What Is the Bank of England Base Rate?

The simple version

The base rate is the interest rate the Bank of England charges when it lends money to other banks overnight. It’s the closest thing to a ‘wholesale price’ for money in the UK — banks borrow at the base rate and then lend to you at a higher rate, which is how they make a profit.

Because it’s the starting point for borrowing costs across the economy, almost every interest rate you encounter — mortgage, savings, credit card, loan — is influenced by it.

How does the base rate affect my mortgage?

It depends on what type of mortgage you have:

• Tracker mortgage: directly follows the base rate. If the base rate rises by 0.25%, your monthly payments go up almost immediately.
• Standard variable rate (SVR): set by your lender, but broadly tracks the base rate. Your lender can change it at any time.
• Fixed-rate mortgage: locked in at the rate you agreed when you took it out. Base rate changes don’t affect you until your fixed term ends — but when you come to remortgage, the new rate will reflect where the base rate is at that point.

The right mortgage type depends on your personal circumstances. Always speak to a qualified mortgage adviser before choosing or switching a mortgage product.

How does it affect my savings?

When the base rate is high, banks can offer better interest on savings accounts because money itself is more valuable. When it falls, savings rates typically follow — though banks are often quicker to cut savings rates than to raise them.

Variable-rate savings accounts track the base rate broadly, while fixed-rate savings accounts lock in a set rate for a defined term regardless of base rate movements. The terms of each account type are set by individual providers.

Why does the Bank of England change the base rate?

The Bank of England’s main job is to keep inflation close to 2%. The base rate is its main tool for doing this:

• Inflation too high? Raise the base rate. Higher borrowing costs mean people spend less, which reduces demand and slows price rises.
• Economy struggling? Cut the base rate. Cheaper borrowing encourages spending and investment, which stimulates growth.

This balancing act is tricky — raise rates too much and you tip the economy into recession; cut too aggressively and inflation runs out of control.

Who decides the base rate?

The Monetary Policy Committee (MPC) — a group of nine people at the Bank of England — votes on the base rate eight times a year. Their decisions are announced at around noon on the day of the meeting, and FinanceSimply covers every decision the morning it’s released.