The Bank of England has decided to hold interest rates at 3.75%, marking the fourth consecutive time the base rate has remained unchanged. This move was widely anticipated by economists, as inflation held steady and progress was made in the US and Iran peace deal.
Why Did the Bank of England Hold Interest Rates?
The base rate is reviewed every six weeks by the Bank of England and serves as its primary tool for controlling inflation. UK inflation currently stands at 2.8%, unchanged from May despite expectations of a rise to 3%. The Bank's target is 2% inflation, and higher interest rates help curb spending, thereby slowing price rises. By holding rates, the Bank aims to maintain stability while monitoring economic conditions.
Impact on Mortgages
Since the base rate has not changed, mortgage repayments remain unaffected for now. However, future rate decisions can impact different mortgage types:
- Tracker Mortgages: These follow the base rate directly, so payments will only change when the base rate moves.
- Standard Variable Rate (SVR) Mortgages: Lenders often adjust SVRs in line with base rate changes, but they are not obliged to pass on the full change.
- Fixed-Rate Mortgages: Payments are fixed for the term of the deal and are not affected by base rate fluctuations until the deal ends.
Impact on Debt
Credit cards linked to the base rate will see no change today. The average credit card purchase APR is around 36%, according to Moneyfacts. Most credit cards have variable rates that can change at the lender's discretion. Personal loans and car financing typically have fixed rates, so existing agreements remain unchanged. However, new loan rates may be influenced by base rate movements.
Impact on Savings
Savings rates are influenced by the base rate. When rates are high, banks tend to offer better returns, but when cuts are expected, rates may fall. Variable savings accounts can change over time, while fixed-rate accounts lock in a rate for a set period.
Here are some of the best current savings rates:
- Revolut: 5% for six months on up to £25,000 (2.9% variable plus 2.1% bonus for new customers).
- Cahoot: 5% on up to £3,000 for one year (variable rate).
- Chase: 4.5% for new customers (includes 2.25% bonus for 12 months).
- Trading 212 ISA: 4.51% for new customers (3.6% variable plus 0.91% bonus for one year).
- MBNA: 4.85% for a one-year fixed account.
- Afin Bank: 4.9% for a five-year fixed account.
- Zopa: 7.1% variable for six months (max deposit £300 per month).
Regular savings accounts often offer higher rates but come with restrictions, such as limited monthly deposits and withdrawal limits.
