THE Bank of England has chosen to keep interest rates unchanged, dashing the hopes of homeowners seeking relief from mounting mortgage costs.
During today’s Monetary Policy Committee (MPC) meeting, the Bank of England‘s policymakers voted to keep the base rate steady at 4.25%.
The Bank of England (BoE) last cut rates from 4.5% to 4.25% in May, the fourth reduction since 2020 and a boon for squeezed borrowers.
Lenders use the base rate to determine the interest rates offered to customers on savings and borrowing costs, including mortgages.
However, the BoE also uses interest rates to control inflation, aiming to keep the consumer prices index (CPI) at 2%.
In May, the overall CPI inflation rate reached 3.4%, slightly above the 3.3% forecast by most economists.
Inflation measures how prices for everyday goods like food and clothing have changed compared to last year.
Recently, rising food prices have driven inflation higher.
Food and non-alcoholic drink prices rose by 4.4% in the year to May, the fastest increase in over a year.
Items like ice cream, coffee, cheese, and meat saw sharp price hikes last month, while chocolate prices surged nearly 18%, the largest annual rise ever recorded for the treat.
By maintaining the base rate at its current level, the goal is to curb borrowing and spending.
However, striking the right balance between controlling inflation and supporting economic growth remains a challenge.
Gross domestic product (GDP) shrank by 0.3% in April, the biggest monthly drop in 18 months and worse than economists had predicted, marking a setback for Chancellor Rachel Reeves.
The Confederation of British Industry (CBI) has lowered its growth forecast for the year from 1.6% to 1.2%, despite a strong start to the year with 0.7% growth in the first quarter.
However, the CBI warns that weak demand and low business confidence are keeping overall activity sluggish.
Markets are currently pricing in two more cuts this year – which would take the base rate to 3.75% by the end of 2025.
Here is what today’s decision means for your money.
Mortgages
When rates are held, mortgage rates usually do not change very much, but we’ve been seeing fixed rates come down in recent weeks as lenders battle it out.
Today’s announcement means that those on tracker or standard variable rate mortgages won’t see any change to bills.
There are 591,000 customers on tracker mortgages and 540,000 on SVRs, according to UK Finance.
Most mortgage holders, over 7.1million, are on fixed-rate deals, so their payments don’t change until their current deal ends.
However, more than 1.6 million fixed-rate mortgages are set to expire this year, meaning many homeowners could face higher rates due to recent interest rates climbing to 6% in recent years.
Experts don’t expect rates to return to the record lows of 1-2%, but lenders have recently been cutting rates, with two-year deals now at their lowest in nearly three years.
The average interest rate for a two-year fixed mortgage is now 5.12%, according to Moneyfacts, dropping by 0.14% in the past month.
Five-year fixed rates are slightly lower, averaging 5.09%, down from 5.48% last May.
The last time two-year rates were lower was in September 2022, at 4.24%, while five-year rates were last at 5.09% in November 2022.
NatWest, Halifax and TSB are among the lenders that have slashed rates in recent days.
Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol, said: “If your current fixed deal is due to end this year, it’s worth reviewing your options early, as some lenders allow new deals to be secured up to six months in advance.
“The path for mortgage pricing will depend less on today’s decision and more on whether inflation, particularly in services, continues to fall towards the Bank’s 2% target.”
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
Credit card and loan rates
There is unlikely to be any change after today’s announcement.
If the base rate is changed, the cost of borrowing through loans, credit cards and overdrafts can go up when they rise and sometimes borrowing will get cheaper if they fall.
However, certain loans, such as personal loans or car financing, usually stay the same, as you have already agreed on a rate.
With rates held, any rates you are paying on credit cards and loans are unlikely to change for now though.
Holly Tomlinson, financial planner at Quilter said: “Higher interest rates mean borrowing remains expensive, whether you’re using a credit card, personal loan, or car finance.
“With today’s decision to hold rates, credit costs won’t rise further for now, but they are unlikely to fall significantly in the short term.
“For those planning to borrow, it’s important to shop around and avoid taking on unnecessary debt, as rates will remain higher than they were just a couple of years ago.”
How can I find the best credit card rates?
YOU should always use an eligibility calculator before applying for credit.
That’s because every credit card application leaves a mark on your credit file and can affect your credit score.
To assess all the available cards, visit price comparison websites like MoneySavingExpert’s Cheap Credit Club or Compare the Market.
Once you run your details through an eligibility calculator and you’ve been shown that you’re likely to be accepted, make a formal application.
To do this, you will need to provide your name, address and email address as well as details of your income so a provider can assess your eligibility.
You will also need to provide details of how much money you want to transfer to the new card, but you can often do this after you have been accepted.
If your application is approved, you will need to transfer the balance within a set period, usually around 60 or 90 days.
Your old balance will then be cleared and you can start making interest-free repayments on your new card.
Savings rates
Savers have benefited the most from rising interest rates, as banks compete to offer the best deals.
However, banks are often slow to pass on rate increases to savers, and with recent rate cuts by the Bank of England, the best savings rates could disappear.
Over the past year, average savings rates have been steadily falling.
For example, since May 2025, the average easy access savings rate has dropped from 2.79% to 2.72%, and easy access ISA rates fell from 3.03% to 2.98%.
Notice account rates and notice ISAs have also seen similar declines.
The Moneyfacts Average Savings Rate is now 3.52%, down from 3.59% last month and 3.89% in June 2024, but still higher than 3.38% in June 2023.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Savers will be disappointed to see variable savings rates fall across the board over the past month, showing how essential it is to find out if their savings pots are working as hard as they should be.
“Loyalty does not pay so it comes down to savers to proactively review rates and switch their account if they are getting a poor return on their hard-earned cash.”
How can I find the best savings rates?
WITH your current savings rates in mind, don't waste time looking at individual banking sites to compare rates - it'll take you an eternity.
Research price comparison websites such as Compare the Market, Go Compare and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you’ll want to consider any account that currently pays more interest than the current level of inflation – 3%.
It’s always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you’re saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.
Pensions
The BoE’s base rate also impacts pensioners looking to buy an annuity.
A pension annuity converts your pension pot into a guaranteed regular income for the rest of your life.
However, because annuity rates are linked to the cost of government borrowing, any rise or fall in the BoE’s base rate can impact the rate you receive.
The income you receive can be locked in on the day you purchase your annuity, so current annuity rates can make a big difference to your long-term financial security.
With interest rates unchanged, pensioners will still be able to secure favourable rates.
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