The Bank of England base rate

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The Bank of England base rate influences mortgages and savings rates in the UK. In recent years the base rate has increased considerably, resulting in borrowing costs rising for people across the country.

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What is the current base rate in the UK?

The current Bank of England base rate is 5.25%. 

The base rate has changed a lot in recent years. It dropped to an all time low of 0.1% in March 2020 to try and help the economy survive impact of coronavirus, and stayed there until November 2021.

Then the rises began. From December 2021 to August 2023, the Bank's rate-setting Monetary Policy Committee (MPC) raised the base rate 14 consecutive times to its current level of 5.25%.

These increases have also resulted in significant rises in mortgage and savings rates.

How does the base rate work?

The base rate, sometimes known as the bank rate or base interest rate, is the most important interest rate in the UK. It is used by the Bank of England primarily to control inflation, by doing that it tries to stop prices of everyday things - food, fuel, clothing - from rising too quickly.

The goal is to keep inflation as close to 2% as possible - so the bank will act if price rises are too low as well as too high. By increasing the base rate, the aim is to discourage spending and encourage saving - decreasing the base rate is intended to do the opposite.

Inflation rising caused the Bank to start increasing the base rate at the end of 2021 - inflation reached a peak of 11% at the end of 2022 but is now at 3.4%, its lowest level in over two years.

When the base rate rises, it normally means rates on mortgages and loans offered by banks and building society tend to increase. However, it also means rates on savings accounts rise as well.

When will the base rate fall?

With many facing increased mortgage costs, there are lots of borrowers who are hoping for the Bank of England to reduce the base rate, in the hope that cheaper mortgage deals become available. Especially now that inflation has fallen to its lowest level in over two years.

Unfortunately it's impossible to predict exactly when the Bank of England may choose to reduce the base rate as there are other factors they take into consideration, such as wage growth.

How does the base rate affect UK mortgage rates?

The current base rate is 5.25%. That's the highest it's been since the 2008 financial crisis. The increases have also caused mortgage rates to rise, meaning people who have taken out a new deal in the last couple of years have likely seen an increase in their payments.

How the base rate impacts your mortgage depends on what type of deal you have:

  • Tracker mortgages - most tracker deals have rates directly linked to the base rate, so if it changes, your mortgage rate will change alongside it

  • Standard variable rate (SVR) or discount mortgages - a discount mortgage is a deal with a rate at a set amount below the lender's SVR. The SVR is set by the lender but can be influenced by the base rate, so you might see changes to your discount or SVR mortgage rate if the base rate changes.

  • Fixed rate mortgages - if you have a fixed-rate mortgage, the rate remains the same for a specified period of time, and will be unaffected by base rate changes. However, when you are due to remortgage, you may find that the deals available to you are different due to base rate changes.

Despite the Bank of England base rate remaining the same, there have been changes to average fixed mortgage rates, with decreases towards the end of 2023, and them some increases in March and April. This is because mortgage rates are impacted by other factors, including swap rates and the discretion of the lender.

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How often does the BoE base rate change?

The BoE can change the base rate at Monetary Policy Committee (MPC) meetings, which generally happen eight times a year. The next one is on Thursday 20 June 2024.

It's difficult to predict exactly when the Bank of England will change the current interest rate, though they do try to control expectations by issuing guidance on whether the base rate will go up or down over the next year.

The Bank can also call emergency meetings if needed - as was seen after in the financial crisis of 2008.

Is it possible for the base rate to be negative?

Although it has not happened, the Bank of England did highlight that the base rate could fall into a negative interest rate. The result of a negative base rate would be that no interest would be due on borrowed money.

However, as has happened in the past when rates have gone negative in other countries, it’s highly unlikely banks would offer 0% deals to customers on mortgages or loans - or take money from savings accounts. It would mean rates would likely drop though.

Bank of England base rate history

The BoE has been setting the base rate in the UK since way back in 1694.

Following the global financial crisis in 2008, the BoE gradually cut the base rate from 5.5% down to just 0.25% in August 2016 - at the time the lowest interest rate the UK had ever seen until that point in time.

Before the Covid-19 pandemic, the Bank of England base rate had been slowly climbing, to 0.5% in November 2017 and then 0.75% in August 2018. It then fell to an all-time low of 0.1% during the crisis, only to start to rise again in late 2021 as inflation rose.

In the past, the base rate was set by the Chancellor of the Exchequer - that led to years with multiple changes even inside a month. In 1984, for example, the base rate changed 14 times, starting at 8.8%, rising to 12%, and then falling back to 9.5%.

Gordon Brown set up the current system - where a Monetary Policy Committee chaired by the governor of the Bank of England, has the power to set rates based on an inflation target set by the government rather than the Treasury directly.

Traditionally they met every month, but rates could still change four or more times a year. More recently that has reduced to eight planned meetings a year.

Bank of England base rate - 2008 to 2024
How the Bank of England base rate has changed since 2008.

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