Interest rate stays at 5%: what does it mean for you?

The Bank of England has held the base rate this month despite an expected cut

After the base rate dropped last month, many were hoping for another. But the way this influential interest rate moves could be good or bad for your finances. Here’s more on what to look for.

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What is the Bank of England base rate?

The interest rate set by the Bank of England (BoE) is known as the base rate.

The current rate was held on 19 September 2024 at 5%, after being cut from 5.25% on 1 August 2024. This is the same rate as it was in June 2023.

source: tradingeconomics.com

The cut in August was the first after seven consecutive pauses, which followed a run of 14 consecutive increase moving from 0.1% in early December 2021, a total change of 5.15% percentage points. It was cut to a record low of 0.1% at the start of the pandemic in 2020.

Date of change	Rate	Change
September 2024	5%	No change
August 2024	5%	-0.25 percentage points
June 2024	5.25%	No change
May 2024	5.25%	No change
March 2024	5.25%	No change
February 2024	5.25%	No change
December 2023	5.25%	No change
November 2023	5.25%	No change
September 2023	5.25%	No change
August 2023	5.25%	+0.25 percentage points
June 2023	5%	+0.5 percentage points
May 2023	4.5%	+0.25 percentage points
March 2023	4.25%	+0.25 percentage points
February 2023	4%	+0.5 percentage points
December 2022	3.5%	+0.5 percentage points
November 2022	3%	+0.75 percentage points
September 2022	2.25%	+0.5 percentage points
August 2022	1.75%	+0.5 percentage points
June 2022	1.25%	+0.25 percentage points
May 2022	1%	+0.25 percentage points
March 2022	0.75%	+0.25 percentage points
February 2022	0.5%	+0.25 percentage points
December 2021	0.25%	+0.15 percentage points
March 2020	0.1%	-0.15 percentage points

Why the base rate changes

The driver for changing rates right now is inflation, which has been higher than wanted for the last three years.

Increasing interest rates is seen as the key (perhaps only) way to battle inflation, the idea being we’ll save more or have more expensive debts (like mortgages), leading to us spending less. This will force suppliers to lower prices, which in turn will see the inflation rate drop (though in most cases that doesn’t mean prices fall, they just get more expensive at a slower rate).

However, those rate hikes take time to filter down and for the inflation rate to – in theory – come under control. And if you keep increasing rates the danger is it pushes the economy into recession and cause hardship for borrowers, particularly those with mortgages.

Likewise if the Bank decides to cut the rate too early, it might not have done enough, leading to a reverse later on.

Will interest rates fall again in 2024?

The first cut this year was expected in the spring, but didn’t happen, and kept getting pushed further back. In fact just a few days ago before the August meeting, it was looking like the cut wouldn’t happen (though of course it did). And September was tipped for another reduction, but given that the rate of inflation stayed at 2.2% this month, it became unlikely.

Saying that, the base rate is still expected to fall to 4.5% by the end of the year, suggesting two cuts before Christmas.

This shows how it’s always a guessing game, with analysts and economists predicting changes up or down ahead of each BoE meeting (and in between).

So always take the following with a pinch of salt. But here’s the current thinking.

The majority thinking at the previous seven meetings, stretching back to September, was to pause further hikes to see if enough had been done already.

Well, the inflation figure has been 2.2%, for the last two months, slightly over the Bank of England’s target of 2%. The Bank still thinks inflation will start going back up by the end of the year to 2.5% (though that’s down to energy price changes), before falling again.

Eight members of the Monetary Policy Committee, who make the decision, were in favour of keeping the base rate where it is at 5%, while one person voted to cut it to 4.75%.

If we look at last month, when the base rate dropped from 5.25% to 5%, five of the nine voted in favour of the cut, though some of the committee said their decision to change it was “finely balanced”. The main thinking this time is there’s still a bit of economic uncertainty, so restrictions have to remain in place for now.

Longer term, the chief economist at Deutsche Bank predicts four quarter-point rate cuts through 2025, followed by a further three more rate cuts in 2026, taking Bank Rate down to 3%.

But as ever, none of this is guaranteed!

When is the next interest rate decision?

The rate is set every six weeks or so by the Bank of England Monetary Committee, a group of nine people, with the majority vote deciding whether the rate goes up, down or stays the same. The September 2024 decision was eight in favour of doing nothing, and one who wanted a 0.25% cut to 4.75%.

The next meetings will be on:

• 7 November 2024
• 19 December 2024

(full dates here).

Why it matters

The BoE rate is a large part of what high street and online banks and lenders use to inform the rates they offer. This means it will impact the cost of borrowing on things like mortgages, loans and credit cards, but also how much you can earn on savings.

Sometimes it’s a direct correlation if you have a product with a tracker rate – something that literally changes up or down in line with the BoE rate. In that case you’ll see an instant change.

On other products you might not see an instant change – if at all. So it pays to shop around to see if you can get a better deal.

How it impacts your savings

The increases in the base rate were good news for savers. We’ve been earning very poor levels of interest, but that started to change in late 2021, and got better and better.

But that’s been changing since rates peaked in the autumn of 2023. Since then rates have generally been falling as banks price in the predicted cuts (they’re fast to pass these on, but slow to give us the increases).

Savings rates have been falling since the cut to base rate last month and I’d expect this trend to continue – so lock in quick while you can.

You can find the best paying options in our daily updated best buy tables.

How the base rate impacts your mortgage

The change in the base rate last month was welcome news for homeowners as it led to many lenders reducing their mortgage rates – which we may see continue despite the base rate staying at 5%.

Those on tracker rates saw an immediate change in how much they paid. Standard variable rates fell too, although not necessarily by the full amount.

If you’re already on a fixed-rate mortgage (which most people are) nothing would’ve changed – for the time being.

And despite the cut last month, there’s still a big shock coming for those on a fixed term deal that’s due to end soon, or those looking for their first mortgage – deals will be much more expensive compared to recent history.

It’s always worth speaking with a mortgage broker who can advise on different strategies – though since no one knows what will happen this still won’t guarantee any savings.

And anyone who is really struggling to make their repayments, it’s important to talk to your lender to see if anything can be worked out – though bear in mind missing payments can impact your credit report.

If it’s impacting other essential spending, then see whether those companies can support reduced repayments. And if debts have built up, speak to a debt charity.

Remember, last summer the government also announced some short term guidelines, known as the Mortgage Charter, that most of the mortgage lender industry signed up to. Though most of the measures have been in place for a while, this formalised what was on offer.

So if you’re really struggling with repayments you can now do the following without it impacting your credit file for six months:

• Switch to an interest only mortgage for up to six months (though some banks have since reduced this to four months)
• Extend the term of your mortgage (with the option to reverse this before six months pass)

Both will lower what you pay right now, but you will pay back more over the whole mortgage term, and potentially increase payments after that initial six months.

You can also agree a new fixed deal up to six months before the current deal ends, and you can ditch if if a better option comes along. Make sure you check to see if there are any charges for changing your mind for a different deal near the actual remortgaging date.

How it impacts other borrowing

With no change to the base rate, you’re unlikely to see much difference to the rates of your existing loans or new deals.

Regardless, makes sure you always try and go for 0% deals if you can get them, or to use your savings to pay for things or clear debts rather than take out new ones.