Bank of England Base Rate Predictions

Read on as we explore the Bank of England base rate predictions for the future.

Updated: January 24, 2024
Matt Crabtree

Written By

Matt Crabtree


The last few years have been unpredictable, to say the least. One significant area of unpredictability is your finances. The headlines are awash with tales of interest rate hikes from the Bank of England, whilst bills and everyday living costs are much more expensive.

So, what are the reasons for the rising rates and what do we know about the future of your bank balance?

In this article, we will explain everything you need to know about the Bank of England base rate and discover reliable predictions to help you budget and manage your cash.

What Is the Bank of England Base Rate?

The Bank of England base rate is the interest rate set in the UK.

This is sometimes referred to as the ‘bank rate’ and is an important economic marker that influences other aspects of the UK economy. It is the most important interest rate in the UK. 

For example, the rates offered by banks on savings accounts are greatly influenced by the base rate, as well as mortgage interest rates and almost every other area of finance in the UK.

A target of the Bank of England is to keep inflation close to 2% and so the base rate is adjusted in the aim of managing inflation and the cost of everyday purchases for UK residents.

What Is the Current Bank of England Bank Rate?

As of October 2023, the current bank rate is 5.25% with a review due in November 2023. This is the highest base rate level seen in the UK for 15 years and is considerably higher than the inflation target of 2%.

UK Interest Rate
Image: BBC

The base rate remained unchanged at the last Monetary Policy Committee review, a move that shocked analysts who feared another base rate rise.

Is the Current Bank Rate Unusually High?

The current bank rate is much higher than the UK economy is used to in recent years. Since the 2007 recession in the UK, the base rate has been considerably low, hovering under 1% from March 2009 until May 2022. 

This meant that UK residents enjoyed lower costs when paying for their mortgage as well as other finance products.

However, a 5.25% base rate is not particularly high historically, featuring as a common Bank of England base rate prior to the 2007 recession in the UK. 

In fact, the base rate has hit drastic levels, measuring at 10.38% in September 1991 and reaching an all time high of 17% in November 1979.

Here is a table of the highest and lowest base rates measured in each decade since the 1970s:

UK Bank Rate 1970-2023
Image: Property Beacon

How Much Has the Bank Rate Increased in the UK?

The UK base rate was held at 0.1% until November 2021, resulting in an increase of 5.15% since this date. In total, the base rate has been increased 14 times in a bid to combat inflation and steady the UK economy.

The base rate was increased on 21 December 2021 from 0.1% to 0.25% and has been hiked at almost every Bank of England’s Monetary Policy Committee meeting since. The Monetary Policy Committee is the body that can change the base rate and meet on 8 occasions every year.

What Affects the Bank of England Base Rate?

The Bank of England base rate is affected by inflation. If inflation is rising rapidly, the bank’s Monetary Policy Committee (MPC) will increase the base rate in the aim of slowing down inflation.

The idea is that a higher bank rate means that people in the UK spend less money, reducing the demand for consumer products and lowering prices. 

The base rate and inflation compete against each other in an inverse reaction. A low base rate results in higher inflation whereas a higher base rate results in lower inflation.

As inflation in the UK rose beyond 10% in 2022, the Bank of England took necessary action to increase the base rate to lower inflation. This has started to work although it takes time to achieve targeted figures.

What Does the Base Rate Mean for Me?

The Bank of England base rate influences the interest rates that you might be charged when taking out a loan, a mortgage, or a credit card. If you accept one of these financial products when the base rate is high, you will pay more interest to the lender than you would if the base rate was low.

If you have fixed your mortgage or other financial product before the base rate increases, your repayments will not increase. However, when you need to lock in a new deal for your mortgage, for example, you will see a sharp increase in your mortgage repayments.

Fixing a new mortgage deal in the short term is a natural reaction for many homeowners. The UK economy is still experiencing unpredictability and the base rate could increase to a higher rate. 

Locking your deal now will at least provide you with some form of reliability so you can budget your repayments. However, you could regret fixing your mortgage deal if the base rate falls.

However, if you are on a variable or a tracker mortgage, you will pay fluctuating mortgage repayments and you will find it difficult to budget and plan your mortgage rates

There is some good news, however. If you have a variable savings account, your provider should relay the increased interest rates back to you, meaning that you will receive higher interest on your money saved.

What Is the Current Rate of Inflation in the UK?

As at 21 September 2023, inflation in the UK measured 6.1%, significantly higher than the 2% target set by the Bank of England. However, inflation in the UK rose above 10% towards the end of 2022, resulting in a significant fall in inflation during 2023.

What Is the Prediction for UK Inflation?

The Bank of England is predicting that inflation in the UK will continue to decline, reaching its 2% inflation target as we enter 2025.

Prediction for UK Inflation
Image: Commons Library

What Are the Bank of England Base Rate Predictions?

Experts have analysed that the recent stagnation in base rate from the Monetary Policy Committee signals the start of the base rate decline, foreseeing no further rises in bank rate.

In fact, predictions are rife that the UK will begin to experience base rate decreases on a steady incline throughout 2024 and 2025.

Bank of England Base Rate Forecast Graph
Image: This Is Money

In the short term as we enter 2024, we should see a stable base rate of 5.25% throughout most of the year before the base rate gradually declines. 

Ultimately, the Bank of England base rate forecast is predicting a steady rate of 3% at the beginning of 2026, with inflation also falling under its 2% target. 

Whilst a base rate of 3% is still considerably higher than pre-December 2021 levels, it should provide stability to the UK economy and to the interest rates paid by UK residents.

Bank of England Base Rate Predictions: Final Thoughts

The UK economy, like the rest of the world, has experienced a tumultuous period in time. With so much unpredictability and anxiety in the air, UK residents have paid more for the cost of living than in recent memory.

However, base rate predictions are looking positive. Zero base rate increases are foreseen during 2024, with a steady base rate decrease due to begin towards the second half of the year. Overall, the years ahead appear optimistic as the base rate and inflation both decline.

So, should you secure a fixed mortgage deal today? If you have struggled through the base rate increases of 2022 and 2023 and come out the other side, fixing a deal today may not be a wise choice. Mortgage rates should not increase further and should eventually begin to fall.

Therefore, opt for a variable or tracker mortgage in the short term, keeping a close eye on predictions to assess whether they come to fruition. If the base rate predictions are accurate, you could see a decrease in your variable or tracker mortgage repayments as 2024 progresses.

Related Guides:

Bank of England Base Rate Predictions: FAQs

What has been the impact of aggressive interest rate hikes?

What will the base rate percentage point measure at the end of 2023?

What is the purpose of the European Central Bank?

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