Bank of England expected to hold rates at 5.25%

Bank of England expected to hold rates at 5.25%
Block of flats

The Bank of England is expected to hold interest rates for the fourth time in a row on Thursday, with some analysts expecting possible cuts later in the year.

The UK inflation rate has come down sharply in recent months, easing cost-of-living pressures.

However, the UK economy has been stagnating amid increased borrowing costs and other pressures.

Borrowers have seen costs go up to the highest rate for 15 years.

Allan Monks, an economist for JP Morgan, said it was widely expected that rates will be kept the same on Thursday.

He added the Bank will “almost certainly” hint that rate cuts are moving up the agenda – but policymakers will remain cautious about cuts.

Sanjay Raja, a senior economist for Deutsche Bank, said he expected the Bank to unanimously vote to hold rates at 5.25%.

But he also expected caution about when future cuts may happen.

Interest rates set by the Bank of England affect mortgage, credit card and savings rates for millions of people across the UK.

In recent months, the Bank has held interest rates steady at 5.25% three times, after 14 increases to tackle rising prices.

What are interest rates and why do they change?

The Bank of England’s base rate, currently 5.25%, is what it charges other lenders to borrow money.

This has a knock-on effect on what other banks charge their customers for loans such as mortgages, as well as the interest they pay on savings.

The Bank’s Monetary Policy Committee meets eight times a year to decide what the base rate should be.

It has a target to keep UK inflation at 2%. Inflation is the rate at which prices are rising across the economy as a whole.

When inflation is going up, the Bank may decide to raise rates to encourage people to spend less. The idea is that this helps bring inflation down by dampening demand.

Once this starts to happen, the Bank may hold rates, or cut them.

Line chart showing interest rates in the UK, which have steadily increased since the end of 2021, reaching 5.25% on 14 Dec 2023.

How do interest rates affect me?


Just under a third of households have a mortgage, according to the government’s English Housing Survey.

When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.

About three-quarters of mortgage customers have fixed-rate deals. Their monthly payments aren’t immediately affected when the Bank changes rates, but future deals are.

Although mortgage rates have been lower recently, they are still much higher than they have been for much of the last decade.

This means homebuyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a few years ago.

About 1.6 million deals will expire in 2024, according to banking trade body UK Finance.

You can see how your mortgage may be affected by interest rate changes by using our calculator:

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Credit cards and loans

Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.

Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England, but if rates fall, interest payments may get cheaper.

Woman with computer and piggy bank

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The Bank of England interest rate also affects how much savers can earn on their money.

Individual banks and building societies have been under pressure to pass on higher interest rates to customers.

There are some good deals on the market, so analysts say that customers should shop around, as money may be in accounts paying little or no interest.

When will UK interest rates go down?

The Bank rate is currently at its highest level for 15 years – since February 2008.

However, the rate was higher than this for much of the 1980s and 1990s, and was running at 17% in November 1979.

In November, the Bank said it expects rates to fall slightly to 5.1% by the end of 2024, and to be at 4.2% by the end of 2026.

However, some economists expect rates to fall more quickly. Capital Economics thinks the Bank will start cutting rates in June, and that they will drop to 3% in 2025.

Inflation was running at 4% in December 2023, down from the peak of 11.1% in October 2022.

Although that is still twice the Bank’s target, the drop influenced the Bank’s decision to keep rates on hold.

It has to balance the need to slow price rises against the risk of damaging the economy – which has shown little sign of growth – by keeping rates high.

Are other countries raising their interest rates?

Interest rates have also been increasing across the world.

However, in recent months, other central banks – including the US Federal Reserve and the European Central Bank – have also paused their rate rises.

The UK has had one of the highest interest rates in the G7 – the group representing the world’s seven largest so-called “advanced” economies.


By David Ryckman