The Bank of England has held its base interest rate at 5.25% ignoring the calls for it to be cut.
In its meeting today, the Monetary Policy Committee (MPC) have decided to stand its ground and keep the pause. This is the move many economists expected. However, many called on the Bank to cut interest rates after inflation fell to 3.2% in March - only 1.2% above the Bank’s 2% target and the lowest it has been in two years.
This week, the Shadow Monetary Policy Committee, which is hosted by the free market think tank the Institute of Economic Affairs, called for the Bank to cut rates as it risks doing “serious economic” damage by keeping rates too high for too long following a slowdown in the money supply. It warned that this could lead to unnecessary slowdown and potentially deflation.
Bank of England Governor said the Bank was optimistic the UK was moving in the right direction. It expects inflation to drop to its 2% target this year however, it needed more evidence that inflation would stay low before it could cut rates. However, the Bank's boss did not rule out a cut in June - although he didn't rule it in either. He said: "Let me be clear, a change in Bank Rate in June is neither ruled out nor a fait accompli."
The base rate has an impact on how much interest you pay when you borrow money, so mortgages and credit card rates usually get more expensive when it rises. Savers are considered the winners when the base rate rises are you are paid more money on your savings pots.
This live blog coverage has ended - but you can catch up on today's events below
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We're wrapping up our live coverage now. To recap: The Bank of England has once again held interest rates at 5.25% but is optimistic a cut is on the horizon. The Bank expects inflation to drop to close to its 2% in the "near term" - although it expects it to creep up again by the end of the year.
Today’s announcement means homeowners won’t face a hike in payments - however, the pause does mean that millions will face significant increases in their mortgage payments over the coming months.
When is the next Bank of England Monetary Policy Committee meeting?
All eyes will be on the next Bank of England meeting, which is scheduled to take place on June 20. The meeting after that is on August 1.
Why did two MPC members vote to cut rates to 5% today?
Two members of the Bank's Monetary Policy Committee voted to cut the base rate by 0.25 percentage points to 5% today and these were Sir Dave Ramsden and Swati Dhingra. She also voted to cut the base rate in February and in March.
In the MPC notes, paragraph 22 said: "Two members preferred a 0.25 percentage point reduction in Bank Rate at this meeting.
"For these members, the Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. Consumer price inflation was already, and had been for some time, on a firm downward trajectory. The latest forecasts showed inflation returning close to the target in the short term, and this was consistent with forward-looking indicators of output price inflation falling behind input price inflation.
"As the outlook for demand remained subdued, with vacancies continuing to fall and nominal pay growth easing, the risks to inflation returning sustainably to the target in the medium term were to the downside."
Base rate could be cut faster than expected says Bailey
The Bank of England's Governor tells reports in London that interest rates could potentially be cut faster than expected to keep around the Bank's 2% target.
He said: "We have no preconceptions about how fast and how far we might cut the rate. We will reach a new decision based on the evidence at each meeting. With the progress we have made, to make sure that inflation stays around the 2% target, and is neither too high nor too low, it is likely that we will need to cut the Bank rate over the coming quarters and make monetary policy somewhat less restrictive over the forecast period."
Crucially, he adds, the Bank may cut "more so than currently priced into market rates".
Markets expected the first rate cut to come in the summer, with the earliest being June with three cuts expected this year. However, economists now believe the first cut is looking more like August.
June base rate cut not ruled out - but not ruled in either
In a conference today, Andrew Bailey declared that the Bank was neither ruling out, nor ruling in, a rate cut at its next meeting on June 20. Bailey told journalists that before the next decision, the Bank should receive two inflation and labour market reports on which it will base its decision.
Andrew Bailey said: "Let me be clear, a change in Bank Rate in June is neither ruled out nor a fait accompli."
Inflation to return to 2% target this year says Bank
The Bank of England said inflation was on the right track and it expected it to return close to the 2% target in the "near term". However, it expects it to rise again towards the end of the year.
It said: "CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2.5%, owing to the unwinding of energy-related base effects. There continue to be upside risks to the near-term inflation outlook from geopolitical factors, although developments in the Middle East have had a limited impact on oil prices so far."
According to the Bank of England, in a year's time inflation is forecast to be at around 2.6% and then fall to 1.9% in 2026. Back in February, the Bank predicted that inflation would rise to around 2.75% by the end of 2024.
Bank faces criticism on the decision to pause base rate
The Bank of England is facing harsh criticism for its decision today.
Unite general secretary Sharon Graham, said: "The Bank of England needs to stop delaying and act. They were wrong when they blamed workers for rising inflation, and they are wrong again today. Leaving the base rate at this sixteen-year high does nothing for falling real wages and living standards. Workers cannot be made to pay for a crisis they did not create. At Unite, we keep fighting for better pay, terms and conditions by organising in our workplaces, rebuilding collective bargaining, and demanding an economy that puts workers and communities first.”
Business lobby group the Institute of Directors has said it was "disappointed" by the Bank's decision to hold rates, saying that two thirds of business leaders it surveyed wanted a cut.
The spokesperson said: "The UK economy remains fragile... [and] inflation is forecast to come down sharply in the coming months," said Roger Barker, its director of policy. In our view, these conditions would have justified an early interest rate cut."
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, called it “a missed opportunity to provide much needed relief for those people struggling with their mortgage bills and businesses facing numerous cost pressures.”
Carsten Jung, senior economist at think tank IPPR, said: “The Bank of England should have cut interest rates today. Economic growth has been close to zero and the labour market is cooling.”
Interest rates hold a 'hammer blow for homeowners' with 'more pain' still to come
The Liberal Democrat Treasury spokesperson Sarah Olney MP said the Bank's move today was a "hammer blow to homeowners" who were sold a "false dawn" of lower rates by the Government.
They said: "Millions of families are now left to cope with higher mortgages, with no end in sight to the cost of living crisis. The blame lies squarely with this incompetent Conservative government, who crashed the economy and unleashed mortgage turmoil. Rishi Sunak and Liz Truss owe families an apology for this mess."
Sam Richardson, Deputy Editor of Which? Money said the move would feel like "Groundhog Day" for homeowners hoping for a reduction. He said: "Prospective homebuyers and movers will still have fingers crossed that banks reduce fixed rates, but today's announcement is unlikely to bring about significant changes. Mortgage holders on a tracker or standard variable rate should see no change to their monthly repayments.
"With mortgage rates remaining stubbornly high, it's crucial that banks are ready to respond to their customers' needs with tailored support. Talking to your lender does not affect your credit rating and support available may include taking a payment holiday or only paying the interest on repayments. The regulator should keep a close eye on the situation, taking action where necessary."
Steve Vaid, chief executive at the Money Advice Trust, the charity that runs National Debtline, said high interest rates had already added to the pressure on many homeowners, however for those coming to the end of their fixed rate deal this year, the "pain was still to come".
He added: "I would urge anyone struggling to get in touch with their lender who can offer support, more than many people may think.”
Bank expects UK economy to grow this year
The UK fell into economic recession at the end of last year when the economy shrank for two consecutive three-month periods. However, the Bank of England forecast growth of 0.4% for the first three months of 2024 - up from 0.1% previously predicted, and growth of 0.2% from April to June. It further predicts a growth of 1% in 2025 - this is slightly higher than previous predictions.
The Monetary Policy Committee noted: "Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
"A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy."
'We need more evidence before we can cut rates but we are moving in the right direction'
The Monetary Policy Committee indicated it is still looking for more progress on factors including services inflation and wage growth, which have remained persistently high at about 6%, before cutting rates.
Bank of England Governor, Andrew Bailey commented: “We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months. We need to see more evidence that inflation will stay low before we can cut interest rates. I’m optimistic that things are moving in the right direction.”
Bank of England votes 7-2 to leave rates on hold
As widely expected, the Bank of England resisted pressure to cut rates, even though UK inflation has slowed to 3.2%. However, the vote was not unanimous. The nine members of the Monetary Policy Committee were split, with seven voting to hold rates and two voting to cut. No one voted to increase the base rate.
Voted to hold:
- Andrew Bailey
- Sarah Breeden
- Ben Broadbent
- Megan Greene
- Jonathan Haskel
- Catherine L Mann
- Huw Pill
Voted to cut
- Swati Dhingra
- Dave Ramsden
BREAKING: Bank of England pauses base rate at 5.25%
The Bank of England has paused the base rate at the 16-year high of 5.25%, ignoring calls for it to be cut.
Bank has faced calls for the base rate to be cut 'immediately'
The Shadow Monetary Policy Committee has called for the Bank to cut rates sooner rather than later.
The Shadow Committee is a group of independent economists whose purpose is to monitor the decisions of the Bank's official Monetary Policy Committee. This week it called for the base rate to be cut "immediately" as it risks doing “serious economic” damage by keeping rates too high for too long following a slowdown in the money supply.
Dr Andrew Lilico, chair of the Shadow Monetary Policy Committee and executive director of Europe Economics, said: “The Bank of England was too slow raising rates when inflation was rising because it missed the clear message from rapid growth in the money supply data. It has made a similar mistake in recent months but in the opposite direction: money supply has contracted or grown only far too slowly for many months, yet the Bank has failed to cut rates.
“The consequence so far has been that inflation is well below what the Bank predicted. The consequence in the future will be inflation significantly under-shooting the target and economic growth being damaged. Rates should be cut immediately.”
How the Monetary Policy Committee voted last time
The last time the Bank's Monetary Policy Committee voted on its base rate in March 2024, the majority voted to keep the Bank’s rate on hold at 5.25% at 8-1.
There was a lone voice for a cut from Swati Dhingra. The pressure to cut rates has risen and at least one other member may join her in banging the drum for lower borrowing costs.
However, some City economists believe the Bank could cut rates as soon as June, while others believe the Bank will stand its ground and hold on until July or August.
Who decides the Bank of England base rate?
This is down to the Monetary Policy Committee, which is made up of the following people:
- Andrew Bailey - Governor, Bank of England
- Sarah Breeden - Deputy Governor, Financial Stability
- Ben Broadbent - Deputy Governor, Monetary Policy
- Dr Swati Dhingra - External member, Monetary Policy Committee
- Megan Greene - External member, Monetary Policy Committee
- Jonathan Haskel - External member, Monetary Policy Committee
- Catherine L Mann - External member, Monetary Policy Committee
- Huw Pill - Chief Economist and Executive Director, Monetary Analysis
- Sir Dave Ramsden - Deputy Governor, Markets & Banking
One in four mortgage holders have used credit to keep up with payments, Stepchage warns
Research from debt charity StepChange found that nearly one in four mortgage holders have turned to some other form of credit or borrowing in the last three months so they could keep up with mortgage repayments.
The charity said that while it won’t be a surprise if interest rates are held today, those on expiring mortgage deals needing to secure a new rate will have been hoping for some respite by now – yet average new fixed rates are still just shy of 6%, more than double the rate on the expiring deal.
Richard Lane, Chief Client Officer at StepChange, said: “Homeowners facing payment shock at the end of expiring deals are often the clients facing the most sudden, acute cliff edges of unaffordable cost hikes.
“There are still hundreds of thousands of people set to face this kind of payment shock this year – the problem hasn’t yet gone away. So it’s crucial that Government continues to do everything possible to reduce the risk of people losing their homes as a result of mortgage rate hikes.”
According to figures released by UK Finance today, there were 96,580 homeowners in arrears of more than 2.5% in the first few months of this year.
How does the base rate affect credit cards and loans?
If your credit card is linked to the base rate, then how much you pay back in interest can be affected. You should get at least 30 days’ notice if your interest rate is going up.
Taking out a new credit now is more expensive compared to a year ago, due to how much rates have risen. Recent data from Moneyfactscompare.co.uk shows the average credit card interest rate is 35.1% - this is the highest since records began in 2006.
Interest rates on personal loans and car financing are usually fixed, but this is not always the case. You should read through the terms and conditions of your agreement to see if your rate could be affected by a rate change. Moneyfactscompare.co.uk says the average rate on £5,000 loans with a three-year term is now at 11.4%
Best savings rates right now
Savings rates have improved massively over the last year, and the top-paying accounts still pay above the rate of inflation. The best easy-access rate right now is 5.02% from Oxbury Bank and the best0 paying fixed rate account is from Atom Bank which pays 5.25% for six months.
Regular saving accounts pay even more than this - but you're normally limited to how much money you can save each month. For example, First Direct has a linked saver which pays 7% fixed for one year - but you can only deposit up to £300 each month. Co-Op bank also pays 7% and you can make withdrawals, however, you can only save £250 a month.
Savings rates have dropped over the last few months with the anticipation of a base rate cut. When the bank does decide to cut, they will likely drop even further which would be a blow to savers.
How does the base rate affect renters?
Homeowners are not the only ones hit hard by the Bank's rate rises - renters have also faced significant hikes in their housing costs. Skyrocketing rental costs have hit tenants over the last few years due to rising demand and constrained supply. However, many landlords have also passed on the costs of higher mortgage interest rates.
Average private rents in the UK increased by 9.2% in the 12 months up to March 2024, according to the Office for National Statistics (ONS). That means tenants in England are paying £107 more per month to cover the average monthly rent of £1,285. In London, rents increased by 11.2% over the same period, representing a rise of £2017 per month to reach £2,055.
Due to the chaos of the sector, rents are not expected to come down alongside the base rate - even if mortgage payments on rental properties drop. Due to supply issues, the Resolution Founder forecasts a further rise of 13% over the coming three years. The Resolution Foundation’s Cara Pacitti said: "With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain, and require bolder solutions from policy makers. "
Latest mortgage rates ahead of Bank of England announcement
The financial comparison website MoneyfactsCompare.co.uk has just released its latest mortgage update ahead of the Bank of England announcement.
As of today, the average two-year fixed residential mortgage rate today sits at 5.93% and the average five-year fixed is 5.51%. The average two-year tracker mortgage rate is 6.12% and the average standard variable rate (SVR) mortgage is 8.18%.
The number of residential mortgage products offered by lenders sits at 6,496
How does the base rate affect my mortgage?
How the base rate affects your mortgage is dependent on the type you have.
Tracker mortgage: These move in line with the base rate, so these become more expensive when the base rate goes up - and they will go down if the base rate drops.
Standard Variable Rate: You are put onto STV mortgages when your fixed rate or tracker deal comes to an end. The rates for these deals are down to your lender and are usually the most expensive deals. If the rate goes down, it will be down to your lender to pass it on.
Fixed rate: These are the most common mortgage deals and the rate you are charged is decided when you sign up for your deal and remains the same throughout the term. You will only be affected by the base interest rate if your current deal is coming to an end.
How is the base rate linked to inflation?
The Bank of England uses the base rate to control inflation in the UK. The Consumer Price Index (CPI) measure of inflation represents how the price of goods has changed over time. When inflation rises, the cost of goods usually goes up.
The goal is to keep inflation as close to 2% as possible - so the bank will act if price rises are too low as well as too high. By increasing the base rate, the idea is that people will have less money to spend, and this will push down demand for goods and services and lead to lower prices - lowering the level of inflation. Decreasing the base rate is intended to do the opposite.
Inflation peaked in October 2022 at 11.1%, however, it has since been going down. In March inflation dropped to 3.2%.
What is the Bank of England base rate?
The Bank of England's base rate, sometimes known as the bank rate or base interest rate, is the most important interest rate in the UK. This is because it influences what banks and lenders charge you to borrow money and mainly impacts mortgages, credit cards, and loans. When the base rate goes up it makes all of these more expensive.
However, it also has an impact on savings, as the rate that is paid on your cash pots should also move in line with the rate. This means you should earn more money through interest on your savings when the base rate is higher.
Bank of England announcement due at 12pm
Welcome to our Bank of England live blog, where we'll be giving you the latest updates and analysis ahead of the interest rates announcement at 12pm. The base rate currently sits at 5.25% and it has been held at this level since August last year.
Economists predict the rate will remain the same but with inflation dropping to a two-year low of 3.2% in March - could the Bank of England throw an unexpected curve ball and announce a cut?