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March 17, 2025
Against a backdrop of worsening inflation news, the Bank of England is widely predicted to hold interest rates at 4.5% when the Bank’s Monetary Policy Committee makes its next announcement on the base rate on Thursday 20 March. The odds of maintaining the bank rate at the same level is 95%, according to interest rates swaps data.
However, cuts in interest rates are still predicted later in the year:
Although some other forecasts predict deeper cuts, with Santander predicting interest rates to fall to 3.75% by the end of the year and both Barclays and Morgan Stanley predict a cut to 3.5% by the end of the year.
However, Huw Pill, chief economist at the Bank of England, has warned the ‘age of uncertainty’, especially over the path of inflation, means that rapid interest rate cuts are unlikely to be coming to the UK.
‘There is more work to do to squeeze those domestic underlying inflation out of the system. That entails maintaining some restrictiveness in the monetary policy stance’, he told MPs at the Treasury Select Committee on 5 March.
The Bank of England cut interest rates in February from 4.75% to 4.5%. This followed interest rates cuts in November 2024 and August 2024, when the base rate was first cut from 5.25%.
The Bank of England’s base rate acts as a benchmark for the cost of borrowing money. As a general rule, when interest rates increase, so does the cost of borrowing on mortgages and other types of borrowing.
The Bank moves rates up and down to help control inflation. When inflation is high, the bank may increase interest rates to try to bring it down by encouraging people to spend less and reduce demand. And once inflation is at or near its target, the Bank may hold or cut interest rates.
Figures released in February 2024 showed that prices in the UK increased by 3% in the 12 months to January. This was a higher-than-expected jump, taking inflation further away from its inflation target of 2%.
However, experts are still predicting interest rates cuts this year because the decision is also based on the wider economic outlook. Some experts believe that given that the Bank of England recently halved growth expectations to 0.75%, lower rates may be required to stimulate the economy.
The next Bank of England’s Monetary Policy Committee meeting is on 20 March 2025. Its subsequent meetings are on 8 May 2025 and 19 June 2025. The Bank of England publishes a calendar of future committee meeting dates here.
How changes in interest rates affect your mortgage depend on your circumstances:
Other types of borrowing are affected in a similar way. If interest rates go up, borrowing of any type generally gets more expensive, while when interest rates are cut, borrowing generally gets cheaper. However, this is in general terms as the amount you’ll pay on things like credit cards and loans will depends on a number of factors including your credit history.
When interest rates go down, lenders usually reduce the amount of interest they’ll pay on savings accounts.
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