MONEY TALKS
Bank of England confirms key interest rate decision – affecting everything from mortgages and credit cards to savings
The Bank has signalled that rate cuts are likely to come in future
MILLIONS of households will breathe a sigh of relief as the Bank of England left interest rates unchanged again today.
Decision-makers on the Bank's Monetary Policy Committee (MPC) have now kept interest rates at 5.25% for a fifth consecutive time.
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Banks and lenders use the Bank of England (BoE) base rate to set the interest rates it offers customers on mortgages, loans and savings.
Andrew Bailey, BoE governor, said: "In recent weeks, we've seen further encouraging signs that inflation is coming down.
"We've held rates again today at 5.25% because we need to be sure that inflation will fall back to our 2% target and stay there.
"We're not yet at the point where we can cut interest rates, but things are moving in the right direction."
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At its latest meeting, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%.
It comes only a day after the CPI measure of inflation fell to 3.4% last month - down from 4% in January and the lowest since September 2021.
Most economists had been expecting it to come in at 3.5%.
It means that inflation is now edging closer towards the BoE's 2% target.
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Inflation is a measure of how much the prices of everyday goods like food and clothes, and services like train tickets and haircuts, are now compared to a year earlier.
Most analysts and investors have said they think the BoE will only cut rates for the first time in the third quarter, probably at its August meeting.
However, earlier on Thursday, financial markets were predicting a nearly 70% chance of a first cut in June, with almost three quarter-point reductions priced in over 2024.
It would reverse a four-year trend of rates being either hiked or kept unchanged at every Bank meeting.
A rate cut is expected to reduce mortgage costs for millions of households.
It comes after the bank rate increased from historic lows of 0.1% in December 2021.
What is inflation and what does it mean for me?
It was increased to tackle soaring inflation.
High rates are meant to dampen demand and spending — resulting in inflation rates slowing.
Since September, the bank rate has been held at 5.25% as inflation has slowed, easing the burden on those with mortgages.
We've explained exactly what another rate pause means for your finances below.
What does it mean for my mortgage?
Usually, if rates rise, it means that mortgage bills, depending on the type you have, will increase.
Those on a fixed-rate deal tend to be safe until they remortgage.
However, other mortgages, such as tracker or standard variable rate (SVR) mortgages, can be impacted immediately.
Homeowners on variable-rate mortgages might not see their repayments increase immediately, but they likely increase shortly after interest rates are hiked.
But the exact amount depends on your borrowing and your loan-to-value.
However, if the BoE freezes the current rate, your lender may choose to do nothing.
This will be a huge relief to those who have faced 14 consecutive increases to their mortgage bill.
Either way, your bank should warn you of any increase to your rate before it goes up.
Peter Stimson, Head of Product at the mortgage lender MPowered, said: "Anyone hoping that the Bank of England would provide some instant relief for mortgage borrowers will be disappointed by today's decision.
"Given the pain that high interest rates are imposing on existing homeowners, and on the additional 1.5million homeowners who are due to roll off a fixed-rate mortgage during 2024, we feel a cut to the Base rate is due now.
"But there is a chink of light. The question now is when and how fast it will cut rates."
We've also explained how you can find the best mortgage rate deal.
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank's rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country's GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially - the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises - consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower - but their bills could drastically increase when it's time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
What does it mean for credit card and loan rates?
Again, if the base rate is hiked, the cost of borrowing through loans, credit cards, and overdrafts can increase, as banks are likely to pass on the increased rate.
Certain loans you already have, like a personal loan or car financing, will usually stay the same anyway, as you've already agreed on the rate.
But rates for any future loan could be higher, and lenders could increase the rate on credit cards and overdrafts - although they must let you know beforehand.
But when the rate hikes are paused, nothing is likely to change.
However, you can still cancel a credit card and have 60 days to pay off any outstanding balance.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners said: "Consumer borrowing costs on credit cards, loans, overdrafts and car finance have shot up since the BoE's rate-hiking cycle first began.
"Relying on credit to fund everyday living costs can be very stressful for households when the cost of servicing debt remains so high, but this is the reality for many as the economy tentatively eases out of the cost-of-living crisis.
"Inflation may have tumbled from its 41-year high of 11.1% in October 2022, but it remains above the BoE's target of 2%.
"This means borrowing costs will remain high for now because the
central bank has a delicate balancing act to navigate - continue curbing inflationary pressures while also giving households and the wider economy breathing space to grow."
How to get free debt help
THERE are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write-off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
What does it mean for my savings?
Savers are the main group to have actually benefited after the last 14 bank rate rises.
That's because banks tend to battle it out by offering market-leading interest rates.
Although banks are usually much slower to act than with passing on higher rates for borrowing.
Of course, if the base rate doesn't increase, banks will likely take advantage and keep their rates the same too.
Anyone currently getting a low rate on easy-access savings could find it's worth looking around for a better rate and moving their money.
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Myron Jobson, senior personal finance analyst at Interactive Investor, said: "
"When it comes to savings rates, the top deals continue to disappear rapidly. The simple message for savers is: act quickly to secure the best deals before they vanish."