Bank of England holds interest rates at 4% – what does that mean for you?

The Bank of England has held its ‘base rate’ at 4% – but members of its Monetary Policy Committee were split, with five members voting to hold and four voting to reduce the rate to 3.75%.

What is the base rate and what does it do?

The Bank’s base rate is what other financial institutions, like banks, use to set their own interest rates. A lower base rate typically means lower mortgage – and savings – rates, and vice versa.

It uses the base rate to control inflation, which is a measure of how quickly prices are rising, and drive growth in the economy.

The Bank aims for inflation to be around 2%. If it gets higher than that, it means prices are rising too quickly. To combat this, the bank can increase interest rates, which makes it more expensive to borrow money (meaning people might spend less), and it incentivises saving money instead.

Conversely, it can reduce interest rates to get people spending, as borrowing is cheaper and the interest of savings is less generous.

So what’s going on right now?

Inflation is currently sitting at around 3.8% – almost double the Bank’s target. But the economy is also struggling. That leaves things in a sticky situation, as the Bank has to choose whether to drive growth – potentially risking higher inflation – or attempt to curb inflation and risk limiting growth even further.

Holding the rate is a cautious compromise and leaves room for the Bank to assess how things progress, so hopefully it can make a more informed decision next time (it assesses base rate around every six weeks).

What does this mean for me?

Unfortunately, it’s bad news for homeowners if rates are held, as mortgage rates won’t be coming down – or at least by very much. It could even push them up slightly if lenders think rates won’t come down for a while.

However, it means your savings rates should hold for the time being. That makes it a good time to lock in a good rate ahead of any future decisions.

Top interest rates currently pay an inflation-busting 4.51% for easy-access accounts, but if you don’t need access to your money, it could be worth locking into a fixed rate. View our top savings accounts here.