THE Bank of England has decided to keep interest rates unchanged, delivering a blow to homeowners hoping for help with mortgage bills.
At today’s meeting of the Monetary Policy Committee (MPC), the Bank of England‘s rate-setters voted to maintain the base rate at 4.5%.
Lenders use the base rate to determine the interest rates offered to customers on savings and borrowing costs, including mortgages.
Eight members of the nine-strong MPC voted to keep the base rate at its current level.
One member of the committee, Swati Dhingra, voted for a sharper reduction to 4.25%.
The Bank of England (BoE) last cut rates from 4.75% to 4.5% in February, the third reduction since 2020 and a boon for squeezed borrowers.
Today’s decision has been made against the backdrop of inflation remaining above the BoE’s 2% target, and in anticipation of next week’s release of the February 2025 rate.
The Consumer Prices Index (CPI) rose by 3% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024.
Inflation measures how prices for everyday goods like food and clothing have changed compared to last year.
The rise in cost inflation is partly to do with the effect of policies announced at the October Budget.
Chancellor Rachel Reeves confirmed that employer national insurance contributions would rise in April.
The move was designed to give the Government more money to spend on public services like the NHS.
But some companies have complained it is pushing up costs and contributing to rising inflation.
The BoE adjusts its base rate, which influences the interest rates charged to banks, as a tool to manage inflation.
By maintaining the base rate at its current level, the goal is to curb borrowing and spending.
However, striking the right balance between controlling inflation and supporting economic growth remains a challenge.
The UK economy continues to struggle, with the Office for National Statistics (ONS) reporting that Gross Domestic Product (GDP) unexpectedly shrank by 0.1% in January 2025, contrary to economists’ expectations of growth.
Coupled with escalating global trade policy uncertainty, including a series of tariff announcements by the United States and retaliatory measures by other governments, the UK economy faces heightened risks.
Andrew Bailey, governor of the Bank of England, said: “There’s a lot of economic uncertainty at the moment.
“We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.
“We’ll be looking very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings.
“Whatever happens, it’s our job to make sure that inflation stays low and stable.”
Despite this setback and rising inflation, money markets expect the Bank to approach interest rate cuts more cautiously than previously thought.
By the end of 2025, markets predict the BoE will have reduced rates three times in total, bringing them down to 4%.
Chancellor Rachel Reeves said: “We’ve had three rate cuts since the summer, but there’s still work to do to ease the cost of living.
“That’s why I’m fighting every day to put more money in the pockets of working people to deliver our plan for change, and why we protected workers’ payslips with no rise in national insurance, income tax or VAT, boosted the national living wage and froze fuel duty.”
In any case, here is what today’s decision means for your money.
Mortgages
When rates are held, mortgage rates usually do not change very much, but we’ve been seeing fixed rates come down in recent weeks as lenders battle it out.
Today’s announcement means that those on tracker or standard variable rate mortgages won’t see any change to bills.
However, fixed-rate mortgages have been trending downwards in recent weeks as lenders compete for business.
This downward pressure on fixed rates may continue if swap rates also fall.
For those 1.8million homeowners whose fixed rate deals (at sub-2% interest) are expiring in 2025, timing the next move is critical.
Nicholas Mendes, mortgage technical adviser at John Charcol, said: “While waiting for lower rates may seem tempting, borrowers nearing the end of a fixed-term deal should act promptly rather than holding out indefinitely.
“Consulting a mortgage broker is strongly recommended, as brokers can provide tailored advice and access to a broader range of products than those available directly to consumers.
“Locking in a fixed rate now, even at a slightly higher level, ensures stability and protection against unexpected market shifts.
“Many lenders also allow borrowers to switch to a better deal if rates fall further, offering a degree of financial flexibility.”
Halifax announced rate reductions of up to 0.15% on two year and selected three year fixed rate products yesterday.
At the moment, the average two-year fixed-rate deal is 5.39%, while the average five-year fixed rate is 5.22%, according to moneyfactscompare.co.uk.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
Credit card and loan rates
There is unlikely to be any change after today’s announcement.
If the base rate is changed, the cost of borrowing through loans, credit cards and overdrafts can go up when they rise and sometimes borrowing will get cheaper if they fall.
However, certain loans, such as personal loans or car financing, usually stay the same, as you have already agreed on a rate.
With rates held, any rates you are paying on credit cards and loans are unlikely to change for now though.
Holly Tomlinson, financial planner at Quilter said: “Higher interest rates mean borrowing remains expensive, whether you’re using a credit card, personal loan, or car finance.
“With today’s decision to hold rates, credit costs won’t rise further for now, but they are unlikely to fall significantly in the short term.
“For those planning to borrow, it’s important to shop around and avoid taking on unnecessary debt, as rates will remain higher than they were just a couple of years ago.”
How can I find the best credit card rates?
YOU should always use an eligibility calculator before applying for credit.
That’s because every credit card application leaves a mark on your credit file and can affect your credit score.
To assess all the available cards, visit price comparison websites like MoneySavingExpert’s Cheap Credit Club or Compare the Market.
Once you run your details through an eligibility calculator and you’ve been shown that you’re likely to be accepted, make a formal application.
To do this, you will need to provide your name, address and email address as well as details of your income so a provider can assess your eligibility.
You will also need to provide details of how much money you want to transfer to the new card, but you can often do this after you have been accepted.
If your application is approved, you will need to transfer the balance within a set period, usually around 60 or 90 days.
Your old balance will then be cleared and you can start making interest-free repayments on your new card.
Savings rates
Savers are the main group to have benefited after the consecutive rate rises.
This is because banks tend to battle it out to offer market-leading rates.
That said, banks are usually much slower to pass on higher rates to savers.
Savers are being warned that top rates are at risk of disappearing as further rate cuts loom.
Average savings rates have been steadily declining over the past 12 months.
Currently, average easy access rates stand at 2.84%, down from 3.18% in March 2024, according to moneyfactscompare.co.uk.
Similarly, the average one year fixed bond rate has decreased from 4.61% to 4.15% since March 2024.
Myron Jobson, senior personal finance analyst at interactive investor, said: “Those with cash savings will welcome the hold – but the best savings rates appear to be on borrowed time.
“Barring any economic shocks, the only likely direction for interest rates is downward, which means Britons are set to earn even less on their savings in the future.
“The simple message for savers is to act quickly to secure the best deals before they disappear.
“Those who can afford to lock away their money for at least five years or more should consider investing for the potential of long-term, inflation-beating returns that far outstrip current savings rates.”
How can I find the best savings rates?
WITH your current savings rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you an eternity.
Research price comparison websites such as Compare the Market, Go Compare and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you’ll want to consider any account that currently pays more interest than the current level of inflation – 3%.
It’s always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you’re saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.
Pensions
The BoE’s base rate also impacts pensioners looking to buy an annuity.
A pension annuity converts your pension pot into a guaranteed regular income for the rest of your life.
However, because annuity rates are linked to the cost of government borrowing, any rise or fall in the BoE’s base rate can impact the rate you receive.
The income you receive can be locked in on the day you purchase your annuity, so current annuity rates can make a big difference to your long-term financial security.
With interest rates unchanged, pensioners will still be able to secure favourable rates.
