What's next for interest rates?

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With the Bank of England (BoE) holding the base rate at 5.25%, after 14 consecutive rises since the end of 2021, 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%.

What's new? November 2023

On 2 November 2023, the Bank of England (BoE) held the base rate at 5.25%. The BoE expects a sharp slowdown in inflation to 4.8% in October’s figures, which will be released this month. Inflation in the UK is currently at the highest rate in the G7 — 6.7%. The average two-year fixed-rate mortgage rate is 6.00% (if you have a 15% deposit/equity).

The BoE will meet again on 14 December 2023 to decide what level interest rates should be set at. The BoE’s governor, Andrew Bailey, said that rates “will have to remain where they are now for an extended period”. Kevin Mountford, Co-Founder of Raisin UK, expects that “interest rates will gradually decrease to around 4% by 2024 and may be as low as 3% by the end of 2025.”

The rundown
  • High inflation: The current inflation rate in the UK is 6.7%, well above the BoE’s 2% target, but is expected to fall to 4.8% in October’s figures
  • Future increases: The base rate predicted high of 6% has been reduced to 5.5%, and is expected to gradually decrease throughout 2024 and 2025
  • Savings boost: High interest rates could mean you earn more from your savings

What is the current rate of inflation in the UK?

The current rate of inflation is 6.7%, as of September 2023.

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 has continued to increase the base rate ever since – and by September 2023, the rate was set at 5.25%, marking the 14th consecutive rise by the Bank.

Many economists expect that the base rate will peak either at the current 5.25%, or after one further increase to 5.5%. On 2 November 2023, the BoE held the base rate at 5.25% for at least another six weeks. It is widely expected that the rate will decrease in the next couple of years, as inflation falls.

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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.

In the short-term, rising inflation and the ongoing economic repercussions of the pandemic are likely to have the biggest influence on the MPC’s interest rate decisions.

  • 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?

With interest rates still high, but likely to fall in the next couple of years, now could be the ideal time to grow your savings.

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, and be in line to take advantage of highly-anticipated interest rate rises as they occur. Not all banks will automatically pass on higher interest rates, however, so it’s important to compare the market to find the best possible rate.

Start saving with Raisin UK

Regardless of what happens to the interest rate in the UK, there’s never a bad time to save. Whether it’s to take advantage of future spikes in interest rates or to protect yourself and your family from an unseen financial fallout, opening a savings account will give you more for your money.

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.

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