The base rate, which has an impact on the interest charged on mortgages and paid on savings, has gone from 5% to 5.25% and is now at its highest level since March 2008.
Here, Which? explains what yet another rise to the base rate means for your personal finances.
August's base rate decision
The Bank's Monetary Policy Committee (MPC) has voted by a majority of 6-3 to increase the base rate by 0.25 percentage points.
In doing so, the Bank says it appreciates higher interest rates are 'not easy' at a time when many are financially stretched.
Today's rise is a smaller increase than the half-point rise pushed through at the last committee meeting in June, fuelling hopes we may be nearing the end of continual base rate increases.
The current figure is a far cry from the historic lows of December 2021, when it stood at just 0.1%. Since then, it's been increased 14 consecutive times.
Find out more:Why has the base rate increased again?
By hiking the base rate, the Bank hopes inflation will continue to ease and start edging towards the target of 2%.
The idea is that higher interest rates mean less money is being spent by the population - resulting in overall spending in the economy falling and price rises slowing.
These are promising signs for the Bank as it suggests soaring inflation is beginning to be reined in, however, the MPC has still decided to increase the base rate.
Some critics are not convinced continual interest rate hikes are the right strategy, but the Bank stresses it is the correct thing to do.
In a report, it said: 'The best way we can make sure inflation comes down and stays down is to raise interest rates. So that’s what we’re doing.'
How does the base rate impact my mortgage?
Depending on what type of mortgage you have, the interest rate changes can make a difference to your monthly bill.
Fixed-term
About 2.4 million households will see their current deals expire before the end of next year.
The graph shows the relationship between base rate changes and mortgage rates for two and five-year fixes, using data from Moneyfacts.
Tracker
Trackers follow the base rate plus a set margin – for example, the base rate plus 1%.
If you're on this type of deal, your rate will go up by 0.25 of a percentage point straight away, so borrowers will face immediate increases in their bills.
Standard-variable rate
Repayments on standard-variable rate (SVR) and discount mortgages won't go up automatically due to the base rate rise.
But it's likely your lender will increase its rate by some, or all, of the rise in the coming days or weeks. This will push up your monthly bill.
Find out more:What if I can't afford my mortgage?
Due to the current rates, Lloyds Banking Group says its customers fixing over the rest of the year could face an average £360 increase in their monthly repayments, equating to £4,320 extra annually.
Find out more:What does the base rate rise mean for savings?
In theory, the base rate rise should lead to better interest rates on savings accounts. However, there's no guarantee your provider will pass on the latest increase.
Earlier this week, the Financial Conduct Authority (FCA) revealed nine of the biggest savings providers, on average, only passed on 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. It's also been noted that smaller firms have typically offered higher rates on average than larger rivals.
This shows that while banks are quick to pass on rate rises with mortgages, they tend to be much slower increasing interest rates on savings accounts. It's therefore highly unlikely we'll see rates shoot up overnight by 0.25%, or anything approaching that level. The top instant-access savings rate is currently 4.52%, but a third of instant-access accounts are earning 1% AER or less.
If you're thinking of switching to get a better rate, now is a good time to shop around to see what deals are available and whether you can take advantage of increased competition in the market.
Find out more:When will the base rate fall?
For the first time in months, economists were unsure as to what action the MPC was going to take with its latest decision.
Previously, hefty base rate hikes were almost a guarantee. However, with inflation showing signs of cooling, there is hope the base rate can soon flatline and eventually be lowered.
Opinion on when this will happen is split, with some forecasting a comedown this autumn, and others expecting an interest peak next summer.
The Bank expects inflation to fall to around 5% this year, but not meet the target of 2% until early 2025.
The base rate will next be reviewed on Thursday 21 September.
source https://www.which.co.uk/news/article/base-rate-rises-to-5.25-how-will-your-mortgage-and-savings-be-impacted-aEeYl5A7Qb5g