What's next for interest rates?

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With the Bank of England (BoE) voting on 9 May to hold the base rate at 5.25% for a seventh consecutive time, many savers will be wondering what the rest of the year has in store.

Read on to discover if and when interest rates are likely to increase again and what this could mean for savings accounts.

What is the current base rate in the UK?

The current Bank of England base rate is 5.25%. The next update is on 20 June 2024.

What's new? May 2024

On 9 May, the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted to hold the base rate at 5.25%.

Twelve-month Consumer Price Index (CPI) inflation fell to 3.2% in the 12 months to March 2024, down from 3.4% to February, and the BoE expects a sharp fall towards the government’s 2% target this month.

The average two-year fixed-rate mortgage rate, if you have a 10% deposit or equity, is currently 5.60%, up from 5.54%.

The BoE will meet again on 20 June to decide what level interest rates should be set at.

Key takeaways
  • Inflation: CPI inflation is currently 3.2%

  • Interest rates: The BoE will wait for firm evidence that inflation is under control before cutting rates

  • Lock away: The general expectation remains that rates will fall over the course of 2024

What is the current rate of inflation in the UK?

The current rate of inflation is 3.2%, as of March 2024.

What’s happened to interest rates over the last 12 months?

In February 2022, the BoE announced the base rate would increase to 0.5% as spiralling energy costs pushed inflation to a 30-year high. Interest rates rose again in April 2022, and by a further 0.25% in May 2022 to reach 1.00% at the time, the highest level in 13 years. However, with inflation still climbing, the BoE continued to increase the base rate – and by September 2023, the rate was set at 5.25%, marking the 14th consecutive rise by the Bank. The BoE then held the rate at 5.25% six consecutive times.

Many economists think that interest rates have peaked, and will soon start to fall – with an August or September cut likely.

The indicators to watch

There are many factors that influence interest rates in the UK. These factors are all indicators of the strength of the UK economy, with things such as employment levels and financial growth acting as key metrics.

  • Inflation – The Consumer Price Index (CPI) is the official measure of inflation in the UK. It measures the annual percentage change in the cost of living and is published by the Office for National Statistics.
  • Economic growth – GDP figures and independent growth forecasts show how well the UK economy is performing (or is expected to perform) and are a key factor when setting interest rates.
  • Unemployment figures – Labour market statistics can also offer an insight into the overall health of the economy. Interest rates are more likely to rise when unemployment levels are low. It’s also worth keeping an eye on the MPC’s minutes, which are released following every bank rate decision. They can reveal whether there’s an appetite for interest rate rises or cuts among the MPC’s nine-strong members.

What does this mean for savers?

Time is running out if you want to fix a higher rate to get better returns.

The best savings account for you will depend on various factors, such as if you have a lump sum to invest and whether you’ll need access to your money. If you can afford to lock your money away for a set period, you might want to opt for fixed interest rate products, such as fixed rate bonds. They offer the most competitive rates of all account types and are ideal for long term savings goals. Alternatively, you could opt to open a variable rate savings account, such as a notice account.

Start saving with Raisin UK

Regardless of what happens to interest rates in the UK, there’s never a bad time to save.

To find the best savings account for you and compare interest rates on savings accounts, register for a Raisin UK Account and log in to apply.