💰 Bank of England base rate

The Bank of England base rate is the UK's most influential interest rate and its official borrowing rate. In light of soaring prices, the BoE has increased the base rate at 0.5% after cutting it to all time lows of 0.1% to try and help the economy survive the COVID-19 pandemic. The base rate impacts all other interest rates. When the rate is low, it costs you less to borrow money, but means you earn less on your savings.

What is the Bank of England base rate?

The Bank of England (BoE) base rate is often called the interest rate or Bank Rate (like us!). It sets the level of interest all other banks charge borrowers. The base rate is currently 0.5%.

The Bank of England explains the interest as: "What you pay for borrowing money, and what banks pay you for saving money with them." Its purpose is to help regulate inflation.

The government sets the Bank of England an inflation target to keep it in check. The Monetary Policy Committee (MPC) then decides on the interest rate.

This is usually reflected in the mortgage base rate - when the base rate is higher, interest rates on fixed rate mortgages tend to be higher. However, in the current climate, although the base rate is at 0.5%, mortgage rates have remained relatively steady as banks are concerned about mortgage lending risks. As a result they have tightened their lending criteria and withdrew many higher LTV mortgage products.

Higher interest rates on mortgages cost you more over the full mortgage term. This is why more borrowers are opting for five and even ten-year fixes.

Of all the variable mortgages, tracker mortgages follow the UK base rate most closely.

The current base rate in the UK is about where it has been since the 2008 global financial crisis, with most tracker mortgages adding a percentage on top. For example: the interest rate might be the BoE interest rate (0.5%) plus 1%, making the total interest 1.5%.

When interest rates were higher - and in the years running up to the 2009 financial crisis rates between 3% and 6% were common - tracker mortgages frequently had a far smaller premium, sometimes just a fraction of a percentage point above the base rate.

What is the current base rate?

Global price rises, especially of natural gas, have seen inflation soar in the UK. In response to this, the Bank of England has twice raised interest rates - in December 2021 and February 2022 - to attempt to control this.

With predictions that inflation will rise to more than 7%, it's likely that interest rates will keep rising too.

UK interest rates

UK interest rates centre around the Bank of England base rate.

In 2007, the Bank of England interest rate was around 5.5%. The average variable mortgage rate was 7.5%.

In December 2008, the MPC dropped the base rate to 2%. The MPC dropped it again to 0.5% in 2009 where it remained for around seven years. At this point, the average variable mortgage rate was around 2.5%.

In August 2016, Bank of England rate was at the lowest point in its history so far: 0.25%. Getting a long fixed-rate mortgage at that time could have saved you thousands in interest.

Current interest rates have remained relatively stable over recent years. They are low, but there is speculation they will rise again.

A low Bank of England rate encourages people to borrow money because it's less expensive for them to repay. The less you spend repaying debts, the more money you can spend elsewhere. More spending makes for a more buoyant economy.

When does the base rate change?

The MPC meets roughly every six weeks to decide the base rate. It does not change the base rate each time - it can stay the same for years.

The last interest rate rise was in February 2022. It went from 0.25% to 0.5%. This is typical for the past decade, but very low in terms of wider history.

Inflation is one of the main reasons why the Bank rate fluctuates at all. Inflation is determined by the state of the economy. The aftermath of the global financial crisis in 2008 was low inflation and even lower interest rates.

So, the next Bank of England meeting does not mean an interest rate rise. However, inflation is rising and a Bank of England rate rise could reflect that.

When is the next Bank of England base rate meeting?

The next Bank of England monetary policy committee (MPC) meeting is on 17 March 2022.

Will Brexit impact the UK interest rate?

The Bank of England says that it's closely watching the British economy to see how it responds to Brexit.

As the outcomes of Brexit are made clearer, the Bank will respond to try and keep inflation under control and the economy healthy.

With so many unanswered questions and variables, it is very hard to predict whether Brexit will impact interest rates long term or not.

Bank of England base rate history

Over the course of the BoE base rate history, rates have fluctuated.

A base rate increase in 1979 saw rates at their highest ever point: 17%. Rates decreased for a few years before rising to around 15% in 1991. Since then, the base rate has gradually decreased to single figures.

The biggest and most sudden drop was at the end of 2008, when the Bank of England reduced rates from 5% to 0.5% in 9 months.

In August 2016, base rate history was made when the MPC cut the bank rate to 0.25%. It stayed at 0.25% for over a year. At the end of 2017, there was an interest rate increase to 0.5%. History was made again in 2020, when rates fell to a new low of 0.1% in response to the Coronavirus pandemic.

This table shows historical interest rates over the past 10 years*:

*Data from Bank of England

04 February 2022