Bank of England base rate remains at 5.25% – when will it start to drop?

The Bank of England has voted to keep the base rate at 5.25%.

It's the fourth time in a row that the Bank's Monetary Policy Committee has opted to keep the base rate unchanged. Before this, there had been almost two years of consecutive hikes.

Here, Which? explains what the steadying of the base rate means for your finances, and when the rate might finally begin to fall. 

February's base rate decision

The Monetary Policy Committee (MPC) has voted by a majority of six to three to keep the base rate at 5.25%. 

Two members voted to increase the rate to 5.5%, while one voted to reduce the rate to 5%.

The Bank has therefore decided to keep interest rates steady, meaning it remains expensive for people to borrow money. 

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When will the base rate fall?

This depends on what happens to inflation.

The Bank predicts that inflation will drop to its target of 2% in the second quarter of this year, before increasing again in the second half of 2024. It forecasts that inflation could be around 2.75% at the end of the year.

With volatility ahead, it seems unlikely that the base rate will drop significantly in the short term. 

In its report, the Bank said that 'monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably'.

The base rate will next be reviewed on 21 March 2024. 

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How does the base rate freeze impact my mortgage?

Since the last base rate decision in December, mortgage rates have continued to dip.

In December, the average two-year fix was 5.98%, and the average five-year fix was 5.58%. Now they stand at 5.56% and 5.16% respectively.  

Taking that into account, we could therefore see further small decreases in the coming weeks – but significant falls are unlikely. 

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What if I can't afford my mortgage?

What does the base rate freeze mean for savings?

In theory, the base rate freeze should see interest rates on savings accounts remain steady. However, providers could start to factor in potential falls in the future and start lowering rates.

Excluding accounts with limited withdrawals or other restrictions, the best instant-access savings rate is currently 5.1% AER, offered by Cynergy Bank.

If you're willing to tie up your savings for a year, the best rate currently available is 5.2% AER, offered by Sensible Savings.

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