Bank of England base rate

The Bank of England's base interest rate is currently 3.5% . It was cut twice in March 2020 to ease the economic pressure caused by the coronavirus pandemic – from 0.75% to 0.25% on 11 March and to 0.1% just eight days later on 19 March.

However, it has been raised by the Bank of England several times in 2022, with the most recent increase taking it to 3.5%.

The Monetary Policy Committee (MPC), which sets the base rate, usually meets every six weeks to decide what should happen to it and announces its decision the next day.

However, in times of crisis it can meet more frequently - with the two cuts responding to the Coronavirus pandemic decided before its scheduled meeting on 25 March 2020.

The base rate is an interest rate set by the Bank of England (BoE). It’s the amount the Bank of England charges UK banks for borrowing money.

The amount UK banks charge their customers for borrowing money is often influenced by the current base rate. As a mortgage is a form of borrowing money, any change in the Bank of England base rate is likely to affect your mortgage interest rate.

How you’re affected will depend on the type of mortgage you have. If you have a tracker mortgage, the rate is normally directly linked to the base rate. So if the base rate increases or decreases, so will your mortgage rate.

Your payments won’t be affected if you have a fixed-rate mortgage until your fixed period ends. However, once your fixed-rate deal ends, you’ll be moved onto your lender’s standard variable rate, which is likely to be higher. It’s usually a good idea to get a new deal at this point to avoid paying interest at a higher rate, but base rate increases may mean the deals available are more expensive than the last time you got a mortgage.

If you have a discounted mortgage or standard variable rate mortgage, while not directly linked, this rate is often influenced by changes in the base rate. Your bank will notify you of any changes to your mortgage repayments in advance.

However, base rate increases don't necessarily mean variable and fixed mortgage rates will increase (with the exception of tracker deals). Following the mini-budget in September 2022 and economic turbulence as a result, lenders factored in significant price increases to many of their mortgage products.

As the economy has settled, mortgage rates have therefore actually decreased over the past few months despite the base rate increasing.

You might have also heard the Bank of England base rate referred to as the UK interest rate.

Banks will often set their own interest rates based on the current UK interest rate. How the rate impacts you will depend on whether you’re borrowing or saving money with your bank.

If you’re borrowing money through a mortgage or loan, your bank will charge you interest for borrowing that money. The interest rate is what is used to calculate the actual amount you’ll be charged. It’s a percentage of the total amount borrowed.

For example you might borrow £100. If the bank’s annual interest rate is 1%, you’ll pay £1 in interest over a year.

An increase in the current base rate is normally a bad thing if you’re borrowing money as your bank is likely to charge you a higher rate of interest, meaning you pay more.

When you save money, the bank will pay interest to you. That’s because, when you save, you’re handing your money over to the bank. This means you’re effectively lending the money to it so it needs to pay you interest for borrowing the money from you.

If you’re saving money, a rise in the UK interest rate is likely to benefit you as you’ll be earning more from the higher interest rate.

The Bank of England reviews the base rate eight times a year. The next MPC base rate announcement is set for 2 February 2023, with the following one on 23 March 2023.

In the review the Monetary Policy Committee makes a decision on whether the interest rate will increase, decrease or remain stable.

The base rate does not change every time the Bank of England meets. Interest rates were on hold at 0.1% from March 2020 to December 2021 before they started rising again.

The Bank of England raises and lowers its interest rate to help influence the UK economy. If the Bank of England makes the decision to raise interest rates, it encourages people to save more as they will get a higher interest rate on their money and the cost of borrowing will rise. 

Lowering the interest rate has the opposite effect, encouraging people to spend more, but this can lead to inflation. Inflation is the rate at which the prices of goods and services increase. A high inflation rate means we end up paying more for the things we spend our money on than previously.

Because of the effect a change in the base rate can have on people’s spending habits, the base rate is a key part of maintaining a stable economy.

Historically, interest rates have remained relatively stable throughout UK history since the Bank of England was founded in 1694 but certain periods in base rate history stand out:

The graph below shows how the base rate has changed since 2012:

Source: Bank of England

Here’s how the base rate has changed since 2006, starting from the most recent change: