What's next for interest rates?

With the Bank of England (BoE) holding the base rate at 4.75%, many savers will be wondering what the future has in store.

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

The current Bank of England base rate is 4.75%. The next update is due 6 February 2025.

On 19 December, the Bank of England’s Monetary Policy Committee (MPC) voted to hold the Bank Rate at 4.75%. Markets are pricing in less than a 50% chance of a 25-bps rate cut at the next meeting on 6 February 2025.

CPI inflation, meanwhile, rose to 2.6% in November, up from 2.3% in October, and above the government’s 2% target.

The average cost of two-year fixed mortgages dropped slightly to 5.06%, down from 5.07%, as of 19 December 2024.

The Bank will meet again on 6 February 2025 to decide what level interest rates should be set at.

The current rate of inflation is 2.6%, as of November 2024.

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%, which was the highest level in 13 years at the time. However, with inflation still climbing, the BoE continued to increase the base rate – and by August 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% seven consecutive times.

In August 2024, the base rate was cut to 5% - the first reduction since March 2020. The BoE held the rate at 5% in September, and then cut it to 4.75% in November, before holding it at 4.75% in December.

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.

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.

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.