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

There’s been no change to the base rate since August last year – is that good or bad?

After a period of rising interest rates since late 2021, we’re getting closer to a year with no movement, and 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.

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 9 May 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 sixth pause at this rate, meaning we’ve not seen a change since August 2023. 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
May 20245.25%No change
March 20245.25%No change
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. At the start of this year there was talk of five cuts to the base rate in 2024 starting this March. That first cut obviously didn’t happen.

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 five meetings, stretching back to September, was to pause further hikes to see if enough had been done already.

Well, the latest inflation figure of 3.2%, was a little higher than anticipated, but the Bank still things we’ll hit 2% in the coming months, before increasing to 2.5% by the end of the year and into 2025. Then it predicts it’ll be down to 1.9% in two years and 1.6% in three years.

These forecasts paves the way for some base rate cuts this year. In fact, this time two members of the committee voted for a cut, rather than just one last time.

The current thinking is there will be three cuts down to 4.5% by the end of 2024, starting most likely in August or September, though possibly in June, with one or two more before the year ends. Then the markets are suggesting a fall to 4.5% in a year, 4% in two years and 3.7% in three years.

However, though it’s good news that cut are still expected, it’s notable that there are fewer predicted in the next couple of years, meaning longer time at rates between 4% and 5%.

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 May 2024 decision was seven in favour of doing nothing, and two wanted a 0.25% cut.

The next meetings will be on :

  • 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 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).

Pretty much all rates are down on six weeks ago, with the top 1yr fix 5.2%, and the top full easy access down to 5.02%. And the new financial year saw the best fixed ISA rates all fall compared to what was available just a

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. But don’t expect any new bumper deals to come along except for any potential boosts to ISAs at the start of the new financial year.

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)
  • 7% AER regular saver from First Direct
  • 5.2% expected return one year fix from Al Rayan
  • 5.2% AER easy access from Cahoot (limited to £3,000)

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

How it impacts your mortgage

The sixth pause in rate increases will be frustrating news for homeowners who will be keen for cuts to push rates down.

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 more than 5%. That’s going to add a lot of money to your monthly repayments, let alone how much you pay back overall.

But the delay to when rates could happen has seen some lenders reverse the cuts of recent months, and a few providers have actually increased rates!

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.

Our podcast

Listen to Cash Chats, our award-winning podcast, presented by Editor-in-chief Andy Webb.

Episodes every Tuesday.

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!

Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.