The Bank of England has decided to keep its base interest rate steady at 4% while cautioning that the UK still faces inflation challenges. The base rate directly affects interest rates on various financial products like mortgages, loans, and savings accounts. When the base rate changes, financial institutions adjust their borrowing and saving rates accordingly.
The Bank of England’s Monetary Policy Committee voted 7-2 to maintain the base rate at 4%. Despite calls from two members to lower it to 3.75%, the rate remains at its lowest level in over two years, gradually decreasing from a peak of 5.25%. The recent decision was made following August’s inflation rate holding steady at 3.8%, which is significantly above the Bank of England’s 2% target.
Interest rates play a crucial role in managing inflation by influencing consumer spending behavior. Higher rates tend to curb spending as borrowing costs rise. The gradual decline in interest rates over the past year has been accompanied by a decrease in inflation from its 11.1% peak in October 2022.
Governor Andrew Bailey emphasized the need for cautious rate adjustments, stating that although inflation is expected to align with the 2% target, challenges persist. Different types of mortgages react differently to base rate changes. Tracker mortgages fluctuate with the base rate, while standard variable rate mortgages depend on the lender’s decision to pass on rate adjustments.
As millions of fixed-rate mortgages are set to expire in 2025, experts advise borrowers to explore new options before their current deals end. Understanding the impact of base rate changes on credit cards, loans, and savings accounts is essential for financial planning amidst economic uncertainties.
Savings rates have improved in the past with base rate increases, offering options like easy-access accounts, fixed-rate accounts, and notice accounts with varying interest rates. Shopping around for higher yielding accounts is recommended to combat inflation’s eroding effect on savings. Stay informed with the latest money-saving tips by subscribing to the Mirror Money newsletter.
