Today the Bank of England (BoE) decided to hold the bank rate at 5.25% for the seventh time in a row.

The bank rate remains at the highest level since the 2008 financial crisis. There have been 14 consecutive bank rate rises since the end of 2021. However, since August the BoE has maintained the bank rate at 5.25%.

The MPC voted by a majority of 7–2 to maintain bank rate at 5.25%. Two members preferred to reduce bank rate by 0.25 percentage points, to 5%.

Are you wondering what the ‘bank rate’ means for you? You’ve come to the right place. Keep scrolling to find out everything you need to know about the latest interest rate announcement.

What is the 'Bank Rate’ and how is it set?

'Bank Rate' is the single most important interest rate in the UK. The Bank of England set this interest rate. It’s also referred to as the ‘Bank of England base rate’ or even just ‘the interest rate’.

The bank rate influences other interest rates in the UK's economy. E.g. the lending and savings rates offered by high-street banks and building societies.

The Bank of England’s Monetary Policy Committee (MPC) is responsible for making decisions about bank rate. The MPC is made up of nine members – the Governor, the three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking, the Chief Economist and four external members appointed directly by the Chancellor.

Typically, the Bank announces the MPC’s interest-rate decision every six weeks after reviewing how the economy is doing and whether a change in interest rates is needed. The next bank rate (aka the base rate or interest rate) announcement is due on 1 August 2024.

Why are interest rates high?

The Bank of England put up interest rates to try and bring the rate of inflation back down. Their job is to make sure inflation is low and stable. The annual rate of inflation reached a 41 year high of 11.1% in October 2022. It’s now fallen to the Bank of England's target of 2%

How does the interest rate rise affect you?

If you’re saving money

It’s good news for savers! If you have a savings account, the interest rate tells you how much additional money will be paid into your account, as a percentage of your savings. The higher the percentage, the more money paid into your account.

In theory, a high interest rate should lead to higher interest on savings accounts. Now is a good time to shop around to make sure you’re getting the most out of your money.

Our Smart Money People community has been sharing their honest experiences, so you can shop with confidence. Read savings reviews from real people, so you can start making better financial decisions when choosing the best financial product for you.

If you’re borrowing money

If you've taken out a loan, the interest rate is the amount you are charged for the borrowing money, shown as a percentage of the total amount of the loan. The higher the percentage, the more you have to pay back.

You usually agree to a fixed rate of interest when you take out a personal loan, such as finance to buy a car, so it usually won’t be affected by the bank rate increase.

If you have a mortgage

Since the bank rate remains unchanged, homeowners are unlikely to see a change.

Typically, your monthly payments will increase if the bank rate goes up and decrease if the bank rate goes down.* However, if you have a fixed-rate mortgage, nothing will change during the fixed period. If you’re not sure what mortgage deal you have, check your paperwork or with your mortgage provider to find out.

The pause in bank rate increases is good news for homeowners. It means we’re likely to see mortgage rates continue to fall. However, average mortgage rates are still a lot higher than those seen in the past decade. So borrowers who are still on cheap fixed-rate mortgages could get a big shock when they remortgage.

*Mortgage rates are based on a number of different factors, not just the bank rate.

What can we expect for the UK economy moving forward?

  • Inflation fallen to 2% but the MPC need to see more evidence that inflation will stay low before they cut the bank rate
  • We expect a cut from the BoE in August

Don’t suffer in silence

The rising cost of living is continuing to stretch budgets across the UK. If your money worries are having an impact on your mental health, don’t suffer in silence. There are plenty of free resources available that are ready to help you get back on track. Visit our blog which lists what support is available if you need it.

The contents of this blog don’t constitute advice. If you're struggling with your mental health and have money worries, please visit some of the resources listed here. For 24-hour support, you can also call Samaritans on 116 123.