When will interest rates go up?

The Bank of England (BoE) raised interest rates to 4.25% on 23 March, its 11th consecutive hike.

Turmoil in the banking sector caused by the collapse of Silicon Valley Bank and Credit Suisse had led to some speculation the BoE might pause rate hikes for now. 

But its latest decision confirms the central bank is more concerned with tackling inflation, especially following the latest data from the Office for National Statistics (ONS). The rate of CPI inflation accelerated to 10.4% in February according to the ONS’s latest data. 

The rate of CPI inflation had slowed between October and January, and analysts were expecting a figure of 9.9% for February. 

But food inflation is running at its highest-ever level and rising prices at restaurants have only added fuel to the inflation fire. 

While the Office for Budget Responsibility (OBR) predicts inflation will fall to 2.9% by the end of the year, it remains well ahead of the BoE’s target of 2%. 

We look at what the BoE might do next. 

When is the next interest rate announcement?

The Bank of England’s Monetary Policy Committee (MPC) meets eight times a year to discuss whether it should raise or cut interest rates or keep them the same.

The MPC last met on Thursday 23 March. Its next meeting is on 11 May. 

If the Bank decides to raise rates on 11 May, it will mark its 12th consecutive interest rate increase.

Will interest rates rise in 2023?

The OBR expects inflation to drop to 2.9% by the end of the year.

Inflation is already starting to fall in Europe and the US, but it's proving far harder to keep under control in the UK, where higher energy prices, wages and the weak pound are keeping core inflation figures high. 

Members of the Monetary Policy Committee (MPC) have expressed different views. The bank’s governor Andrew Bailey has cautioned against slowing down rate hikes to avoid a return to 1970s inflation. 

But two members of the MPC, Sivlana Tenreyro and Swati Dhingra, have voted against hikes over the last couple of months. 

At the last vote on 23 March seven MPC members favoured the 0.25% increase, while Tenreyro and Dhingra voted not to increase the base rate. 

The collapse of SVB and Credit Suisse was a “banking curveball” that was “thrown into the Bank of England’s already tricky juggling act”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown. 

“But for now the eye of policymakers is still firmly trained on catching inflation and bringing it under control,” continues Streeter. “The hotter than expected temperature of consumer prices in February, and the tight labour market are cause for concern, amid worries inflation could still become embedded in the economy.”

However the UK did manage to avoid a recession last year, and the OBR predicts it will do so again in 2023. 

The BoE also said it expects inflation to fall sharply over the coming months, which could mean the rate hikes are coming to an end. 

But it also reiterated that if inflationary pressures remained, it would continue to tighten monetary policy. 

Some analysts were expecting rates to reach 6% by the summer. Expectations have since fallen to 4.5%, but the BoE’s comments seem to indicate that for now, it remains a waiting game. 

What will an interest rate rise mean for my mortgage?

A higher base rate will affect those on tracker and variable rates, who will likely see an immediate increase in their monthly payments. 

The average Standard Variable Rate is now above 7%, a level not hit since 2008. The 0.25% increase to the average SVR of 7.12% will add around £772 to repayments over two years, according to Moneyfacts compare.

But “those borrowers who wish to refinance might be pleased to see that fixed-rate mortgages have fallen since the tail end of 2022 and that it is currently cheaper on average to lock into a five-year fixed rate over a two-year fixed deal,” Rachel Springall, finance expert at Moneyfactscompare. 

Rates peaked at 6.65% in September 2022 following the mini-Budget chaos. They have since fallen, with the average two-year fixed rate mortgage sitting at 5.19% (based on 75% loan-to-value) and the average five-year rate sitting at 4.75%, according to Uswitch. 

But this time last year they sat at around 2.5%. 

As rate uncertainty remains we’re likely to have “an incredibly mixed picture, with some mortgage rates rising and others falling”, says Streeter. 

This is especially true for those trying to decide whether or not to fix their mortgage. 

“The level of uncertainty now means we can’t be entirely certain whether a variable rate deal will rise from here,” she says. “There’s a reasonable chance it will later – even if we get a pause this month – but we don’t know when that might be, or how long it will remain higher before falling back.”  

What will it mean for my savings?

Savings rates should go up as interest rates rise, which is good news for savers, but this is not guaranteed as providers do not always pass on a rate rise to savers at the same speed they do to borrowers.

Banks and building societies are under no obligation to raise savings rates; they may not do so for weeks, or even months, after a BoE announcement. They also don’t need to pass on the full rate rise – it’s quite common for a lender to pass the full rate rise onto mortgage customers, but only a fraction of it onto savers.

So, it is still important to shop around for the best rate. Don’t assume your provider will raise your rate. You’ll need to proactively look for the best savings rate and switch your account to take advantage. 

There are some good rates out there, but due to the current market mayhem, savings rates are changing quickly, with some deals pulled in a matter of hours. So you need to be quick if you spot a decent rate.

With additional contributions from Ruth Emery.