates are much higher than many borrowers have been used to, but they have come down substantially from highs reached last summer.
Only as far back as August 2023, the average two-year and five-year fixed rate were 6.86 per cent and 6.35 per cent respectively.
That said, rates have been back on the rise in recent weeks.
The average two-year fixed mortgage rate is now 5.97 per cent, according to Moneyfacts, and the average five-year fix is 5.53 per cent. At the start of February those averages were 5.56 per cent and 5.18 per cent.
> Check the best mortgage rates based on your home's value and loan size
Anyone coming to the end of a cheaper fixed rate deal this year and needing to remortgage could be in for a financial shock.
Many borrowers are rolling of deals of 2 per cent or less. They now face rates that are around 5 per cent or higher.
For someone with a £200,000 mortgage being repaid over 25 years, moving from a 2 per cent rate to a 5 per cent rate will hurt.
That's the difference between paying £848 a month and £1,169 a month - a rise of £321.
It is worth speaking to a mortgage broker to find the cheapest deal that you may be eligible for.
> How to remortgage your home: A guide to finding the best deal
Mortgage borrowers on tracker and variable rates may be disappointed that the base rate has not started to go down.
Variable rate mortgages include tracker rates, 'discount' rates and also standard variable rates (SVRs). Monthly payments on all these types of loan can go up or down.
Trackers follow the Bank of England's base rate plus a set percentage, for example base rate plus 0.75 per cent. They often come without early repayment charges, allowing people to switch whenever they like without incurring a penalty.
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 when the base rate does - but they can go up by more or less than the Bank of England's move.
According to Moneyfacts, the average SVR is 8.18 per cent, up from an average of 4.4 per cent in December 2021 when base rate was just 0.1 per cent - but it will vary from lender to lender.
A typical homeowner could face unnecessary costs of £278 per month if they forget to renew their mortgage deal in time, new research has shown.
![Pause: The Bank of England has held base rate at 5.25% since August 2023](https://i.dailymail.co.uk/1s/2024/06/20/09/86357505-13547351-image-a-22_1718873739246.jpg)
Pause: The Bank of England has held base rate at 5.25% since August 2023
Rachel Springall, finance expert at Moneyfacts said: 'The rising cost of mortgages may cause deep concern for borrowers about to come off a fixed rate deal and needing to refinance.
'Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down.
'Homeowners unsure on whether to lock into a new fixed rate mortgage may still find it more affordable than falling onto a standard variable rate, which stands above 8 per cent.'
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: 'With yet another rate hold, borrowers will find not much changes in the short term.
'Those on fixed and variable rates alike won't see their monthly mortgage payments change, so those sitting on their lender's standard variable rate in the hope that rates will start falling soon may wish to consider opting for a base-rate tracker or fixed rate to cut their mortgage payments.'
What next for fixed rate mortgages?
Mortgage borrowers on fixed term deals should focus less on the base rate decision today, and more about where markets are forecasting the base rate to go in the future.
This is because banks change their fixed mortgage rates pre-emptively, on the back of predictions about where the base rate will ultimately be in the future.
This is why the cheapest mortgage rates are almost 1 percentage point below the base rate.
Market interest rate expectations are reflected in swap rates. 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.
![History: This shows how the Bank of England's base rate has moved since 1973](https://i.dailymail.co.uk/1s/2024/06/20/09/84656307-13547351-Base_rate_history_How_it_has_moved_since_1973-a-25_1718873831881.jpg)
History: This shows how the Bank of England's base rate has moved since 1973
In early January, two-year swap rates were at 4.04 per cent, but as of today they have ticked up to 4.42 per cent. Five-year swaps were at 3.41 per cent and have risen to 3.83 per cent.
That still offers a much more positive picture of the future of interest rates than in summer 2023, when five-year swaps were above 5 per cent and two-year swaps were coming in around 6 per cent.
The lowest two-year and five-year fixed mortgage rates currently available are trending just above the equivalent swaps.
The lowest five-year fix is 4.28 per cent and the lowest two-year fix is 4.78 per cent.
It is very rare for the lowest priced fixed mortgage rates to go below swap rates, though it did happen in January 2024 for a very short period of time.
Prior to the quick-fire base rate rises between December 2021 and August 2023, the lowest mortgage rates have trended above base rate. That was the case at least between 2008 and 2022.
This means that even if the base rate settles at between 3 per and 4 per cent, we should expect mortgage rates to be higher than that.
![Lowest mortgage rates vs base rate: Between 2008 and 2022 the Bank of England base rate has always been higher than the lowest fixed rate mortgage](https://i.dailymail.co.uk/1s/2024/06/20/09/84226091-13547351-Lowest_mortgage_rates_vs_base_rate_Between_2008_and_2022_the_Ban-a-21_1718873696662.jpg)
Lowest mortgage rates vs base rate: Between 2008 and 2022 the Bank of England base rate has always been higher than the lowest fixed rate mortgage
The view among mortgage brokers is that rates are unlikely to change much - at least for now.
Nicholas Mendes, mortgage technical manager at broker John Charcol said: 'While today's decision to hold rates steady may be difficult to accept, recent lender movements suggest we are approaching the end of the era of higher-priced fixed rates.
'Borrowers though will need to remain patient a bit longer before we start to see high street lenders battling amongst themselves at sub-4 per cent fixes.'
Mark Harris, chief executive of mortgage broker SPF Private Clients adds: 'A significant reduction in Swaps over coming days may lead to mortgage rate cuts.
'However, it is only when the market feels the tide within the MPC has turned that true reductions in fixed-rate mortgages will reach the market again, finally bringing some good news for borrowers.'
What does the base rate pause mean for savers?
The Bank of England's successive interest rate rises between December 2021 and August 2023 were, by and large, very good news for savers.
Last October, savings accounts were offering some of the highest interest rates seen since 2008.
Now, with the base rate parked at 5.25 per cent for the seventh time since August 2023, savers might see the Bank of England's decision to hold the base rate again as the end of the rate heyday for their nest eggs.
Interest rates for savers have been volatile over the last six months despite no change to the Bank of England base rate.
And previous headline-grabbing deals including Santander's 5.2 per cent special edition easy-access rate and NS&I's one-year bond paying 6.2 per cent have all but vanished.
![Does YOUR savings account beat inflation? Keeping an eye on the CPI figure is key to knowing whether or not your savings are being eaten away by it](https://i.dailymail.co.uk/1s/2024/06/20/10/86306051-13547351-image-a-1_1718875886020.jpg)
Does YOUR savings account beat inflation? Keeping an eye on the CPI figure is key to knowing whether or not your savings are being eaten away by it
Savings accounts across the board have taken a hit. The best one-year fixed-rate account on the market now pays 5.21 per cent, down from a high of 6.2 per cent in October 2023.
But savers should take some comfort that at least 1,662 savings accounts available still beat inflation which came in at 2 per cent yesterday, finally reaching the Bank of England's target.
This is crucial because it means the value of your money is not falling in real terms.
Easy-access rates have fared slightly better and held steady, falling less sharply than their fixed-rate counterparts.
The best easy-access rate pays 5.02 per cent, down from a high of 5.2 per cent in January.
![Andrew Hagger, personal finance expert and founder of MoneyComms says he expects easy-access rates to be hit hardest by a base rate cut](https://i.dailymail.co.uk/1s/2024/06/20/10/77281187-13547351-Andrew_Hagger_personal_finance_expert_and_founder_of_MoneyComms_-a-2_1718876250083.jpg)
Andrew Hagger, personal finance expert and founder of MoneyComms says he expects easy-access rates to be hit hardest by a base rate cute
Since the start of December 2023, the average easy-access savings rate has fallen from 3.18 per cent to 3.12 per cent and the average easy access Isa rate stands at 3.31 per cent, as it did six months ago.
One area of the market to thrive over recent months has been cash Isas.
Savers rushed to pour a record £11.7billion into cash Isas in April, leading to the best start to an Isa season since the tax-friendly savings pots were launched in 1999.
Springall of Moneyfacts Compare said: 'The cash Isa market has seen a flurry of activity over the past six months, but variable rates are slightly down month-on-month.
'However, this should not deter savers from reaping the benefits of investing cash in an Isa wrapper, to protect any interest earned from tax.'
> Check the best savings rates using This is Money's independent best buy tables
Is it downhill from here for savings rates?
Rather than savings rates crashing down to earth, most experts are expecting a gradual decline over the coming months.
Easy-access rates have been slowly falling over the last six months, and the top rate on offer has dropped from 5.2 to 5.02 per cent.
Springall said: 'It is very unpredictable to know where interest rates are going, but the consecutive base rate hikes from the Bank of England between December 2021 and August 2023 worked in favour of savers
'Savers looking for a flexible pot to store their hard-earned cash may feel relieved that rates have not fallen too much over the past six months.'
Andrew Hagger, founder of MoneyComms said: 'At the moment there has been healthy competition in one and two year fixed rate bonds, seeing rates perk up - and it's a similar story in the Isa market.
'Easy-access rates will take the biggest hit from a base rate cut and if August starts to look nailed on then we'll probably see some tail off in rates in the next few weeks.'
Which banks offer the best savings rates?
When it comes to choosing an account, it's always worth keeping some money in an easy-access account to fall back on if life throws you a curveball.
Most personal finance experts believe that this should cover between three to six months' worth of basic living expenses.
The best easy-access deals, without any restrictions, pay just north of 5 per cent. If you're getting a lot less than this at the moment, you should seriously consider switching to a provider that pays more.
In terms of the best of the best, Oxbury Bank is now offering a market-leading easy-access deal paying 5.02 per cent.
It has a minimum deposit of £20,000. Someone putting £20,000 in this account could expect to earn £1,004 in interest over the course of a year.
> Find the best easy-access savings rates here
Those with extra cash which they won't immediately need over the next year or two should consider fixed-rate savings.
The best one-year deal is offered by Vanquis Bank, paying 5.21 per cent.
The gap between one year-fixed rate deals and easy-access accounts has narrowed to just 0.19 per cent.
Long gone are the days of one-year fixed-rate accounts paying 6 per cent or more, as was the case in October 2023 when NS&I was offering a 6.2 per cent one-year fix.
But the good news is there are still at least 20 one-year fixed-rate accounts offering 5 per cent or more. This is up from 18 at the last Monetary Policy Committee meeting in March.
A saver putting £10,000 in Vanquis Bank's one-year fix will earn a guaranteed £534 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 saving accounts are AccessBank which is paying 5.2 per cent, Al Rayan Bank is also paying 5.2 per cent and Close Brothers Savings and Smartsave Bank are both paying 5.17 per cent. All offer FSCS protection.
> Check out the best fixed-rate savings deals here
Savers should also consider using a cash Isa to protect the interest they earn from being taxed.
The top one-year fixed-rate cash Isa is paying 4.89 per cent interest, while the top two-year fix is paying 4.67 per cent.
Those wishing to keep their money in an easy-access cash Isa can also get 5.17 per cent with Plum Bank.
![Poor performers: The big five banks lag behind the market average when it comes to the interest they pay savers on easy-access accounts](https://i.dailymail.co.uk/1s/2024/06/20/10/85751987-13547351-image-a-3_1718876579357.jpg)
Poor performers: The big five banks lag behind the market average when it comes to the interest they pay savers on easy-access accounts
What should you do next with your savings?
Springall said: 'The top rate tables continue to be dominated by challenger banks and building societies, but with the average rate on easy access accounts around 3 per cent, there will be many savers out there getting a poor return.
'Consumers would be wise to review their rate if they have not done so over the past six to 12 months. Loyalty does not always pay, and the average rate paid across the biggest high street banks is 2.01 per cent, which is 0.05 per cent less than it was six months ago.
'Year-on-year, they have risen by 0.57 per cent, from 1.44 per cent, but this compares to a year-on-year rise of 0.91 per cent across the entire easy-access market. Some savers are therefore missing potentially more interest that could be earned from the more unfamiliar brands.
'As variable rates can fall as well as rise, some savers may want to take advantage of a fixed rate bond or Isa for a guaranteed return if they are concerned interest rates will fall in the months to come.
'Whichever savings account consumers choose, it's important they are aware of any restrictive criteria, keep on top of the best rates across the savings spectrum and proactively switch.
> Check out the best cash Isa rates
![Raisin]( https://media.sailthru.com/composer/images/sailthru-prod-626/Raisin_122x84.png)
![Plum]( https://media.sailthru.com/composer/images/sailthru-prod-626/plum_122x84.png
)
![logo](https://i.dailymail.co.uk/i/pix/2022/03/17/Freetrade_122x84.png)
![logo]( https://i.mol.im/i/pix/2014/05_02/HL-Logo_122x84.jpg )
![logo]( https://sailthru-media.s3.amazonaws.com/composer/images/sailthru-prod-4w5/BT%20new%20logo%20122x84.png)