Interest rates held at 4.75%: What it means for your money ...Middle East

Interest rates have been held at their current level of 4.75 per cent by the Bank of England.

Its Monetary Policy Committee (MPC) decided not to cut the base rate again, a move widely expected by economists.

Six members of the MPC decided to hold whilst the other three voted to cut to 4.5 per cent.

It previously cut rates from 5 per cent in November, the second reduction of the year.

It comes after an inflation reading yesterday showed it rose to 2.6 per cent in November, up from 2.3 per cent, and higher than the Bank’s two per cent target.

“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the two per cent target in the medium term have dissipated further,” the rate-setters said.

Chancellor Rachel Reeves said: “I know families are still struggling with high costs. We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that.

“Improving living standards across the country is our number one focus, and is why I chose to protect working people’s pay slips from tax rises, froze fuel duty and increased the national living wage for three million people.”

Below we take a look at what the rate hold means for your money.

Higher inflation means prices are rising quicker than otherwise, and this can prompt the Bank of England to keep interest rates higher for longer.

However, it is expected that interest rates will continue to fall in the new year.

Previously, it was widely thought the next rate cut would come at the first MPC meeting of 2025 in February.

However, since yesterdays inflation reading, economists are divided as to whether the cut may come later in the year.

Of six economists polled by The i Paper, three expected four interest rate cuts in 2025, two thought there would be three whilst one more considered there to be two or three.

Capital Economics has said it forecasts that rates will continue to be cut gradually, and that they will fall to 3.5 per cent in early 2026.

Pantheon Macroeconomics expects interest rate cuts in February, May and November, taking rates to 4 per cent by the end of 2025.

What will happen to inflation?

Inflation is expected to increase from its current level of 2.6 per cent, experts have said.

Paul Dales, chief UK economist at Capital Economics, predicted that inflation would rise to around 2.8 per cent in January. He said: “We do think that by the end of 2025, CPI inflation will have fallen back close to 2 per cent. But in the first half of the year, we suspect it will be a bit higher than most expect.”

Thomas Pugh, economist at RSM UK, said: “The rebound in inflation to 2.6 per cent in November is probably the start of a gradual climb which will see headline inflation return to 3 per cent early next year.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, added: “Looking ahead, we expect headline inflation to reach 3.1 per cent in April 2025 and stay at or above 3 per cent until October 2025.

Why don’t I get my state pension uplift until May? Paul Lewis replies

The Budget is provisionally expected to boost inflation by just under 0.5 of a percentage point at the peak, according to the Bank.

It said it doesn’t expect inflation to return to below the target of 2 per cent until spring 2027.

The impact of Trump’s presidential victory, including higher tariffs, could also have an impact on global inflation.

Most will not see a change to their mortgages – whether it is variable or fixed.

Variable rates follow the base rate so will not alter if interest rates are held.

Meanwhile, 81 per cent of people are on fixed-rate mortgages, where the interest rate is locked for a set period of time. So, if you are on this type of loan, your repayments will not change based on the decision.

These rates have been volatile in recent months with some lenders increasing them slightly whilst others are making cuts. Depending on when you locked into a fixed rate, you are likely to be paying a higher rate when you come to renew than you were before.

However, they are expected to fall more broadly in the new year.

Nick Mendes of brokers John Charcol said: “Mortgage rates are expected to decline in 2025, but the extent and pace of this reduction will depend on several factors.

“Current projections indicate that the MPC will cut rates by 25 basis points each quarter until mid-2025. However, forecasts suggest rates may only drop to around 3.5 per cent by early 2026.”

What does it mean for savers?

When interest rates fall, savings rates tend to do the same.

As the base rate is expected to stay the same, savings rates are not expected to change drastically.

However, many rates have dropped in recent times – and experts warn it may be best to lock in a deal now before they fall in future.

Mark Hicks, head of Active Savings at Hargreaves Lansdown, said: “Savers could be forgiven for wondering why they didn’t see much of a change in savings rates after inflation data came in higher than expected a month ago.

“Instead, in the one-year fixed-rate market, they got more competitive rates pushing up very slightly from 4.75 to 4.8 per cent, and the average rate actually falling very fractionally from 4.19 to 4.18 per cent in a month.

“The lack of significant movement in either direction means that if you still haven’t got round to fixing the savings you don’t need for a year or so, there’s still time to lock in a decent deal.”

The current best easy-access deal is with Atom Bank at 4.85 per cent while the best one year is with Habib Bank Zurich at 4.8 per cent.

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