The Bank of England (BoE) sets the official bank rate 8 times per year. If the base rate changes, it can immediately impact personal finances. Savings rates, mortgage rates and personal loan interest are all heavily influenced by what the Bank of England decides. After years of ultra-low interest rates in the UK, we are now seeing a lot of changes to the base rate due to high inflation.
According to a February 2024 report from the Bank of England, the base rate is forecast to gradually fall this year from the current rate of 5.25% to around 4% by the end of 2024 and reach 3.25% by the start of 2027.
| Date | UK base rate forecast | Previous base rate forecast (Nov 2023 report) |
|---|---|---|
| January - March 2024 | 5.10% | 5.30% |
| January - March 2025 | 3.90% | 5.00% |
| January - March 2026 | 3.30% | 4.40% |
| January - March 2027 | 3.25% | 3.25% |
The Bank of England’s Monetary Policy Committee (MPC) meets 8 times a year to discuss the state of the economy and determine the base rate. They can choose to raise it, lower it or hold it.
The committee is composed of 9 members, including the Governor of the Bank of England, 3 Deputy Governors, the Bank’s Chief Economist and 4 external members appointed directly by the Chancellor of the Exchequer.
Each member of the MPC is an expert in economics and monetary policy and is independent, so they do not represent any particular group. There is also a representative from HM Treasury present – they can discuss policy issues but are not allowed to vote.
Before deciding on the best course of action, they have a series of meetings to assess the current state of the UK economy and what forecasted inflation and growth look like. The MPC members then vote on what the base rate should be set at, and the majority wins.
In short, the MPC’s role is to adjust the base rate to maintain a balance between preventing high inflation and supporting economic growth. These regular meetings ensure they can react promptly to changing economic conditions.
The next base rate meeting is on 9 May 2024. The Bank of England’s Monetary Policy Committee (MPC) meets 8 times a year.
| MPC meeting schedule 2024 |
|---|
| 1 February |
| 21 March |
| 9 May |
| 20 June |
| 1 August |
| 19 September |
| 7 November |
| 19 December |
The 3 main factors that determine interest rates are inflation (how fast prices are rising), the overall growth of the UK economy and current rates of employment.
The Bank of England has increased the base rate in increments since December 2021. They decided to do so because of various economic shocks causing high inflation.
The first was the coronavirus pandemic, which led to a shortage of products and increased demand, which began to push up prices. This was followed by Russia’s invasion of Ukraine in February 2022, which significantly impacted the price of food and energy around the world and in the UK.
A shortage of workers also happened after the pandemic, as some people decided not to return to work or to retire early. This meant that businesses had increased hiring costs.
As a result, inflation began growing, and the Bank of England has raised the base rate from 0.1% in December 2021 to 5.25% in August 2023.
Inflation has come down significantly from a peak of 11.1% in October 2022, but it still has not reached the BoE’s target rate of 2%, which is why they have decided to hold the base rate at the last few meetings.
However, it has been confirmed that the UK economy is in a recession, so the Bank of England is expected to begin lowering the base rate in the coming months.
The savings rates available to you should increase in line with the base rate if this goes up. When the base rate is higher, interest rates rise, meaning you earn more on your savings balance. On the other hand, if the base rate is kept low, savings rates are also low, and it’s not as rewarding for consumers to keep money in savings accounts.
There has been criticism that banks do not pass on interest rate rises to consumers quickly enough with their savings products. Savings rates tend to be lower than the base rate, as banks normally pay less to savers than they charge on loans so they can cover their costs.
While a higher base rate tends to be good news for savers, it generally means that mortgage holders will pay more as interest rates rise. Since the middle of 2022, mortgage rates have been much higher than is typical due to a higher base rate.
Average mortgage rates peaked around the middle of 2023 but have been gradually coming down as inflation has lowered. As the base rate is still at 5.25%, mortgage rates still remain high, meaning that many homeowners are having to make significant monthly payments on their property.
The base rate is one factor in how providers price their mortgages. While mortgage rates don’t follow it exactly, the higher the base rate is, the higher mortgage rates available are likely to be.
If you’re looking to get a new mortgage deal, there are some things you can do to secure the best rate for yourself. For example, if you’re remortgaging, did you know you could secure a new deal for yourself 6 months before your current deal ends? If it looks like the base rate is likely to climb higher, it’s sometimes a good idea to lock in a deal ahead of time to get a more competitive rate.
It’s also worth comparing different mortgage deals, not only among different providers but also different types of mortgage products and term lengths. For example, you have the choice between fixing your rate for a set period or tracking the base rate. When things are volatile with the base rate, it’s probably the wiser choice to fix so you know what your monthly repayments will be each month.
If you do opt for a fixed rate, compare shorter term and longer term deals. Do you want to fix for 2 years in the hope there will be better rates available at the end of your term? Or do you go for 5 years so you have the security of knowing what you are paying each month for a time?
It’s also important to consider the overall cost of the mortgage, not just the rate. This means taking into account any fees, whether this be arrangement fees or early repayment charges.
As with mortgage rates, credit card rates also increase as the base rate rises, making it more expensive to borrow money. The average interest rate on a credit card in 2024 is 24%, the highest it has been since recording of averages began in 1995, according to data from the Bank of England.
If you are planning to take out a new credit card, loan or overdraft at the moment, you’ll see much higher interest rates, which will increase your monthly repayments.
The base rate was last as high as it is now (5.25%) back in February 2008. Following the global financial crisis and subsequent recession in the UK, the Bank of England decided to lower the base rate in increments before it reached 0.5% in March 2009.
It stayed low for a long period between 2009 and 2021 before the Bank of England started increasing it in December 2021. This was a period of some of the lowest interest rates the UK had ever seen – good for mortgages and credit products but bad for savers.
At Finder, we have brought together an expert panel of academics, economists, mortgage experts and savings experts, asking them for a range of predictions and opinions on what will happen with the base rate at the next BoE meeting and for the rest of the year.
| Full name | Organisation | Title |
|---|---|---|
| Alan Shipman | The Open University | Senior lecturer in economics |
| David Hollingworth | L&C Mortgages | Associate director |
| David McMillan | University of Stirling | Professor in finance |
| George Sweeney | finder.com | Deputy editor |
| Kate Steere | finder.com | Deputy editor |
| Konstantinos Lagos | University of Sheffield Hallam | Senior lecturer in business and economics |
| Luciano Rispoli | University of Surrey | Senior lecturer in economics |
| Paul Dales | Capital Economics | Chief UK economist |
| Sam Miley | CEBR | Managing economist and forecasting lead |
| Stephen Sillars | Chip | Savings and investments editor |
| Charles Read* | University of Cambridge | Fellow in economics |
| Muhammad Ali Nasir* | Leeds University | Associate professor in economics |
| Giles Coghlan* | HYCM | Chief market analyst |
| Rob Peters* | Simple Fast Mortgage | Principal |
| Phillip Rush* | Heteronomics | Founder and chief economist |
| Nitesh Patel* | Yorkshire Building Society | Strategic economist |
All 10 experts in our panel believed the Bank of England would hold the base rate at 5.25% on 1 February 2024.
5 of the 10 experts in the panel (50%) believe the base rate will be lowered at the Bank of England meeting on 20 June 2024.
One of these is Luciano Rispoli, senior lecturer in economics at the University of Surrey, who explained, “I think the Bank will want to adopt a “wait-and-see” approach. It’s true inflation is coming down but, in my view, the monetary policy committee wants to see more continuous sustained decreases towards the 2% target.” He added that cutting interest rates at this point “might “undo” all the progress made in terms of battling inflationary pressures”.
George Sweeney, deputy editor at finder.com, agrees, adding that “I don’t expect them to make forward-thinking changes like lowering rates until they have hard data (which is backwards-looking) that clearly spells out an easing of inflationary pressure”.
2 of the 10 experts believe the base rate will be lowered slightly earlier at the meeting on 9 May 2024. One of these is Sam Miley, managing economist and forecasting lead at CEBR, who explained that “inflation is expected to slow sharply from April as a result of energy price changes. This is the first meeting after that policy change”.
A further 2 experts believe the base rate will be lowered later, on 1 August 2024. David Hollingworth, associate director at L&C mortgages, states that “the MPC has been clear that it will not rush to cut rates until inflation is under tight control, and the recent inflation numbers proved that this won’t be a journey without some bumps along the way”.
Just one of the experts expects interest rates to fall in the meeting on 21 March. Alan Shipman, senior lecturer in economics at the Open University, said, “by March, the weakness of investment and GDP growth will make it clearer that the Bank raised rates too far, too fast in 2022 and 2023”.
70% of experts believe the base rate will sit at 4.5% by the end of 2024, with the last meeting taking place on 19 December 2024.
Kate Steere, editor at finder.com said, “if rate cuts are not starting until mid-way through 2024, the bank will want to do this gradually so it can monitor the impact. It remains a balancing act between tackling inflation and protecting economic growth”.
Despite expectations that there will be “a slow downward trajectory for rates”, David McMillan, professor in finance at the University of Stirling, also noted that current geopolitical risks could derail these predictions. He said, “there obviously remains risks on the horizon, predominantly in the form of geopolitical risks, which could have an impact on energy prices. This could, however, have the double effect of raising inflation while tipping the UK into a deeper recession”.
The remaining members of the panel were undecided, with 1 out of 10 predicting a fall to 4%, 1 out of 10 anticipating a fall to 3.75% and 1 in 10 believing that the rate will sit at 4.75% by the end of the year.
Luciano Rispoli, who expects interest rates to fall by a more modest 0.5% by the end of 2024, explained that “the economy has just embarked on a downward path in terms of inflation adjustment and decreasing interest rates significantly might work against this”.
Experts are split on whether the UK is likely to enter a recession in 2024. 3 in 10 (30%) believe we will, 30% believe we won’t and 40% are unsure. The general feeling is that we are yet to see the effects of past rate increases, so this is hard to predict.
Alan Shipman believes that “the delayed effects of interest-rate rises, Brexit and restricted private and public investment since 2020, plus a slowdown in UK exports to the EU and US, make a recession hard to avoid”.
George Sweeney adds, “I think we might enter a technical recession, but I don’t think it’s going to be particularly harmful, just a growth blip as the economy is fairly stationary”.
Stephen Sillars, savings and investment at Chip, believes a recession is unlikely, stating, “As we enter an election year, we could see growth-boosting measures from the Government to get us out of a period of low growth and stagnation”. However, he also acknowledges that “this could be usurped by wider geopolitical events impacting the global economy”.
Experts are split 50/50 on whether house prices will rise or fall this year, with 5 predicting one way and 5 the other.
Konstantinos Lagos, senior lecturer in business and economics at the University of Sheffield Hallam, predicts house prices to fall between 5% and 7.5%, stating that “the house market has been resilient so far, and I wouldn’t anticipate any housing market crash scenario taking place at this stage. And even though I would predict the housing market to correct, I don’t expect a big downturn”.
However, 40% of panellists think there will be a small rise of between 0% and 2.5% by the end of 2024.
David Hollingworth explains that “mortgage rates have already reduced, and if the base rate does start to fall, it’s bound to bring some renewed demand in the housing market. Lack of supply has already seen prices hold up more strongly, so any uptick in activity should make for a soft landing and even some slight increases in prices”.
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