The Bank of England announced its latest decision today (November 6)
The Bank of England has opted to maintain its base interest rate at 4 per cent today (Thursday, November 6) following its final meeting before the Budget. This base rate influences the interest applied to numerous financial products, including mortgages and loans, and also affects the interest you earn on your savings.
When it rises, interest rates typically increase, and when it falls, borrowing usually becomes less expensive. Whether you end up paying more or less depends on whether your interest rate is variable or fixed.
Interest rates are currently at their lowest level in over two years, having gradually decreased from their peak of 5.25 per cent. This marks the second consecutive meeting where the Bank of England Monetary Policy Committee (MPC) has held the base rate steady.
Five members of the MPC voted to keep the base rate unchanged, while four members advocated for a reduction of 0.25 percentage points to 3.75 per cent, reports the Mirror.
This is the last time the MPC will convene before the Budget on 26 November. The latest decision by the Bank of England follows September’s inflation rate remaining steady at 3.8 per cent.
Despite inflation not increasing, it remains nearly double the 2 per cent target that the Bank of England is striving for. The Bank of England announced today that it believes inflation has “peaked” and will decline in the coming months before falling to 2 per cent in 2027.
Andrew Bailey, governor of the Bank of England, said: “We held interest rates at 4 per cent today. We still think rates are on a gradual path downwards but we need to be sure that inflation is on track to return to our 2 per cent target before we cut them again.”
The Bank of England utilises interest rates to maintain control over inflation. The concept is that when interest rates rise, individuals tend to spend less as their borrowing expenses have gone up.
This consequently helps to reduce demand, which means businesses are less capable of increasing prices, and price rises decelerate. Inflation has dropped from its peak of 11.1 per cent in October 2022, which has resulted in interest rates also declining.
How it impacts your mortgage
Everything depends on the type of mortgage you possess. Should you have a tracker mortgage, this follows the movement of the base rate. Since the base rate hasn’t altered today, you won’t notice any immediate change to your monthly payments.
Should you have a standard variable rate (SVR) mortgage, it’s up to your mortgage provider to determine whether they implement any base rate modifications. Once again, no alteration has been revealed today, so your payments will probably remain unchanged.
Approximately 1.3 million households are on a tracker or SVR mortgage. Should you have a fixed rate mortgage, you’ve committed to paying a set sum each month for a specified duration. This means your payments remain unaffected by the base rate and won’t alter until your fixed deal concludes. An estimated 1.8 million fixed rate mortgages are due to expire in 2025.
Matt Smith, Rightmove mortgages expert, said: “Some good news is that the cost of financing mortgages has actually come down in recent weeks. We’ve started to see some lenders become more competitive in certain segments of the mortgage market in recent days, and offer some headline-grabbing cheaper rates, as they look to secure some final business before the end of the year.
“The average two-year fixed mortgage rate is now 4.44 per cent – down from 4.95 per cent at this time last year. The downward trend is good, but mortgage rates have come down more slowly than many were predicting at this time last year.”
How it impacts your borrowing
Should your credit card be tied to the base rate, your interest rate may fluctuate when it’s revised. The typical credit card purchase APR stands at approximately 35 per cent, according to Moneyfacts.
Since there’s no adjustment to the base rate today, you shouldn’t notice any modifications to your credit card if it’s connected to the base rate. Not every credit card is tied to the base rate. Given that most credit card rates are variable, they can shift periodically regardless.
Interest rates on personal loans and car finance are typically fixed. This means if you’re currently in an agreement, this shouldn’t alter even when the base rate is revised, as you’ve already committed to set repayments. However, a shift in the base rate can influence the rates applied to new agreements.
Charlie Evans, Money Expert at Compare the Market, stated: “For borrowers with credit cards or personal loans, rates are likely to remain largely unchanged for now. But it’s worth noting that many providers set their own rates independently of the Bank of England. This means you could still find a more affordable deal by comparing what’s available, depending on your credit score and the type of card you’re applying for.”
How it impacts your savings
Previously, when the base rate was higher, savings rates increased – and although they have slightly decreased, there are still numerous deals out there that offer more than inflation. Variable savings rates can alter when the base rate is updated, but if your money is secured in a fixed-rate account, then your rate won’t change.
MoneySavingExpert.com identifies the best easy-access rate as 4.51 per cent from Monument Bank – however, this is only for new customers as it includes a 0.74 per cent bonus rate for 12 months.
The top rate on an easy-access cash ISA is 4.53 per cent from Trading 212 for new customers. This includes a 0.68 per cent newbie bonus.
You can deposit up to £20,000 into an ISA each tax year and any interest you earn is tax-free. If you can afford to secure your cash, MSE indicates that the top fixed rate account is from Monument Bank, offering 4.47 per cent for a one-year fix.
Notice accounts are also available, with OakNorth Bank leading the MSE table offering a rate of 4.54 per cent if you provide 95 days notice for when you wish to withdraw.
Regular savings accounts offer the best rates, but they come with stringent terms and conditions. Typically, only small deposits can be made each month and some accounts limit the number of withdrawals you can make.
Principality Building Society offers a fixed 7.5 per cent for six months, but you can only deposit up to £200 each month. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, stated: “Keeping interest rates on hold at 4 per cent is welcome news for savers as it means average savings rates may stay higher for longer. Savings rates have been edging down in recent months and, with inflation still sticky, real returns are shrinking. Savers should avoid sitting on the sidelines waiting for conditions to improve.”
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