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Bank of England holds base rate at 5.25% again – but with a cut now on the horizon, what does it mean for your mortgage and savings?

The Bank of England has held the base rate at 5.25% for the sixth time in a row. But there are now stronger signs that a rate cut might be coming soon – which could have a knock on impact on mortgage and savings rates. Here's what you need to know.

The base rate is used by the central bank to charge other banks and lenders when they borrow money – and so it influences what borrowers pay and what savers earn. It's also used by the Bank as a tool to control inflation (the rate at which prices rise).

A rate cut could be coming soon – but it's not a done deal

Since the base rate last changed in August 2023, inflation has fallen substantially and is now much closer to the Bank's target of 2%. The Consumer Prices Index (CPI) measure of inflation fell to 3.2% in the year to March – its lowest level since September 2021.

The Bank's 'Monetary Policy Committee' (MPC) is responsible for setting the base rate. The latest decision saw seven members vote to keep the current rate of 5.25%, while two members voted to reduce it to 5%. In March, only one member voted for a cut.

And there were positive signs in the MPC's report that the wider economy is "expected to start growing again". It also noted that inflation is "projected to fall to slightly below the 2% target" by the end of June. 

The Bank's governor Andrew Bailey said he was "optimistic that things are moving in the right direction" – but he cautioned that the Bank would need to see "more evidence that inflation will stay low" before a rate cut could happen.

Markets and analysts think an August rate cut is most likely 

The base rate is next due to be reviewed by the MPC in June, and then again in August. While Mr Bailey has said a June rate cut is not "ruled out", external analysts say a cut in August is more likely.

Laith Khalaf, head of investment analysis at investment platform AJ Bell, said: "Markets currently think it’s a coin toss whether we get a UK rate cut in June, but this rises to a three in four chance priced in by August."

James Smith, developed market economist at European bank ING, added: "The Bank of England is getting very close to its first rate cut. We're still leaning slightly more towards an August start date for rate cuts, though it's a close call."

New jobs market figures released on Tuesday 14 May ignited a fresh round of speculation over the timing of a rate cut, but the overall picture hasn't shifted much.

Max Mosley, senior economist at the National Institute of Economic and Social Research, said: "A tight labour market driving elevated and persistent wage growth (especially in the services sector) is why the Bank is hesitant to cut interest rates. Given this, we now don't expect to see any rate cuts until August."

Mortgage rates are unlikely to improve much in the short-term

Since the base rate was last held, new variable-rate mortgages have remained largely unchanged, while fixed-rate deals have increased in cost – the cheapest open market two-year fix is currently 4.77%, compared to 4.53% on 21 March 2024.

With fixes already getting slightly more expensive, mortgage brokers say the Bank's latest decision to hold the base rate is unlikely to lead to any significant change for the time being.

David Hollingworth of L&C Mortgages said that "the expectation of fewer base rate cuts this year than previously expected" had led to lenders increasing rates over the past few weeks – and that the Bank's most recent decision "did not come as a surprise", so it's unlikely to result in any major change.

Ray Boulger, of mortgage brokers John Charcol, largely agreed: "I think most of the revised thinking on the timing of rate cuts is now factored into current mortgage pricing." But Mr Boulger noted that 'swap rates' (which lenders pay to get funding for fixed-rate mortgages) had improved slightly just after the latest announcement – so we could see a "marginal" drop in some fixes over the coming weeks.

I have a mortgage – what does this mean for me?

Here are the key need-to-knows for mortgage borrowers:

  • For those on a fixed mortgage deal there's no change for now – but make sure to check rates if your deal is ending soon. The amount you pay WON'T change during the fixed period, regardless of what happens to the base rate. Though this also means you're locked in if interest rates were to come down.

    If you're looking for price certainty and you're close to the end of your current term, you might want to look for a new mortgage deal now. You can usually lock in a mortgage offer six months ahead of time. This will give you insurance against any rate rises, plus the flexibility to switch to a cheaper deal if one launches before your current rate finishes. 

    If your fix is ending sooner, you could consider a tracker that doesn't come with early repayment charges. That way, if rates come down over the coming months, you could move onto a fixed deal penalty-free at a time of your choosing. But bear in mind that trackers are currently around one percentage point more expensive than the cheapest fixes – so you'd need rates on fixes to come down substantially to make it worth being on a more expensive tracker rate in the meantime.
  • If you're on a tracker mortgage that 'tracks' the base rate, then again there's no change. Though as above, check if you can switch to a better rate if your deal is coming to an end.
  • If you've got a standard variable rate (SVR) mortgage, these can already move at the whim of lenders. You're usually moved onto one after your fix or tracker ends. However, SVRs are typically more costly than fixed and tracker deals – currently they tend to range between around 7.5% and 8.5%. So, you should check if you can save by switching now. If you're waiting for fixed deals to come down, you may want to consider a tracker with no exit fees in the meantime.

For the pros and cons of remortgaging early or locking into a product transfer, see our Getting ready to remortgage guide.

If you're struggling with the cost of your mortgage, see our guide on What to do if you're struggling to pay. If you've already fallen behind on your repayments, see our Mortgage arrears guide.

Savings rates have fallen in recent months – and could drop further

Since the base rate was last held in March, savings rates have fallen across the board. For example, the top one-year fix at the time paid 5.26%, whereas the top one-year fix now pays 5.18%.

With the base rate being held again, savings rates are very unlikely to improve in the short-term, especially on easy-access accounts (which are more closely linked to the base rate). And given that financial markets are expecting a base rate cut in August, we could see savings rates fall even further.

Myron Jobson, an analyst at investment platform Interactive Investor, said: "The best savings rates are seemingly on borrowed time due to the anticipation of cuts to interest rates later in the year."

I'm a saver – what should I do?

The first step to maximising your savings is to check what rate you're getting right now – if it's less than the top standard easy-access rate, which is currently 5.05%, you should consider switching.

The current top payers are as follows:

  • Unusually, the top-paying easy-access account right now is a cash ISA at 5.17% – with some caveats. Cash ISAs are just savings accounts you never pay tax on, and everyone in the UK aged 18 or over can deposit up to £20,000 in them in this tax year (which ends on 5 April 2025).

    Normally cash ISAs tend to pay a bit less than standard savings, but right now it's the opposite, with app-only Plum paying the top rate of 5.17%. However, it only lets you make three penalty-free withdrawals a year – see our Cash ISAs guide for the full details.

  • For standard easy-access accounts, Paragon is top with 5.05%. It has a minimum deposit of £1,000. However, it only allows two withdrawals before the rate drops. Oxbury pays a slightly lower 5.02% and allows unlimited withdrawals, though you'll need a hefty £20,000 or more to open the account.
  • If you can wait to access your cash, you can get up to 5.25% with a notice account. Investec is offering 5.25% for 90 days' notice with a minimum deposit of £5,000. If you need your money sooner, Monument Bank pays 5.2% for 45 days' notice, but you'll need £25,000 to open the account.
  • If you can afford to lock away your money, you can get up to 5.18% with a six-month fix from Zenith Bank on savings of £1,000 or more, or up to 5.18% with a one-year fix from SmartSave for those with a minimum deposit of £10,000. If you've less to save, Zenith Bank also offers 5.15% on a one-year fix with a minimum deposit of £1,000.

Additional reporting by the Press Association.

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