The Bank of England (BoE) sets the official bank rate 8 times per year. If the base rate changes, it can immediately impact personal finances. Savings rates, mortgage rates and personal loan interest are all heavily influenced by what the Bank of England decides. After years of ultra-low interest rates in the UK, we are now seeing a lot of changes to the base rate due to high inflation.
The latest predictions indicate that the base rate will gradually fall over the next year from the current rate of 5% to around 4.25% by August 2025. It’s predicted to reach 3.5% by August 2027 according to a report from the Bank of England.
| Date | UK base rate forecast | Change from current base rate |
|---|---|---|
| June 2025 | 4.50% | -0.75% |
| June 2026 | 4.00% | -1.25% |
| June 2027 | 3.75% | -1.50% |
The next Bank of England base rate meeting is on 19 September 2024. The Bank of England’s Monetary Policy Committee (MPC) meets 8 times a year.
| MPC meeting schedule 2024 |
|---|
| 1 February |
| 21 March |
| 9 May |
| 20 June |
| 1 August |
| 19 September |
| 7 November |
| 19 December |
The Bank of England’s Monetary Policy Committee (MPC) meets 8 times a year to discuss the state of the economy and determine the base rate. They can choose to raise it, lower it or hold it.
The committee is composed of 9 members, including the Governor of the Bank of England, 3 Deputy Governors, the Bank’s Chief Economist and 4 external members appointed directly by the Chancellor of the Exchequer.
Each member of the MPC is an expert in economics and monetary policy and is independent, so they do not represent any particular group. There is also a representative from HM Treasury present – they can discuss policy issues but are not allowed to vote.
Before deciding on the best course of action, they have a series of meetings to assess the current state of the UK economy and what forecasted inflation and growth look like. The MPC members then vote on what the base rate should be set at, and the majority wins.
In short, the MPC’s role is to adjust the base rate to maintain a balance between preventing high inflation and supporting economic growth. These regular meetings ensure they can react promptly to changing economic conditions.
The 3 main factors that determine interest rates are inflation (how fast prices are rising), the overall growth of the UK economy and current rates of employment.
The Bank of England has increased the base rate in increments since December 2021. They decided to do so because of various economic shocks causing high inflation.
The first was the coronavirus pandemic, which led to a shortage of products and increased demand, which began to push up prices. This was followed by Russia’s invasion of Ukraine in February 2022, which significantly impacted the price of food and energy around the world and in the UK.
A shortage of workers also happened after the pandemic, as some people decided not to return to work or to retire early. This meant that businesses had increased hiring costs.
As a result, inflation began growing, and the Bank of England has raised the base rate from 0.1% in December 2021 to 5.25% in August 2023.
Inflation has come down significantly from a peak of 11.1% in October 2022, but it still has not reached the BoE’s target rate of 2%, which is why they have decided to hold the base rate at the last few meetings.
However, it has been confirmed that the UK economy is in a recession, so the Bank of England is expected to begin lowering the base rate in the coming months.
The savings rates available to you should increase in line with the base rate if this goes up. When the base rate is higher, interest rates rise, meaning you earn more on your savings balance. On the other hand, if the base rate is kept low, savings rates are also low, and it’s not as rewarding for consumers to keep money in savings accounts.
There has been criticism that banks do not pass on interest rate rises to consumers quickly enough with their savings products. Savings rates tend to be lower than the base rate, as banks normally pay less to savers than they charge on loans so they can cover their costs.
While a higher base rate tends to be good news for savers, it generally means that mortgage holders will pay more as interest rates rise. Since the middle of 2022, mortgage rates have been much higher than is typical due to a higher base rate.
Average mortgage rates peaked around the middle of 2023 but have been gradually coming down as inflation has lowered. As the base rate is still at 5%, mortgage rates still remain high, meaning that many homeowners are having to make significant monthly payments on their property.
"The base rate is one factor in how providers price their mortgages. While mortgage rates don’t follow it exactly, the higher the base rate is, the higher mortgage rates available are likely to be.
If you’re looking to get a new mortgage deal, there are some things you can do to secure the best rate for yourself. For example, if you’re remortgaging, did you know you could secure a new deal for yourself 6 months before your current deal ends? If it looks like the base rate is likely to climb higher, it’s sometimes a good idea to lock in a deal ahead of time to get a more competitive rate.
It’s also worth comparing different mortgage deals, not only among different providers but also different types of mortgage products and term lengths. For example, you have the choice between fixing your rate for a set period or tracking the base rate. When things are volatile with the base rate, it’s probably the wiser choice to fix so you know what your monthly repayments will be each month.
If you do opt for a fixed rate, compare shorter term and longer term deals. Do you want to fix for 2 years in the hope there will be better rates available at the end of your term? Or do you go for 5 years so you have the security of knowing what you are paying each month for a time?
It’s also important to consider the overall cost of the mortgage, not just the rate. This means taking into account any fees, whether this be arrangement fees or early repayment charges."
As with mortgage rates, credit card rates also increase as the base rate rises, making it more expensive to borrow money. The average interest rate on a credit card in 2024 is 24%, the highest it has been since recording of averages began in 1995, according to data from the Bank of England.
If you are planning to take out a new credit card, loan or overdraft at the moment, you’ll see much higher interest rates, which will increase your monthly repayments.
The base rate was last at 5.25% back in February 2008. Following the global financial crisis and subsequent recession in the UK, the Bank of England decided to lower the base rate in increments before it reached 0.5% in March 2009.
It stayed low for a long period between 2009 and 2021 before the Bank of England started increasing it in December 2021. This was a period of some of the lowest interest rates the UK had ever seen – good for mortgages and credit products but bad for savers.
At Finder, we have brought together an expert panel of academics, economists, mortgage experts and savings experts, asking them for a range of predictions and opinions on what will happen with the base rate.
| Full name | Organisation | Title |
|---|---|---|
| Alan Shipman | The Open University | Senior lecturer in economics |
| David McMillan | University of Stirling | Professor in finance |
| George Sweeney | finder.com | Investing expert |
| Luciano Rispoli | University of Surrey | Senior lecturer in economics |
| Paul Dales | Capital Economics | Chief UK economist |
| Sam Miley | CEBR | Managing economist and forecasting lead |
| Stephen Sillars | Chip | Savings and investments expert |
| Julian Jessop | Independent Economist | |
| Malcom Davidson | UK Moneyman | Managing director |
| Phillip Rush | Heteronomics | Founder and chief economist |
| Charles Read* | University of Cambridge | Fellow in economics |
| Muhammad Ali Nasir* | Leeds University | Associate professor in economics |
| Giles Coghlan* | HYCM | Chief market analyst |
| Rob Peters* | Simple Fast Mortgage | Principal |
| Nitesh Patel* | Yorkshire Building Society | Strategic economist |
| David Hollingworth* | L&C Mortgages | Associate director |
| Kate Steere* | finder.com | Housing expert |
| Konstantinos Lagos* | University of Sheffield Hallam | Senior lecturer in business and economics |
Half of experts (50%) believe the base rate will sit at 4.75% by the end of 2024, with the last meeting taking place on 19 December 2024.
David McMillan, professor in finance at the University of Stirling said, “Several factors play into this, including global uncertainty, such as the recent election in France and the upcoming US election. The Bank of England may also wish to exercise some caution with respect to rate cuts before the first budget of the new Labour government”.
Independent economist, Julian Jessop, echoed the sentiment that the Bank of England is likely to remain cautious on the pace of rate cuts, noting that “inflation has been much higher than expected for some time, and pay pressures remain strong”. However, he also noted that “more positively, the economy has been more resilient than feared. But a total of at least two rate cuts seems likely by the end of the year”.
3 out of 10 of the experts expect a more substantial fall to 4.5% by the end of the year. Luciano Rispoli, senior lecturer in economics at the University of Surrey, explained that “if inflationary pressures don’t re-accelerate over the months leading to the next three 2024 meetings beyond August, that the Bank of England will ultimately start ‘normalising’ rates soon. In this set up, I expect a policy rate normalisation in the range of 0.75 – 1% rate cuts”.
The 2 remaining members of the panel believe that any reductions to the base rate will be far more modest, leaving rates sitting at 5% by the end of the year.
George Sweeney (DipFA), investing expert at personal finance comparison site finder.com said that if an initial base rate cut does happen, he believes “there will be a lag before the effects are truly felt and the Bank of England (BoE) will want to see the impact before going ahead with further cuts. The BoE has also said it expects inflation to tick up again towards the end of this year”. He added that the decision to move slowly when it comes to rate cuts is “understandable because it’s to make sure we don’t get ahead of ourselves with an overoptimistic attitude that could spark further inflation to deal with in 2025”
Alan Shipman, senior lecturer in economics at The Open University echoed this sentiment, adding that “Inflation pressures, due to ongoing supply-chain strains and a tight labour market, leave little scope for base-rate reduction below 5%. This is already a historically low rate, even for times when inflation was reliably below 2%”.
70% of experts believe that house prices will rise between 0% and 2.5% by the end of this year.
Malcom Davidson, managing director at UK Moneyman said “I think there is plenty of pent-up demand in the market place due to the uncertainty felt by home buyers over the recent election. Now that is behind us and we have some political stability I’m confident the market will see a controlled bounce. People won’t wait forever!”
The remaining experts were divided on how house prices are set to change between now and the end of the year. Just one expert, Luciano Rispoli, believes that house prices will rise between 2.5% and 5% before the end of 2024, he explained that “with the objective of winning market share, Commercial Banks might soon start reducing mortgage rates following expectations of upcoming policy rate cuts. This should increase mortgage applications which would provide a further boost to the real estate market and keep the housing market momentum strong”.
Others were not so confident in the future of the UK housing market this year. A further 1 out of the 10 experts said they do not expect house prices to move at all by the end of 2024l, and the remaining 1 expects that house prices will fall between 0% and 2.5%.
78% (7 out of 9 experts) anticipate that the average interest rate on a 1-year fixed rate ISA will fall between 0% and 1% by the end of this year. 1 out of the 9 experts who responded to this question expects this decline to be even more dramatic, predicting that these rates will fall between 1% and 2% by the end of 2024. One expert did not expect these rates to change at all between now and the end of the year.
Stephen Sillars, who believes that savings rates are set to fall between 0% and 1%, explained that he is expecting “a modest fall in 1 year fixed rate ISAs before the end of the year as banks and savings providers will be pricing in falling interest rates. However, with the highly competitive nature of the market and newer challengers offering rates close to the Bank of England base rate, consumers will find they can still get a good return for the foreseeable future”.
Matt Mckenna
UK Head of Communications
T: +44 20 8191 8806
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