Savings rates usually tumble in tandem with the base rate
Generally speaking, lenders are far quicker to cut rates than to boost them – so while savings rates took some time to start rising a few years ago, they will be quick to fall now that the BoE is in a rate-cutting cycle.
Rates have already fallen considerably from their peak, meaning now could be a good time to lock in a fixed-rate deal if you don’t need immediate access to a portion of your savings.
Expect savings rates to fall further if the MPC cuts the base rate tomorrow.
These are the best rates currently on the market, according to Moneyfacts:
- Easy-access: Chase 5% saver (note that this includes a temporary six-month bonus, plus the underlying rate is linked to the BoE base rate, meaning it will quickly drop if the MPC cuts rates tomorrow)
- One-year fixed: Charter Savings Bank 4.75% saver (available via Hargreaves Lansdown)
- Two-year fixed: Hampshire Trust Bank 4.41% saver
Mortgage rates: avoid the standard variable rate
While a tracker rate might appeal to some borrowers, avoid falling onto your lender’s standard variable rate. You will automatically be put onto this once you come to the end of a fixed deal, if you don’t refinance in time.
These are the average mortgage rates today, according to financial information company Moneyfacts:
- Two-year fixed-rate mortgage: 5.51%
- Five-year fixed-rate mortgage: 5.31%
- Two-year tracker rate: 5.46%
- Standard variable rate: 7.78%
What would a lower base rate mean for your mortgage?
If interest rates are cut tomorrow, prospective homeowners and those looking to refinance will be hoping for a drop in mortgage rates.
Those on variable-rate mortgages could see the effects almost immediately with their payments falling in line with the base rate cut, putting more money in their pockets.
Borrowers on fixed-rate mortgages will not experience immediate respite, though. They will have fixed their repayments for a set time period, and therefore will remain on their agreed-upon rate until it is time to renegotiate.
Despite this, Myron Jobson, senior personal finance analyst at Interactive Investor, tells MoneyWeek that while “fixed-rate mortgage holders won’t see an immediate impact, if expectations of lower rates persist, we could see better deals emerge for new borrowers and those looking to remortgage.”
Commenting on whether prospective homebuyers should choose a fixed or variable-rate mortgage, Jobson added: “With the BoE cutting the base rate and another reduction potentially on the horizon, homebuyers face a tricky decision between fixed and variable mortgages. A variable rate could mean savings if rates fall further, but it’s a gamble.
“A fixed-rate deal, meanwhile, offers certainty in an uncertain climate. The choice ultimately boils down to risk appetite – those comfortable with fluctuations may benefit from a variable rate, while risk-averse buyers might prefer to lock in a deal for peace of mind.”
What would a base rate cut mean for your personal finances?
Let’s turn our attention to what a base rate cut could mean for the pound in your pocket. How will mortgage rates, savings rates and annuities be impacted? Stick with us as we run through the implications for each in our next few posts.
Quick recap: when did the base rate peak?
The base rate peaked at 5.25% – a 16-year high – in August 2023. It was held at this level for almost a year. The Bank of England finally began cutting rates in August 2024 after inflation showed significant signs of coming under control. This cycle has seen two cuts so far, one in August and another in November.
Interest rates are still high compared to their recent history. In the aftermath of the Global Financial Crisis, we lived through a period of ultra-low rates. Experts warn we are unlikely to return to this sort of environment – at least not any time soon.
Slowly does it: BoE likely to maintain a cautious tone
Although experts are fairly confident that rates will fall tomorrow, the Bank of England is likely to maintain a cautious tone during its press conference and in summary documents. For a while now, the party line has focused on a “gradual approach” to rate cuts, with the MPC assessing things on a meeting-by-meeting basis.
The following paragraph has appeared in several summary reports: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.”
Can we expect quarterly rate cuts in 2025?
So far this year, there has been a divergence between the number of rate cuts economists are expecting versus the number of cuts markets are pricing in.
Markets turned bearish in the wake of the Autumn Budget, when chancellor Rachel Reeves announced a hike to employers’ National Insurance contributions. The fear is that this policy (which will come into effect in April) could keep inflation higher for longer by increasing costs for businesses.
Donald Trump’s return to the White House hasn’t helped. The tariffs he has threatened to impose – and has already started imposing in the case of China – could add to inflationary pressure.
Despite this, analysts at Goldman Sachs are forecasting quarterly cuts of 25 basis points from the Bank of England, bringing the base rate to 3.25% by the second quarter of 2026.
The economists at ING are forecasting something similar – and they recently argued that markets are “slowly but surely” starting to come around to their way of thinking. “Markets are now pricing 78bp of easing by year-end, up from just 29bp in mid-January,” they wrote on Friday.
MPC voting split: an overwhelming majority?
When the MPC last met in December, three members of the committee voted for an interest rate cut: Swati Dhingra, Dave Ramsden and Alan Taylor.
Dhingra has become known for her dovish stance, voting to reduce rates at the past eight meetings.
Similarly, Taylor (who joined the MPC in September) has warned that a weakening economy calls for a “more accelerated pace of rate cuts”.
It seems reasonable to assume that these three will stick to their previous voting pattern this time around. Some additional committee members will probably come on board too, given December’s surprise inflation drop and the slowdown in UK growth.
“Fears of stagflation will override any immediate desire to drive down inflation, meaning we are likely to see a cut of 25bps this Thursday, lowering the base rate to 4.5%,” said Steve Matthews, investment director at financial services company Canada Life.
Matthews expects to see an 8-1 split on Thursday.
It's almost interest rates day
Good Wednesday morning, and welcome to MoneyWeek’s live blog. The sun is shining in London today, but will interest rates thaw tomorrow?
The Bank of England will announce its next decision at midday on Thursday, 6 February.
All eyes have been on US president Donald Trump’s tariffs so far this week, which begs the question: will events across the pond influence the MPC’s thinking?
Markets and economists think the answer to that question is: no.
While events in the US could well appear in the MPC’s meeting minutes, experts are fairly confident that the Bank of England will vote to reduce the base rate by 25 basis points. This would bring it from 4.75% to 4.5%.
Stick with us for the latest forecasts, plus what it means for investment markets and your personal finances.
