Interest rate stays at 5.25%: what does it mean for you?

For the fourth time in almost six months there’s no change to the base rate – is that good or bad?

We’ve been in a period of rising interest rates since late 2021, though they could be set to fall this year – and that 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, set on 1 February 2024 is 5.25%, which meant there was no change. This keeps the rate at its highest level since April 2008.


source: tradingeconomics.com

This was the fourth pause at this rate, meaning we’ve not seen a change in almost six months. This 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 changeRateChange
February 20245.25%No change
December 20235.25%No change
November 20235.25%No change
September 20235.25%No change
August 20235.25%+0.25 percentage points
June 20235%+0.5 percentage points
May 20234.5%+0.25 percentage points
March 20234.25%+0.25 percentage points
February 20234%+0.5 percentage points
December 20223.5%+0.5 percentage points
November 20223%+0.75 percentage points
September 20222.25%+0.5 percentage points
August 20221.75%+0.5 percentage points
June 20221.25%+0.25 percentage points
May 20221%+0.25 percentage points
March 20220.75%+0.25 percentage points
February 20220.5%+0.25 percentage points
December 20210.25%+0.15 percentage points
March 20200.1%-0.15 percentage points
The most recent changes to the BoE base rate

Will interest rates fall in 2024?

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

I can’t count how many times I’ve prepared articles based on a nailed-on change (according to those analysts) for it not to happen. Years ago there was lots of talk that we’d see negative interest rates? It didn’t happen.

Or how ahead of the June 2023 meeting the vast majority of experts expected the increase to be 0.25%, not the larger 0.5% that happened. Another was that we’d have absolutely reached 6% overall during 2023. Again, it didn’t happen.

And this rollercoaster of predictions is a regular thing. Just a month ago there was talk of five cuts to the base rate in 2024 starting this March – but as I’ll detail in a moment, that’s also been revised.

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

The driver for changing rates right now is inflation. The Bank of England wants it to be 2% – and we’ve been well above that for a while now.

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, 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.

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

Well, over the last few months it’s looked more and more likely that we’ll reach that 2% level quicker than initially thought, perhaps by the summer. It’s then forecast to increase a little to 2.75% by the end of the year. That sounds bad, but it’s still in keeping with longer term hopes, which would see inflation at 2.3% in two years and 1.9% in three years.

This paves the way for some base rate cuts this year. As mentioned, recently markets and economists have suggested five cuts this year, beginning in March or April and resulting in a 4% rate by the end of 2024.

But the latest inflation figure of 4%, announced in the middle of January, wasn’t just higher than expected, it was actually a small increase. Which shows inflation doesn’t always follow the forecasts. Plus the war in the Palestine and attacks on shipping lanes in the Red Sea, means there’s uncertainty on things like oil prices, which could mean we pay more for energy and petrol.

These are some of these factors that mean it’s now looking like three or four base rate cuts in 2024 (rather than five), starting in June (rather than March). If that comes true, we’d be down to 4.5% or 4.25% by the end of the year.

But as ever, none of this is guaranteed. Two of the nine members of the committee wanted to increase this time, so there’s still the (unlikely) potential for another hike at a meeting this year if inflation doesn’t drop at expected rates.

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 February 2024 decision was six in favour of doing nothing, but two wanted a 0.25 point increase and one wanted a 0.25% cut.

The next meetings will be on :

  • 21 March 2024
  • 9 May 2024
  • 20 June 2024
  • 1 August 2024
  • 19 September 2024
  • 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 over the last few months, and accelerated in recent days. Six weeks ago you could get just around 5.7% on a one year fix. Now the top rate is 5.17%.

And longer fixes have fallen even further, with only one available at over 5%. That’s reflective of those market predictions on the base rate falling faster.

There have also been drops at the top of the easy access tables, though not as severe, and they’re now higher than what you can get in a fix. That might seem tempting over fixes, but remember if rate cuts do come, those variable offerings will be cut too.

Whether we’ll see more cuts is to be seen – it could be that if the falls we’ve already seen priced in faster drops than actually happen things stay relatively steady for a while.

And don’t expect any new bumper deals to come along – it’ll be nice to be surprised though. Perhaps in there will be some competition on ISAs in February and March.

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

The highest-paying savings accounts

  • 7% AER current account from Santander (limited to £4,000 deposit and has monthly fee)
  • 8% AER regular saver from Nationwide
  • 5.17% one year fix from My Community Bank
  • 5.2% AER easy access from Cahoot

Read more about these and the other best savings accounts in our best buys guide

How it impacts your mortgage

The fourth pause in rate increases is good news for homeowners.

Those on tracker rates will see no change in how much you pay. If you’re on the standard variable rate then it’s down to each mortgage lender, though they’re likely to stay the same. They can of course choose to hike or reduce it if they wish.

If you’re already on a fixed-rate mortgage (which most people are) nothing will change – for now. Despite the pause this time, 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 still going to be high compared to recent history.

Rates have increased so much in the last year and half. Despite falling a little after some particularly big ones in the summer (at one point around 7% was common), people coming off relatively cheap fixes could be moving from fixes around 2% to an average of 5.6% (according to Moneyfacts). That’s going to add a lot of money to your monthly repayments, let alone how much you pay back overall.

But we have seen fixed deals falling over recent weeks, largely thanks to those forecast cuts in 2024 being priced into rates. For example, Nationwide has a five year 60% LTV deal at 3.85% (though it also has a £1,499 charge). Though not everyone is dropping rates. Santander initially reduced deals, only to increase them slightly last week. And if base rate cuts do come later than initially expected, things could remain broadly where they are in the coming weeks.

Normally the longer you fix for, the higher the rate. But right now the opposite is true. And the average five year fix is cheaper than a two year one according to Moneyfacts. So you might opt for certainty incase rate do go up.

Or you might want to hold firm on a tracker or variable rate, hoping short term pain at higher rates gives way to lower fixes in the medium term.

Better still is to speak 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
  • 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

Existing loans won’t change, though rates will likely increase for new ones. You might also see a change in the interest rate pushing up rates on car finance, overdrafts and credit cards. Balance transfer cards could also see shorter terms or increased transfer fees.

However with all of these it makes sense to 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.

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3 thoughts on “Interest rate stays at 5.25%: what does it mean for you?

  1. Both my house/contents insurance and dental plan have increased above the rate of inflation. With proposed increases in council tax, it may still be a few months before interest rates reduce.

  2. Shawbrook bank have just notified me that the current variable rate on its instant access account of 4.99% will be reduced to 4.89% in March so it seems they are anticipating a base rate reduction then. Time to fix perhaps?

  3. If you have a child, consider some of the children easy access savings accounts for a higher savings rate. These include Kent Reliance (3.01% up to £25k), Bath Building Society (2.5% up to £5k), Penrith (2.45% up to £10k), Leeds Building Society (2.25% up to £1m). I’ve placed cash in all of those, beats having it all stuck in Chase or Virgin Money!

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