The Bank of England base rate influences all loan and mortgage interest rates in the UK. When the BoE decreases the bank rate, interest rates usually decrease as well. This means borrowing gets cheaper - but returns on savings will go down.
The base rate, sometimes known as the bank rate or interest rate, is the most important interest rate in the UK.
Set by the Bank of England, the base rate influences the interest rates offered by other banks. If the base rate goes up, then most mortgage, loan, and savings rates will go up by a similar amount - and vice versa if it goes down.
By changing the UK's base rate, the Bank of England can influence how Brits use their money - whether we're more inclined to spend money or save it.
Generally, if the BoE reduces the base rate, it becomes cheaper to get a mortgage or loan, and you're more likely to buy a house or car.
If the Bank of England base rate goes up, mortgage repayments and getting a loan becomes more expensive - but you'll earn more interest on your savings.
If you currently have a fixed rate mortgage, changes to the base rate won't impact your monthly repayments. When your initial term ends, though, you should consider remortgaging to another fixed rate mortgage deal.
The Bank of England base interest rate is currently 0.1%.
The current UK base rate is 0.1%. In unscheduled meeting on 19 March, decided to make a further cut to the base rate, marking the lowest it's ever been in UK history.
Previously, the Bank of England monetary policy meeting met on 10 March and decided to cut it down to 0.25%.
A base rate of 0.25% marked the second time the BoE base rate has been cut down to this rate. The last time it was cut to 0.25% was in August 2016 following the Brexit referendum.
Up until 11 March 2020 the BoE base rate was at 0.75%, which was already considered very low and why mortgage interest rates in the UK are currently very low as well.
The average mortgage interest rate for a two-year fixed mortgage is around 1.9%. A few years ago, before the financial crisis, the cheapest mortgage rates were more like 5%.
On a mortgage of £150,000, that's the difference between a monthly repayment of £629 vs £877 - or almost £3,000 per year.
On the flip side, the low base rate means the current interest rate for savings is also very low.
It's very hard to find a conventional cash ISA, easy access, or fixed rate savings account that will give you more than 1.5%. To get an interest rate of 2.1%, to match the current rate of inflation, you need to lock your savings away and not touch them for five years!
The Bank of England can change the base rate at Monetary Policy Committee (MPC) meetings, which generally happen eight times a year.
It's difficult to predict exactly when the Bank of England will change the 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.
Because the financial sector and the rest of the country is so heavily impacted by base rate changes, it's rare for a base rate change to be a surprise, but it can happen as an emergency measure to tackle unexpected economic conditions. The Bank of England mostly uses the base rate to keep inflation at around 2%, and so if Brits start spending too much or too little, an interest rate change is usually around the corner.
The Bank of England has been setting the interest rate in the UK since way back in 1694.
Following the global financial crisis in 2008, Bank of England gradually cut the base rate from 5.5% down to just 0.25% in August 2016 - historically the lowest interest rate the UK has ever seen.
The base rate had been slowly climbing since then, to 0.50% in November 2017 and then 0.75% in August 2018.
If you look back beyond the financial crisis, the history of the UK interest rates is a lot more fluid. In 1984 the base rate changed 14 times, starting at 8.8%, rising to 12%, and then falling back to 9.5%.
Historical mortgage rates have usually followed the base rate, with the average mortgage rate generally around 2% higher than the base rate.
This table shows historical interest rates over the past 10 years*:
|Date of base rate change||New base rate|
|19 Mar 20||0.10|
|11 Mar 20||0.25|
|02 Aug 18||0.75|
|02 Nov 17||0.50|
|04 Aug 16||0.25|
|05 Mar 09||0.50|
|05 Feb 09||1.00|
|08 Jan 09||1.50|
|04 Dec 08||2.00|
|06 Nov 08||3.00|
|08 Oct 08||4.50|
|10 Apr 08||5.00|
|06 Dec 07||5.50|
|05 Jul 07||5.75|
|10 May 07||5.50|
|11 Jan 07||5.25|
|09 Nov 06||5.00|
|03 Aug 06||4.75|
|04 Aug 05||4.50|
|05 Aug 04||4.75|
|10 Jun 04||4.50|
|06 May 04||4.25|
|05 Feb 04||4.00|
|06 Nov 03||3.75|
|10 Jul 03||3.50|
|06 Feb 03||3.75|
|08 Nov 01||4.00|
|04 Oct 01||4.50|
|18 Sep 01||4.75|
|02 Aug 01||5.00|
|10 May 01||5.25|
|05 Apr 01||5.50|
|08 Feb 01||5.75|
|10 Feb 00||6.00|
|13 Jan 00||5.75|
|04 Nov 99||5.50|
|10 Jun 99||5.00|
|08 Apr 99||5.25|
|04 Feb 99||5.50|
|07 Jan 99||6.00|
|10 Dec 98||6.25|
|08 Oct 98||7.25|
|04 Jun 98||7.50|
* Data from Bank of England
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.