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Base rate held at 5.25% again – but with a possible cut in August, what does it mean for your mortgage and savings?

The Bank of England has held the base rate at 5.25% for the seventh time in a row. But with some economists and traders still predicting a rate cut in August, there could be 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).

Why the base rate was held again

Since the base rate was held last month, headline inflation has fallen again and has now hit the Bank's target of 2%. The Consumer Prices Index (CPI) measure of inflation stood at 2% in the year to May – down from 2.3% in the year to April (though this doesn't mean prices are lower – just that they're not going up as quickly).

Despite this, the Bank of England's 'Monetary Policy Committee' – which is responsible for setting the base rate – has chosen not to cut it just yet. The latest decision saw seven members vote to keep the current rate of 5.25%, while two members voted to reduce it to 5% – the same split as the previous decision in May.

Andrew Bailey, the Bank's governor, said policymakers "need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25% for now".

The Bank noted that some members of the committee were particularly concerned about ongoing high inflation in the services sector. But it added that today's decision was "finely balanced" for other members – suggesting a cut could be on the cards at the next meeting in August.

Markets and analysts think we could see an August rate cut

Ruth Gregory, deputy chief UK economist at Capital Economics, said: "The Bank of England predictably left interest rates unchanged at 5.25% today, but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. As a result, we still think there is a good chance of a rate cut in August".

James Smith, developed markets economist at European bank ING, agreed: "It's clear the committee is getting closer to the point of cutting rates. Assuming the next inflation report in mid-July doesn't contain any nasty surprises, we still think the Bank will vote for a rate cut in August."

Shortly after the Bank's decision on Thursday 20 June, financial technology firm Bloomberg reported that money market traders were pricing in a more than 50% chance of an August cut.

Mortgage rates are unlikely to change much in the short term

Variable-rate and fixed-rate mortgage deals were mostly static between the base rate decisions in May and June – for example, on 9 May 2024 the cheapest open market two-year fix was 4.77%, compared to 4.78% on Thursday 20 June.

Given that the Bank's decision to hold the base rate again this month was widely expected, mortgage brokers say it's unlikely to move the needle on rates.

Ray Boulger, of mortgage brokers John Charcol, said: "I expect little change in mortgage rates in the short term. [There may be] small movements both up and down, depending on where lenders want to position themselves, but with more reductions than increases."

David Hollingworth of L&C Mortgages agreed that mortgage pricing would "remain stable" for now. He added: "Those holding out in hope of a rapid fall in mortgage rates may have a wait on their hands."

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 (or four months if you're with Nationwide or Santander). 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 more expensive than the cheapest fixes – so you'd need rates on fixes to come down quickly or 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 could fall in the months ahead

Savings rates have largely held steady in recent weeks – and there are some strong deals on offer at the moment.

However, with the base rate being held again – and a cut on the horizon – it looks likely that savings rates will dip in the short-term. Easy-access rates are especially likely to fall, as they're more closely linked to the base rate.

Myron Jobson, an analyst at investment platform Interactive Investor, said: "The best savings rates are on borrowed time."

I'm a saver – what should I do?

In our weekly email last week, MoneySavingExpert.com founder Martin Lewis wrote:

"Boosting interest is usually simple: take your money out of a pee-poor interest account, then put it somewhere that pays more. Yet millions leave money earning diddly squat (check your savings, if it's under 4%, that's you). So it's time for some savings self-care."

See Martin's seven accounts every saver needs-know-about and check out the latest deals in our regularly-updated Top savings guide.

Additional reporting by the Press Association.

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