The base rate is what the Bank of England uses to charge other banks and lenders money – this then influences how much you’re charged as a customer to borrow money
The Bank of England is expected to cut interest rates again this Thursday. The base rate is currently at 4.5% after it was held at this level at the last Bank of England meeting in March.
The Monetary Policy Committee (MPC) meets every six weeks to decide whether to change the base rate. Most economists are expecting rates to be reduced by 0.25 percentage points on Thursday – so to 4.25%.
The base rate is what the Bank of England uses to charge other banks and lenders money – this then influences how much you’re charged as a customer to borrow money.
For example, when the base rate is higher or the Bank of England is expected to increase it in the near future, mortgages become more expensive – but when it is lower, rates tend to come down.
All major UK lenders are now offering fixed mortgage deals with an interest rate of less than 4%. The base rate also impacts the return you get on your savings.
The hope of another rate cut will be good news for millions of mortgage holders, but disappointing for savers as the rates they get on their hard-earned cash will likely go down.
It comes after Consumer Price Index (CPI) inflation fell to 2.6% in March, down from 2.8% the previous month. The rate of services inflation – a metric closely watched by the Bank of England – also slowed to 4.7% from 5%.
Sandra Horsfield, an economist for Investec, said: “The new question now though for the MPC (Monetary Policy Committee) to consider is how the US trade policy shifts have changed the outlook for UK inflation.
“What makes this month’s decision easy is that virtually everything has pointed in the direction of lower UK inflation pressure.”
But economists have also warned that UK economic growth is likely to be slowed by elevated levels of global uncertainty, including the impact of Donald Trump’s Liberation Day tariffs.
Edward Allenby, UK economist for Oxford Economics, said that “beyond May’s interest rate decision, the more important question is how US tariff announcements are influencing the MPC’s thinking”.
Thursday’s decision will be the “first opportunity for the MPC to clearly set out how recent developments have shaped its outlook and what committee members will be focusing on ahead of future interest rate decisions”, he said.
Rachel Winter, Partner, Killik & Co said: “The Monetary Policy Committee (MPC) has a big decision to make. They might have felt a certain degree of freedom in these decisions, but pressure from Trump’s tariffs is likely to force their hand.
“These tariffs are causing a slowdown in global economic growth, and therefore it is likely that the MPC will lower the interest rate despite inflation concerns.
“For consumers, a lower rate would mean a few things. Those who have mortgages expiring will want to keep a close eye out for new deals as we’ll likely see some movement in the coming months. On the other hand, savers should be locking in what they can while rates are high.
“Even if we don’t see a rate cut in May, it’s all but guaranteed that we’ll see cuts later this year. We’ve already dropped below the 4% threshold for mortgages and variable savings rates are starting to tumble, so there’s no time like the present to reconsider your options.”