The base rate of interest is used by the Bank of England to help manage inflation. This guide explains what the base rate is currently and how it works.
What is the current base rate?
The current base rate is 5.25%.
On 3 August the Bank of England raised it by 0.25 percentage points to bring it to its highest point since 2008.
Since December 2021, the Bank of England has raised the base rate 14 times in a row in order to address rising inflation.
What is the Bank of England base rate?
The Bank of England base rate is the base rate of interest. It's a mechanism to allow the Bank of England to manage the economy and control inflation.
Also known as Bank Rate, it influences the rates of interest banks charge to people when they borrow money. It also impacts rates on savings accounts.
The base rate is set by the Bank of England's Monetary Policy Committee (MPC).
How does a base rate change affect your mortgage?
If the base rate changes, the impact on your mortgage rate depends on the type of mortgage you have.
If you have a tracker mortgage with a rate set at a fixed amount above the base rate, you normally see an immediate impact on your mortgage rate following a base rate change.
If the base rate rises by 0.5 percentage points, so does your mortgage rate. If it falls, your rate does too.
If you have a standard variable rate (SVR) or discount mortgage (which usually has a rate at a set amount below the SVR), your rate may be impacted by a change in the base rate.
The SVR is set by the lender but is often influenced by the base rate.
If you have a fixed-rate mortgage, you won't face a change in your rate while your deal is ongoing.
But changes in the base rate can affect the rates of fixed deals available in the market. This might mean the rates available to you when you remortgage are different compared to when you got your current deal.
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Why does the Bank of England base rate change?
The base rate is changed by the Bank of England to manage the economy and control inflation.
When the base rate rises, normally so do interest rates. The intention of this is to encourage people to save more and spend less, helping to reduce inflation.
When the base rate reduces, interest rates fall. The aim here is to encourage people to spend more to stimulate the economy.
For example, during Covid-19, the base rate was reduced to 0.1%. This was to help businesses borrow more to get them through the pandemic.
But from the end of 2021, rising inflation has seen the Bank of England increase the base rate 13 times in a row.
When is the next Bank of England base rate meeting?
The next meeting of the Bank of England's MPC to decide on a change to the base rate is 14 December 2023.
The MPC meets 8 times a year, normally around every 6 weeks. Although they can meet more than this if needed.
Will rates go down in 2023?
Nobody can know exactly what the Bank of England will decide to do with the base rate over the rest of the year, or after that.
But inflation has not reduced as fast as previously hoped, and the base rate is one of the main tools that the Bank of England uses to manage this.
For that reason, it appears unlikely to go down in the near future, and could continue to increase.