Bank stocks were hit hard by the 2008 financial crisis. Years of heavy borrowing left many banks exposed, and some of the most trusted names collapsed. Investors faced huge losses as governments stepped in with taxpayer-funded bailouts. In response, regulators introduced strict new rules to prevent a repeat. These measures weighed on profits for years, but the sector has now come through that difficult period. Today, banks are much safer than they were before the crisis. Big investors have returned, helping to push up share prices; some have even tripled in recent years. As valuations edge back towards more normal levels, an important question remains. Do these high-yielding stocks still deserve a place in a portfolio, or have the easiest gains already been made?

Bank stocks’ wilderness years

For more than a decade, the banking sector struggled to regain the confidence of investors. Most professional fund managers suffered significant losses in the 2008 crash and subsequently found the industry difficult to navigate. Investors discovered they lacked understanding of complex balance sheets. Consequently, their appetite for banks' shares vanished for a generation. Even today, many professional investors remain wary because they find the internal mechanics of a global bank difficult to decipher.

While investors remained cautious, regulators rebuilt the global financial architecture. There has been a substantial increase in banks' capital, the cushion that stands between bank assets and insolvency. Core capital ratios, which give the size of this cushion expressed as a percentage of the bank's total risk, were as low as 4% pre-crisis; today, they often exceed 15%. In the UK, the Vickers Report mandated a separation between retail and investment banking operations. This altered the nature of the business and kept valuations low.

Jamie Dimon provided the first credible signal that this era of stagnation was ending. In February 2016, the chief executive of JPMorgan Chase invested $26 million of his own money into his bank's stock. He purchased the shares at roughly $56 per share, which aligned with the company's book value at the time. Dimon realised that the regulatory clean-up was largely complete. He saw an institution that was well-capitalised and undervalued, yet still priced as if it was ruined. His investment marked the start of a decade-long rally that eventually saw the stock price rise more than fivefold. It would take several more years and a radical change in the interest-rate environment for the rest of the market finally to reach the same conclusion.

The return of inflation

The stagnation of the previous decade ended with the return of inflation. Central banks tackled inflation by raising interest rates from near-zero to 5% and, with that, the fundamental engine of banking profit returned to health. This engine is the “net interest margin” – the difference between the interest a bank pays to its depositors and the interest it receives from its borrowers. For years, the industry struggled to generate a decent return in a world where interest rates were near-zero. The shift to higher rates boosted profits.

How much banks paid their depositors played a big role in this windfall – that is, how much of a central-bank rate rise was passed on to savers. When rates went up, banks were slow to increase interest on current accounts. At the same time, they quickly raised the cost of mortgages and business loans. This delay helped to boost profits. In theory, this rise in profits should only be temporary. But it made it easier for a bank to manage future earnings through a “structural hedge”, allowing them to lock in interest rates for several years and smooth profits as rates fall. The result is a more stable and predictable income stream. This improved profitability has transformed how banks manage their capital. After a decade of hoarding cash to satisfy regulations, they are now paying a lot back to shareholders via a mix of dividends and share buybacks. Total shareholder yields, combining dividends and buybacks, now often exceed 10% a year.

Strong recent results from the biggest banks have cast doubt on the idea that upstart digital challenger banks will disrupt them. While the challengers achieved high user numbers and launched attractive software, they lacked the massive and low-cost deposit bases that the traditional banks enjoy. The incumbents used their superior cash flows to adopt the best elements of the digital revolution, investing billions in their own platforms while maintaining the trust and regulatory licences required to dominate high-value lending, such as residential mortgages.

The established banks were also better able to absorb the higher costs of regulation and cybersecurity. For a smaller challenger bank, the compliance burden is often a significant percentage of its total revenue. For a giant bank, it is a manageable operational expense. Some challenger banks, most notably Revolut, have grown to a large size, but the biggest effect of the new banks is a forced modernisation of the older ones.

This combination of rising margins, disciplined shareholder returns and the resilience of the established model has restored the sector's momentum. The banks have demonstrated that they are no longer just safe utilities. They are profit-seeking enterprises with the capacity to deliver high yields to patient investors. The current challenge for investors is to identify which institutions can sustain this performance as the interest-rate cycle matures. The market has recognised the recovery, but the divergence between the winners and the laggards suggests that selection remains critical.

How to navigate the banking market

There are at least three distinct types of banking. Retail banking is the familiar world of the high street, managing residential mortgages and personal savings for millions of customers. Corporate banking offers services to the commercial sector, extending credit to firms and facilitating international trade. Investment banking is a more volatile endeavour that involves mergers, debt issuance and investing in the capital markets. The latter depends on the shifting appetites of the financial markets, which introduces a level of unpredictability that many investors find unsettling. The market typically rewards the steady stability of retail lending with a higher multiple, while it views the inconsistent profits of investment banking with caution.

The main concern for investors is the progression of the interest-rate cycle. Banks generally benefit from rising interest rates because the income they generate from loans increases more quickly than the interest they pay to depositors. However, as rates plateau this advantage often diminishes. Customers eventually move their money from low-interest current accounts into higher-yielding fixed-term products. This shift increases the bank's cost of funding and can lead to a lower profit. Asset quality is another area of vulnerability. Extended periods of high borrowing costs can put pressure on both households and businesses, leading to a rise in loan defaults. The commercial real-estate sector is currently viewed with particular caution, especially in markets where office and retail property valuations have fallen. If a bank has a high concentration of lending in these areas, it may be forced to raise its loan-loss provisions, which hurts profits.

Political and regulatory risks are also a factor. Governments may consider windfall taxes on high bank profits during hard times. Regulators often introduce new rules on capital requirements or consumer protection. Such measures increase operational costs and limit the amount of cash that banks are able to return to shareholders through dividends and buybacks.

Finally, structural shifts in the financial system present long-term challenges. The rise of non-traditional lenders and private credit markets has introduced new competition for corporate lending. Furthermore, the development of digital currencies could alter the traditional deposit-taking model. If consumers begin to hold significant portions of their wealth in digital sovereign currencies rather than bank accounts, the industry's funding costs could rise substantially.

To assess a bank accurately, investors must look past the price-to-earnings ratios used for ordinary companies. Instead, they prioritise the price-to-tangible-book-value ratio. This metric compares the share price against the net value of the bank's hard assets, once intangible items such as goodwill or brand value are stripped away. It provides a realistic view of the bank's worth if it were liquidated today. A bank trading at a discount to this figure suggests that the market believes the management is failing to earn its way, or that the assets on the balance sheet are not as safe as they appear. Conversely, a premium indicates that investors expect the institution to generate superior returns for years to come. In this new higher-interest-rate environment, investors must distinguish between high-quality cash machines and potential value traps.

The efficiency leaders of the banking industry

JPMorgan Chase (NYSE: JPM) remains the undisputed benchmark for the global banking industry. It is the largest bank in the world by a significant margin and is valued at more than double its nearest competitor. This scale allows the firm to simultaneously dominate both investment banking and retail lending. Under the leadership of Jamie Dimon, the bank has maintained a return on equity of nearly 16% while investing billions into its technological infrastructure. While the valuation is high compared with peers, its operational dominance and so-called “fortress balance sheet” provide a unique safety net. It is the go-to investment for those who wish to gain exposure to banking.

Lloyds Banking Group (LSE: LLOY) is a direct bet on the British economy. Unlike its more international rivals, Lloyds Banking Group generates the majority of its profit from domestic retail and commercial lending. Its net interest margin has improved significantly in recent years as it benefited from the shift in interest rates. With a price-to-tangible-net-asset-value ratio of 1.5 times and a healthy return on equity, the bank has become a favourite for dividend-seekers. Its aggressive share buyback policy continues to support the shares even during periods of domestic economic uncertainty.

HSBC (LSE: HSBA) has focused its efforts on the high-growth markets of Asia, which now drive the majority of its earnings. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of 13.7%. For the income investor, the appeal lies in consistent dividends and regular share buybacks. However, the heavy exposure of HSBC to Hong Kong and mainland China remains a double-edged sword. These regions offer superior growth potential, but also introduce geopolitical risks.

NatWest Group (LSE: NWG) has completed its journey from a government-controlled institution back to a fully private enterprise. Many investors will remember the bank as the Royal Bank of Scotland, which rebranded to distance itself from the reputational damage suffered during the 2008 crisis. The bank has shown remarkable profitability recently, with a return on equity approaching 20% in its most recent results. The shares trade at a more modest 1.3 times tangible net asset value, offering an attractive entry point for those seeking exposure to banking. Its focus on digital efficiency has allowed it to maintain a competitive edge.

The recovery candidates

Barclays (LSE: BARC) trades at a discount of 0.8 times to tangible net asset value, despite delivering a return on equity of more than 10%. The market remains cautious regarding its large investment-banking division, which requires significant capital and produces volatile returns, but management recently vowed to return substantial capital to shareholders by the end of this year. If the bank can prove its investment arm is no longer a drag on the retail business, the potential for a valuation re-rating is substantial. It remains an interesting candidate for those looking for value and who are comfortable with higher risk.

UniCredit (Milan: UCG) has emerged as one of the most efficient banks in the eurozone. Under a disciplined management team, the Italian giant has achieved a return on equity of nearly 17%, far outstripping many of its domestic and international peers. It trades at 1.5 times tangible net asset value, reflecting a market that has finally begun to appreciate its streamlined operating model. By aggressively cutting costs and returning capital, UniCredit has proved that a European bank can thrive without the tailwinds of a massive domestic mortgage market.

Deutsche Bank (Frankfurt: DBK) has historically been the sick man of European banking. After years of losses and scandals, the bank has finally returned to consistent profitability, posting a return on equity of 9.2%. Reflecting this, it remains one of the cheapest major banks in the world, trading at just 0.7 times tangible net asset value. The discount is due to its poor reputation, but the structural improvements in its corporate and private banking arms are undeniable. For the patient investor, it represents a bet that the final stages of its turnaround will lead to a revaluation.

The specialists

BNP Paribas (Paris: BNP) is the closest institution Europe has to a diversified American-style giant. It operates a massive corporate and investment bank alongside a stable retail presence across several countries. Trading at 0.9 times tangible net asset value, it offers a diversified stream of earnings and a healthy dividend yield. The bank has successfully used its scale to gain market share as American rivals pulled back from certain European markets. It is a solid choice for those who want exposure to European growth without the concentrated risk of a single-country lender.

Banco Santander (LSE: BNC) has exploited its unique geographic footprint, spanning from Spain to Brazil and the US, to protect itself from regional economic shocks. The bank trades at 1.7 times tangible net asset value and delivers a return on equity of more than 12%. Its diversified model means that when the European economy slows, its Latin American operations often provide a profitable cushion. This geographic spread is its greatest strength, although the complexity of managing such a diverse empire often leads to a slightly lower valuation than its simpler peers.

Standard Chartered (LSE: STAN) provides a unique way to gain exposure to the emerging markets of Asia, Africa and the Middle East. Unlike HSBC, it has a smaller retail presence and focuses more heavily on corporate and institutional banking. It trades at 1.1 times tangible net asset value and has recently exceeded its own profitability targets. It is a primary beneficiary of the rise in intra-Asian trade and is well-positioned to benefit from the ongoing economic development in its core markets. It remains an attractive option for investors looking towards the emerging economies.

Bank of America (NYSE: BAC) is the second-largest lender in the US and serves as a bellwether for the US consumer. It trades at 1.8 times tangible net asset value, a premium that reflects its massive deposit base and its leading position in digital banking. While it is highly sensitive to US interest rates, its diversified earnings from investment banking and wealth management provide stability. It is often seen as a more conservative alternative to JPMorgan Chase for those who want exposure to the American financial system.

Goldman Sachs (NYSE: GS) remains the premier investment bank in the world. Unlike the universal banks, Goldman Sachs is heavily weighted towards merger advice, trading and asset management. This makes its earnings more volatile and dependent on the health of the financial markets. After a period of strategic drift into consumer banking, the firm has refocused on its core strengths. It remains an option for those trying to gain exposure to pure investment banking rather than more traditional lines of business.

The best bank stocks to invest in now

The banking sector has transitioned from a source of risk to a reliable engine of shareholder returns. For those seeking stability, Bank of America offers a good balance sheet and direct exposure to the US economy. Its historical resilience provides a degree of security for investors prioritising long-term capital preservation. Barclays represents a more opportunistic choice. It remains priced at a discount compared with its domestic peers, and the successful execution of its current strategy should allow this valuation gap to narrow, rewarding patient holders. Finally, Standard Chartered serves as a unique vehicle for those desiring exposure to emerging markets. As a UK-listed entity, it provides a regulated gateway to high-growth regions in Asia and Africa.

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Five years ago there were lots of reports about how the finance industry was going to move from London to Paris, Amsterdam or Frankfurt. In the wake of Britain's departure from the European Union, the City would lose its role as the main hub in the finance industry and all the jobs and tax revenues it created. Deals would have to be made within the bloc, and trades would have to settle under EU rules, so there would be little space for a country outside the EU. The only real question was which major city on the continent would take London's place.

But traders and analysts can forget about freshly baked croissants for breakfast and two-hour lunch breaks. It turns out that the US mega-banks are not moving en masse to Paris after all. Last week, JPMorgan started moving some of its staff in Paris back to London. Its chief executive, Jamie Dimon, warned back in 2021 that the bank might well move all its European operations out of the City. Instead, it has been steadily increasing its headcount and building the biggest tower in Canary Wharf to house them all. Its plans to make Paris the centre of operations appear to have been quietly wound down.

It is not hard to understand why. President Emmanuel Macron's promises to carve out a special regime for global bankers have come to nothing. The “temporary” tax surcharge on anyone earning more than €250,000 a year – not much for a star banker at JPMorgan – has been extended for another year. With the government paralysed and a huge deficit to fix, France will have to put up taxes again.

Meanwhile, Amsterdam is about to become a no-go zone for investors. The Dutch city mounted a challenge to London that was every bit as serious as the one from Paris. With its long traditions in finance and a powerful stock market, it attracted a series of high-profile listings, including giants such as Universal Music. But now the Netherlands is planning to extend the capital gains tax at 36% even to unrealised gains. In effect, if your investments go up in value by 10% over the course of the year, you will have to pay a big chunk of that in tax, even if you have not yet cashed them in.

Even worse, you won't be able to claim any kind of refund or allowance if those same investments fall by 10% the following year. In effect, the state will confiscate 10% of your winnings, but it won't share in any of the losses. It will be the most punishing system of capital-gains taxation anywhere in the developed world. It is impossible to see how Amsterdam can survive as any sort of financial or business centre under that regime. As for Frankfurt, there is absolutely no sign of any banks moving to the city and the German economy remains stagnant despite the huge rise in government spending to try and get it growing again.

How the City of London can reclaim the crown

Add it all up, and this is the perfect moment for London to reclaim its place as Europe's main financial hub. There have been modest moves in the right direction. Some of the listing rules have been relaxed, the cap on bankers' bonuses has been lifted and a new junior market in “unquoted companies” has been created. We are promised more reforms in the King's speech later this month. It is a start, even if only a very modest one.

But there are also obstacles: higher income taxes, the ending of non-dom status for finance staff moving from abroad, some of the highest inheritance taxes in the world, and now a higher rate of tax on interest and dividend payments as well. It may well get worse in the next Budget. None of that will do anything to persuade any more bankers to move to this side of the Channel.

The government should be doing a lot more to help. It could introduce a new version of the non-dom regime, perhaps modelled on Italy's flat-rate tax scheme that has helped create a boom in Milan. It could turn the stock exchange into a genuinely light-touch regulatory centre for new listings. Finance remains one of the world's largest industries and one in which Britain has huge residual strengths. Brexit has not damaged it nearly as much as everyone predicted. But the City will have to work a lot harder if it is to reclaim its crown.

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As the oil crisis gathers momentum, it remains to be seen how events play out in the Persian Gulf – a ceasefire might be agreed with Iran and the shipping lanes might start to reopen, as might the production facilities. But as the week started, it did not seem likely. Oil spiked over $100 a barrel, and across Europe, natural-gas prices more than doubled. By Tuesday morning, they had started to fall again. And in real terms, $100 is not in any cases all that extraordinary a price for oil. The real-terms price was $131 in 2008 and $104 after the start of the Ukraine war.

Still, the rise is already pushing up costs across Europe and Asia. And it is Britain that will be hit hardest of all. Twenty years of deluded policymaking is about to be brutally exposed if oil stays at these levels. Why? Firstly, the UK is critically dependent on imported energy. We have been steadily running down domestic production in the North Sea with a punishing mix of windfall taxes and bans on new exploration, while assuming that wind and solar power would make up the shortfall.

That has not happened and it has cost far more than anyone expected. Instead, we rely on massive imports of natural gas to keep the power stations running and imports of oil to keep the petrol pumps open. As it happens, Britain does not import huge amounts of gas from the Middle East, but we still have to pay the global price. If we had our own production, not only would it increase global supply (and therefore reduce the price, at least marginally), but more importantly, in a crisis, the government could always requisition supplies. As it is, when prices go up, we feel the full brunt of it.

An oil crisis will lay waste to British industry

Secondly, an oil crisis will lay waste to industry. What remains of manufacturing was already getting hammered by industrial energy prices that are twice those of France and four times the US's. Car output has fallen back to levels last seen in the 1950s, as has cement production. Huge swaths of the chemicals industry have closed down. With oil and electricity prices almost doubling, what remains will be in deep trouble.

Many manufacturers that were just about breaking even will now have to close and the damage will quickly spread to retailers, cafes and restaurants if their power prices go up as well. Business was in bad shape already. This will finish many of them off.

Thirdly, we rely on massive amounts of foreign borrowing. The rising oil price has already led to a sharp rise in gilt yields. The government's finances will be in worse shape than ever and that is before ministers panic and launch a bailout to try to control the price rises. Almost a third of the £100 billion-plus the UK has to borrow every year comes from overseas. If there is a general sell-off of government bonds, and that is looking more and more likely all the time, then the UK will inevitably be right in the centre of the storm. Sterling is a big enough currency that it can be traded in volume, but not so big that its central bank can control the market. We can be sure the hedge funds will be shorting gilts and sterling if sentiment turns against the UK.

Stagflation is our best hope

Finally, the government was banking on falling oil prices to have any hope of growth. The only real plan that remained was for the Bank of England to steadily reduce interest rates as inflation came under control, reducing mortgage rates and stimulating demand. Chancellor Rachel Reeves kept boasting interest rates coming down were one of her major achievements. In the wake of the oil-price spike, traders have cut the chances of another cut from the Bank this year to zero. Worse, rates might even have to rise if prices spike upwards. With taxes rising at the same time, and unemployment going up as well, stagflation is the best we can hope for. By the autumn, the UK may have tipped into a full-scale recession.

In short, a government that has already sunk to 20% or less in the polls is going to be in deep trouble. It did not have much of a plan for kick-starting growth or for improving living standards to start with, but what little hopes it may have had for the economy have now been dashed. Its own policies have been making the energy crisis worse, not better. An oil crisis is the last thing Labour needs this year. It will painfully expose all the frailties of the British economy – and right now it looks as if it may be too late to do anything about it.

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How bad are the youth unemployment figures?

Youth unemployment figures make grim reading. Government data released earlier this month shows that the UK unemployment rate rose to 5.2% in January – the highest rate for five years.

But in the last quarter of 2025, the unemployment rate for 16-to 24-year-olds rose to 16.1%.

That’s higher than the Covid peak of 15.3% in late 2020 and the highest level for more than a decade. And for the youngest workers –16-and 17-year-olds who have left education – the rate is a shocking 34.2%.

Whatever measure you look at, there’s clear evidence that younger workers are bearing the brunt of the UK’s increasingly soft jobs market.

For example, the number of payrolled employees in the UK fell by 134,000 in the year to January. But for younger employees (on this metric meaning younger than 34), the decrease was 174,000; for older workers there was a net increase.

How does this compare globally?

It’s bad. For the whole of this century, it’s been easier for young workers to find employment in the UK than in mainland Europe, hence the millions of young Europeans who made Britain their home.

But now, for the first time that situation has reversed. According to the OECD think tank, the UK’s youth unemployment rate now stands at 15.3% – higher than the EU’s level of 15% and more than twice that of Germany.

Yet for workers overall, the jobless rate remains higher in the EU than here, at more than 6%. It’s only for younger workers that Britons are worse off.

What’s gone wrong?

A mix of macro-economic factors, made worse by recent policy decisions by the Labour government.

Youth unemployment has been a persistent and cyclical part of the UK labour market over many decades.

Structural shifts in the post-war period, deindustrialisation in the 1980s and the global financial crisis – all saw youth unemployment rise, and it has consistently been higher than overall employment.

Recent years have seen a long period of low or no growth and lacklustre productivity, combined with an inflationary spike and cost pressures on businesses.

All of that tends to reduce hiring and young workers are often the first affected.

However, there’s no doubt that Labour has made things worse. And that’s not merely the judgement of Labour’s opponents: it’s the publicly expressed view of Huw Pill, the Bank of England’s chief economist.

What does the Bank of England’s chief economist say?

Huw Pill told a parliamentary committee this week that last year’s increase in employers’ national-insurance contributions, plus the drive to level up the youth rates of the minimum wage towards the main adult rate, “have had a particular effect on young people” aged between 16 and 21.

This cohort of young people were already launching their careers at a difficult time in the aftermath of the pandemic, he says, and in the face of deeper structural changes such as the adoption of AI that policymakers might find “difficult to manage”.

What about the minimum wage?

The minimum wage has surged by 75% – in real terms, not merely nominal – since it was introduced by New Labour in 1999.

Initially, the rates were £3.60 per hour for the over-22s and £3 per hour for 18-to 21-year-olds.

With inflation, those rates today would be £7 and £5.80. In fact, the minimum wage is now £12.21 per hour for the over-21s (rising to £12.71 in April); £10 per hour for 18-to 20-year-olds (rising to £10.85); and £7.55 for 16-to 17-year-olds (rising to £8).

The policy was widely accepted as a success and adopted by the Conservatives, who had opposed it at the time as a jobs-destroyer.

And indeed, since its introduction there has been little sign that it was hurting employment; in 2022 the headline joblessness rate hit its lowest since the 1970s, at 3.6%.

So what happened?

The Conservatives became so confident about the policy that in government they set a goal of raising the main minimum wage (rechristened the “living wage”) to two-thirds of median earnings, making it one of the highest relative to earnings in Europe.

They also phased out lower rates for workers aged 23-24 in 2021 and for 21-to 22-year-olds in 2024.

Yet it’s now clear that the inexorable rise of the minimum wage has reached a tipping point, with businesses loudly telling policymakers that it is stopping them from hiring young workers.

Nor is it solely minimum-wage workers who are struggling: it’s graduates, too.

The soft economy, combined with the promise of AI’s workplace abilities, has led to a graduate “jobpocalypse” in which companies have slashed or paused recruitment programmes, entry-level jobs are disappearing and graduate-level unemployment is at an all-time high.

Why is this issue so important?

Because people’s early interactions with the labour market play a critical role in shaping their long-term futures.

Researchers have consistently found that NEETs – people not in education, employment or training – are “at risk of life-long socio-economic scarring, remaining at significantly elevated risk for worklessness and health problems for decades”, says John Burn-Murdoch in the Financial Times.

In the UK, this group of young people who are increasingly disengaged from not only the economy, but also the rest of society, has doubled in just over a decade from 4.5%-9% of those aged 20-24.

Alan Milburn, the Blair-era cabinet minister, is now conducting an inquiry into the issue.

“We’re seeing something dramatic changing in the labour markets,” says Milburn.

Some 45% of 24-year-olds who are not in education, employment or training have never had a job.

"If you haven’t had a job by 24, that entails a long-term scarring effect and you’re probably then stuck in a lifetime on benefits.”

Britain is “facing the existential risk of a lost generation” – with all the economic and fiscal damage, and social and political turbulence, that will entail.

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Summary

• The Bank of England’s Monetary Policy Committee met today to decide its latest UK interest rates decision.
• As expected, the MPC voted to hold rates at 3.75%.
• Last time it met, the MPC cut rates in a narrow 5-4 vote.
• Today's vote also came down to a 5-4 split in favour of holding UK interest rates: this was much narrower than most observers had expected.
• The MPC has indicated it will balance concerns over a weakening economy with the risk of persistent inflation.

| When will interest rates fall further? | UK inflation forecast | MPC meeting dates |

Good morning, and welcome to live coverage of today’s UK interest rate meeting at the Bank of England.

Experts overwhelmingly expect the Monetary Policy Committee (MPC) to hold rates at 3.75% today. Will we see a deviation from this prediction? It would come as something of a shock if so.

Whatever happens, stick with us here as we bring you live preview in the run-up to the decision, as well as reaction in its aftermath.

December’s inflation uptick makes a hold more likely

Inflation is arguably the most influential factor on MPC interest rate decisions. The Bank of England has a remit to keep inflation around 2%, and interest rate changes are the key lever it uses to achieve this.

Higher interest rates have the effect of limiting consumers’ disposable income. That, in theory, reduces demand across the economy, which has a dampening effect on inflation.

The latest bout of inflation appears to have peaked at 3.8% between July and September. It had been coming down faster than expected in the meantime, which helped the MPC justify a rate cut in December.

But last month’s inflation reading (covering December) showed a rise in inflation to 3.4%. While widely expected, this will likely discourage the MPC from making a second successive cut – something it hasn’t done since the first quarter of 2020, when the Covid pandemic looked set to collapse the economy.

"We expect the UK’s disinflationary trend to continue through 2026, with slack in the labour market steadily increasing,” said Grant Slade, economist at investment research firm Morningstar. “However, the Bank of England is likely to hold rates this month as it waits for further evidence that wage growth and broader price pressures are softening.”

When does the MPC announce UK interest rates?

The MPC’s decision will be announced today at 12pm.

We’ll bring you the result as it lands. Stay tuned!

The trajectory of UK interest rates

December’s cut was the latest in a gradual cycle of interest rate cuts that have seen UK base rate fall to 3.75%, from 5% in August 2024.

The steep rise in interest rates from January 2022 onwards reflects the Bank of England’s attempt to control inflation, which spiked in the wake of Russia’s invasion of Ukraine.

Throughout the recent cutting cycle, the MPC has never cut UK interest rates in two consecutive meetings. It isn’t expected to change that approach today.

Economists predict a rates hold

Persistent inflation combined with the cadence, to date, of the MPC’s interest rate cutting cycle means that most experts and economists expect rates to be held where they are today.

“The majority of MPC members anticipate further rate cuts will be required, but they're concerned about the potential strength of 2026 pay awards and their impact on inflation,” said Edward Allenby, senior UK economist at advisory firm Oxford Economics.

While the economy is in a precarious state, there hasn’t been enough fresh data, particularly on what is happening with inflation, since the last meeting to be able to justify a successive cut.

“The data flow since the MPC’s last meeting does little to change the risk balance between persistent inflation and weak growth,” said Robert Wood, chief UK economist at advisory firm Pantheon Macroeconomics.

What to watch for in today’s MPC meeting

Meetings like today’s, when the verdict on UK interest rates is almost a foregone conclusion, can feel like a damp squib. But there will still be key talking points: specifically, the split of votes among the nine-person MPC panel, and the forward guidance they issue.

Robert Wood, chief UK economist at advisory firm Pantheon Macroeconomics, expects a 6-3 vote split in favour of holding rates at 3.75%, while Edward Allenby, senior UK economist at advisory firm Oxford Economics, expects a 7-2 split.

“We don't think the recent data have been weak enough to convince a majority on the committee to vote for a February cut next week,” said Allenby. “Indeed, there's a good chance that the vote split will be wider than December's 5-4 decision, with just [Swati] Dhingra and [Alan] Taylor likely to vote for a cut.”

The minutes of the meeting published afterwards, will also be closely scrutinised by experts to gain a clearer picture of when UK interest rates might next be cut.

“Key things to watch here will be the debate around the weak labour market versus firming price pressures in survey data, including wage settlements from the Bank's Agents survey,” said Sanjay Raja, chief UK economist at Deutsche Bank. “We will be looking at positioning within the MPC and how much weight each member puts on each matter. Any dissenters beyond Taylor and Dhingra will be important to keep an eye on too.”

How are UK interest rates decided?

As we approach the announcement of today’s Monetary Policy Committee (MPC) meeting, it’s worth taking a look at who makes up the committee, and how it sets UK interest rates.

The MPC is made up of nine members. These are the governor of the Bank of England (currently Andrew Bailey) who serves as the committee’s chair, three deputy governors for monetary policy (Clare Lombardelli), financial stability (Sarah Breeden) and markets and banking (Dave Ramsden), the chief economist (Huw Pill) and three external members that are appointed directly by the chancellor (Swati Dhingra, Alan Taylor and Catherine Mann).

The committee assesses the available economic data in a series of meetings before voting on a proposal regarding UK interest rates put forward by the governor. All members then vote either for or against the proposal – if against, they are asked to state what alternative policy they would support. A majority is required for the policy to become set.

In the rare event of a tie (which requires at least two different alternative policy suggestions given there is an odd number of committee members), then the committee votes again.

What do you think will happen to UK interest rates?

It’s nearly midday, which means the MPC’s UK interest rates decision is nearly with us.

Which way do you see it going? Let us know in our poll:

BREAKING: UK interest rates held

To the surprise of absolutely no-one, the MPC has voted to hold UK interest rates at 3.75%.

The key variables today are the comments and outlook from the committee. We’ll bring you detailed analysis shortly.

MPC vote split surprisingly close

The headline result is not a surprise, but the tightness of the vote certainly is.

The UK interest rates hold went through with a 5-4 majority, meaning that, for the third consecutive meeting, Bank of England governor Andrew Bailey effectively cast the deciding vote.

Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor all voted to cut rates by 0.25 percentage points.

Wage growth is trending in line with target-level inflation

Two of the surprise dissenters, Sarah Breeden and Dave Ramsden, both highlighted the fact that wages are trending downwards as in their rationale for voting for a cut.

"Wage growth is set to end this year at target-consistent levels; structural change in the labour market now appears less likely to have occurred; and slack is judged to be a little wider both now and over the forecast," said Breeden.

"Core disinflation is clearly progressing with cumulative weakening in the labour market" said Ramsden. "I am increasingly confident that wage growth will fall to target-consistent rates this year."

Will we see further UK interest rate cuts soon?

Many commentators expect the next cut to come in April rather than at the next meeting in March, but comments from other committee members could be read as undermining this assumption.

"New analysis and current developments have moved the appropriate time for a cut in Bank Rate closer," said Catherine Mann. Bank of England governor Andrew Bailey indicated that he sees "scope for some further easing of policy", but emphasised that he doesn't expect a cut at any particular meeting.

"A cut at the next Bank meeting in March is most certainly on the table," said Luke Bartholomew, deputy chief economist at investment firm Aberdeen. "And even if it takes a bit longer for the next cut to come through, we still think there is a strong case for rates to eventually fall to 3% later this year."

UK interest rates still trending downwards

Here’s how today’s UK interest rates decision looks against the historical trend:

“The Bank of England has pushed a big red pause button on interest rate cuts as caution remains the name of the game and policymakers assess flickering growth and stubborn inflation,” said Susannah Streeter, chief investment strategist at Wealth Club. “Although the signs are that the price spiral will be dampened down in the coming months, they’ve judged that it’s still too early to move, especially given signs that growth in the economy is showing tentative signs of making a comeback.”

Streeter also highlighted that the tight vote came as a surprise and perhaps signposts a rate cut sooner than some expected.

“It puts a cut in March still very much in the picture,” she said. “The labour market is showing weakness, Budget changes are set to bring down energy and transport costs and a wave of cheaper Chinese goods are heading this way. So, more policymakers could well be swayed to vote for lower borrowing costs next month.”

"A bus that may or may not be running"

The balancing act that the MPC's members are attempting is palpable in today's meeting minutes. On the one hand, there is a clear appetite to cut in order to bolster the economy, but timing this so as to keep inflation on a downward path is absolutely key.

"The Bank’s tone highlights how cautiously policymakers are approaching this stage of the cycle," said Patrick Farrell, group chief investment officer at investment manager Charles Stanley. "With signals from inflation and the labour market still mixed, they’re navigating a far more stop-start environment than in the past.

"At times, it feels like waiting for a bus that may or may not be running," said Farrell. "There’s no set timetable, and each move now depends on whether upcoming data gives the Bank enough confidence to act."

FTSE rises on MPC’s dovish hold

The stock market has not been having a good day today, but the unexpectedly tight vote does seem to have given a small boost for UK stocks.

The FTSE 100 climbed around 0.4% while the FTSE 250 climbed around 0.2% immediately after the MPC’s report was released, though both indices remain below yesterday’s close.

In very broad terms, lower interest rates tend to benefit stocks as they encourage economic growth and investment.

UK interest rates: inflation outlook is revised lower

Today’s MPC meeting notes included surprisingly dovish comments even from some members who voted in favour of holding interest rates at their present level.

The Monetary Policy report which has been released alongside today’s announcement reveals that the Bank now expects inflation to fall towards the target level of 2% sooner than had been expected. In fact, it states that headline CPI inflation could fall to 2.1% as soon as Q2 this year – largely thanks to the energy bills package unveiled in the Autumn Budget.

The last Monetary Policy report, published in November, put the equivalent figure at 2.8%.

How do interest rates affect your money?

In general, higher interest rates are good for savers (because they earn more interest on their savings) and bad for borrowers (because they pay more interest on their debt).

“Savers may welcome the prospect of higher returns for longer, but borrowers hoping for additional relief from high mortgage or debt repayments will need to stay patient for now,” said Alice Haine, personal finance analyst at online investment platform Bestinvest.

“Living costs remain high and borrowing costs are still elevated compared with the long era of ultra-low interest rates that followed the Global Financial Crisis,” Haine added. “Combined with the stealth impact of frozen income tax thresholds, this is making it harder for some households to balance the books.”

Recap: UK interest rates held at 3.75%

As a recap: the MPC held UK interest rates at 3.75% today, as widely expected, but the headline was a narrow 5-4 vote split (some experts had predicted as many as seven committee members voting to hold rates steady) and unexpectedly dovish comments from some committee members.

This has seemingly opened the door for a rate cut at the next meeting in March, something which most observers felt was unlikely ahead of today’s meeting.

The Bank of England now expects the rate of inflation to fall faster through the first half of this year than it did at the time of its November meeting, when it last published a Monetary Policy report.

Thanks for following live coverage of today's UK interest rates decision. We're going to end our coverage here at this point, but keep a close eye on MoneyWeek.com over the coming days as we bring you more analysis of today's decision and what it means for you.

The Scottish government has announced plans to sell up to £1.5 billion of its own debt over the next five years, the first time the country has issued its own bonds in more than three centuries. The “kilts”, as they will inevitably be known in a play on the British “gilts”, will help finance the devolved administration. The plans took a step forward last week when two of the major agencies, Moody’s and S&P, gave the planned issue an investment-grade rating. The Scottish National Party plans to press ahead, in part to give it more money to play with, but also, perhaps more importantly, to demonstrate that Scotland can flourish on its own and have credibility in the markets.

The trouble is, it is not likely to work out that way. The ratings agencies were quite clear that they were grading Scotland on the basis that it was still part of the United Kingdom, and the debt backed by the Bank of England and the Treasury in London. If Scotland were an independent country it would surely be a very different story.

To start with, Scotland runs a huge budget deficit. For 2024-2025 it rose from £21 billion to £26 billion. That is 11% of GDP, compared with 5.1% for the UK as a whole. If you took out oil, which might not all go to Scotland in a separation agreement with the rest of the UK, it would rise to a terrifying 14%. The rise was largely on account of lower revenues from North Sea oil and gas, but the SNP is fiercely opposed to the oil industry, and wants to close it down as quickly as possible, so the deficit would be a lot worse if the country became independent. Its deficit would rank as one of the highest in the developed world. It is behind Timor-Leste, at 48% of GDP, and Ukraine at 18%, if above Egypt and Zimbabwe. It is hard to believe that borrowing on that scale would be sustainable for very long.

Next, Scotland has a political class that is addicted to spending. Ever since the devolved government was created at the start of the century the one thing it has proved very good at is giving away free stuff. Higher education does not have to be paid for, and neither do prescriptions, or bus travel if you are under 22 or over 60. It makes politicians sound generous. Some of that is paid for with higher income-tax rates in Scotland than in the rest of the country, but most of it comes from subsidies from London. Public spending is already more than £2,000 per person higher in Scotland than in the rest of the UK, but the budget deficit is still huge. It is hard to see any government in Edinburgh changing that.

It's hard to think of anything worse than Scotland's proposed 'kilts'

Finally, Scotland may break away from the UK at some stage, and, if it does so, it may have to issue its own currency. The SNP has always maintained that it can carry on using the pound after independence, if it ever happens, and the Bank of England will remain the ultimate guarantor of its debts. But the government in Westminster has never agreed to it and neither has the Bank. It is hard to see why they ever would. Anyone holding a “kilt” has to reckon with the possibility that Scotland may have to issue its own currency at some stage and that it will sharply devalue against the pound. Measured in sterling, or indeed dollars or euros, they will face huge losses on their holdings.

In reality, it is hard to think of a worse investment. A market in “kilts” will make that painfully clear almost as soon as it is launched. It might start out trading at the same price as UK-issued gilts, but it will very quickly start to deviate from that. If a second referendum on independence is mooted, prices will plunge if there are polls showing a “yes” vote, which paradoxically, will make that outcome far less likely.

If there is a prospect of a vote being held, prices will start to sink as investors weigh the possibility that it might be a Treasury in Edinburgh rather than London that has to pay them back. Scottish politicians pushing for “kilts” might imagine it will strengthen the case for independence and bolster their financial credibility. More likely is that it will backfire spectacularly, making it clear that an independent Scotland would struggle to pay its bills.

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How has monetary policy shifted?

Over the past 25 years, monetary policy in advanced economies has undergone an astonishing, unprecedented transformation – dramatically changing in both scope and scale, and blurring the boundaries with fiscal policy. When MoneyWeek published its first edition, there was a broad consensus on inflation targeting, operational independence for central banks and faith in the ability of short-term interest rates to stabilise output and prices. But those turbulent 25 years have seen a radical shift. From the “Greenspan put” to quantitative easing (QE – printing money to buy government debt), monetary policy has evolved in ways that are highly controversial and politicised. Central banks today have vastly higher balance sheets, in some cases manage entire yield curves (that is, use policy to influence rates across different maturities of government bonds, not just short-term rates) and openly coordinate with fiscal authorities in emergencies.

Why is this controversial?

Because, critics argue, the gigantic balance sheets held by unelected central banks as the result of QE, and their “unconventional” monetary policies, have inflated asset-price bubbles, fostered inequality, led to misallocation of capital, and masked unsustainable public finances. Long-term, the chief purpose of monetary policy is to inspire confidence in the value of money by encouraging price stability. In the short or medium term, the aim of policy is to keep the real economy stable – supporting sustainable growth and employment – and to contain risks. Since the turn of the century, however, independent central banks have radically over-interpreted that brief by consistently coming to the rescue of equities and debt markets in ways that have distorted business cycles and deferred pain. Emergency measures have become the norm, and central banks have ballooned.

How have central banks expanded?

For almost the whole of the 20th century, the central-bank assets of advanced economies, as a proportion of economic output, remained remarkably constant, at around 10%-13% of GDP. But in the aftermath of the great financial crisis of 2007-2008 – as governments everywhere turned to QE – that proportion surged, rising above 20% in 2009-2010. And rather than falling back to normal levels as the crisis stabilised, that proportion then doubled once more during the 2010s to 40% – before spiking up to 70% in the aftermath of Covid. Even by 2024, it was still 50%. That’s a revolutionary change in the size of central banks’ financial assets within a couple of decades. Historically, balance sheets merely reflected operations. Now, they are strategic levers shaping long-term yields and risk premiums – a fundamental conceptual shift.

Was QE justified?

Yes, in the immediate aftermath of the financial crisis, decisive action by central banks was vital in stabilising economies and preventing deflation, says Andy Haldane in the Financial Times. By contrast, “later-stage QE, including purchases made in response to Covid, is harder to justify. With fiscal policy highly expansionary, QE’s primary purpose was to placate fretful bond markets rather than boost inflation” – a worrying step towards “fiscal dominance”. Vincent Reinhart, the chief economist at BNY Investments, co-authored two research papers on QE with Ben Bernanke, chairman of the Federal Reserve from 2006-2014, who instituted QE following the financial crisis. “We did not include a section on how to get out of the policy, or the risks stemming from it,” he now says. “That was a mistake – it was a lot stickier than I thought going in and has opened up a range of complications and potential political influences on monetary policy.”

So it’s been hard to get out of?

Indeed. The current era of gigantic public debt has blurred the lines between monetary and fiscal policy, since rate rises (or quantitative tightening) put up debt-servicing costs and infuriate the likes of Donald Trump. In the UK, quantitative tightening triggers indemnities that require the Treasury – ultimately, the taxpayer – to cover central-bank losses. In addition, by pushing up gilt yields, it makes it more expensive to the Treasury to borrow and service its debts. That makes monetary policy more politically charged than ever, and the target of populists who regard central bankers as sources of unelected and illegitimate technocratic power.

What are the limits on monetary policy?

Conventional monetary policy is a famously blunt tool. It has become blunter in recent decades. Financial globalisation and the absorption of China into the global economy, technological change and demographic ageing have lowered real rates. There’s been a relative decline in floating rate debt, meaning rate changes do not necessarily feed through into the wider economy. And rate-sensitive capital-intensive sectors, such as manufacturing and construction, have diminished in favour of services, which are more labour-intensive and less responsive to interest rates, says Marco Casiraghi, director at Evercore ISI. All of this makes monetary policy harder to frame and execute with confidence.

A tough gig, then?

The Bank for International Settlements says that everyone, from governments to central banks to investors and consumers, needs to become more realistic about monetary policy. The idea that it alone can underpin growth is an “illusion”. And the trade-offs that monetary policy involves will “become unmanageable” without “more holistic and coherent policy frameworks in which other policies – prudential, fiscal or structural – play their part”. Central bankers may be even more powerful than 25 years ago. But in an ever more complex and turbulent century, even they recognise that they are not magicians.

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Tens of billions of pounds have been left languishing in savings accounts that earn paltry interest rates, meaning hoards of cash are slowly losing value in real terms, new research has revealed.

Around £31.6 billion are sitting idle in UK adult savings accounts earning 1% interest or less, with savers missing out on hundreds from interest payments, according to savings app Spring, a part of Paragon Bank.

The best easy-access savings account on the market, currently the Zopa Smart Saver, has an interest rate of 4.75% for the first 12 months.

The rise in the overall balance of accounts earning 1% or less in interest surged by 578% (over £27 billion) between January and July this year.

Meanwhile, the number of individual accounts with such low interest rates rocketed by 370% to eight million by the end of July. This is up from just under two million at the beginning of 2025.

The strikingly low interest rates on these accounts mean the savings are not keeping up with inflation and therefore losing its purchasing power.

The annual rate of inflation in the UK in September was 3.8%, remaining at July’s 18-month high.

While inflation has been far above the Bank of England’s target of 2% for most of 2025, even if price growth was kept under control, these accounts would still see their balances erode by around 1% a year in real terms.

Derek Sprawling, head of money at Spring, said: “The scale of money sitting in accounts earning 1% or less is truly eye-opening. Savers with significant balances are seeing their money eroded by inflation, when it could be working much harder elsewhere.”

Sprawling said that while a “small proportion” of accounts hold the majority of these low-earning balances, “millions of people are missing out on the benefits of switching to a more rewarding savings account without suffering meaningful downsides”.

Poor interest rates rife among rich Brits

The plague of low interest rate accounts is especially impacting those with a significant amount in savings.

Spring found £24.5 billion (77%) of the total amount languishing in low interest accounts is in accounts holding at least £10,000.

Having a large savings balance in an account with a low interest rate is especially stark, as it means you are missing out on more substantial returns.

For example, the difference between a balance of £100 earning 1% and 5% is just £4 in lost interest. Meanwhile, a gap of £400 exists when this account balance grows to £10,000.

What are the best savings accounts on the market?

Zopa’s Smart Saver is the best easy-access saver on the market, paying 4.75% interest on your savings for the first 12 months. After this, the interest rate falls to 3.31%.

The second-best easy-access saver is Chase’s Saver with boosted rate, paying 4.5% for the first 12 months, before falling to 2.56%.

If you are happy to lock your cash away in return for a guaranteed interest rate, the best fixed term savings account on the market is from AL Rayan Bank, which pays 4.56% interest.

The balance between the financial benefits of buying a home or renting is swinging back in favour of being a tenant, research suggests.

Homebuyers may have benefited from slower house price growth and falling mortgage rates in recent years to help them buy a property, but the Iran war and high inflation is putting pressure on the cost of borrowing.

Many mortgage lenders have hiked rates in recent weeks, with the average mortgage rate now back above 5%, as of 30 April.

Research by Rightmove suggests this has now made renting in Great Britain a cheaper option compared to paying a mortgage for the first time since June 2025.

The average advertised monthly rent across Great Britain is currently £1,547, Rightmove said.

This compares with an average new monthly mortgage payment of £1,670 – meaning on average renters pay £123 less per month.

The average mortgage payment uses the average asking price for a home of £373,971, the average two-year fixed rate of 5.35% in April, and assumes a 20% deposit and mortgage term of 30 years.Colleen Babcock, Rightmove’s property expert, said: “Mortgage payments have risen quite sharply in a short space of time for new buyers. It will be interesting to see whether more would‑be buyers turn to renting temporarily while rates remain high, particularly when monthly costs can exceed average rents and the timing of rate cuts is still unclear.”

Renting vs mortgage costs by region

With interest rates unlikely to be cut in the near future and mortgage rates remaining high, renting may be the better option for now in most parts of Britain.

Analysis by Rightmove found Scotland and the North East, where asking prices are lowest, are the only parts of Britain where a typical new mortgage is still cheaper than renting despite higher average mortgage rates.

Paying off a mortgage each month was £141 cheaper than renting in Scotland and £45 less in the North East of England.

London and the South East, where house prices are highest, have the largest gap between average mortgage and rental payments. The property website found renting was £362 and £363 cheaper respectively each month.

Looking at the data more locally, renting is cheaper than a mortgage in more than two-thirds of local authorities, Rightmove said.

The biggest gap was in Westminster, where Rightmove said it is £1,290 cheaper each month to rent than to pay a mortgage.

Those costs could come down though if buyers have a larger mortgage deposit and can find a lower rate.

While the monthly cost of renting may be lower than mortgage payments, there may be differences over the long-term, especially as owning a property typically gives you capital growth as well.

Exclusive analysis of mortgage and rental costs by Moneyfactscompare.co.uk for MoneyWeek in late 2025 found homeowners are £6,600 better off on average than renters when it comes to living in a typical UK home over the past 21 years.

Much depends on where you are on the property ladder.

Adam French, head of news at Moneyfactscompare.co.uk, warned there is a growing ‘two-tier’ property market.

One tier is a group of older homeowners who locked in the low rates of the 2010s and are enjoying the stability and growth of home ownership since buying as an asset, and another priced out, forced to rent for longer and missing out on the wealth-building benefits of ownership.

He suggested buyers who purchased early in the 2010s amid cheap credit and rising wages benefitted from both rising property values and low interest costs, a powerful combination for building wealth.

"However, renters saw little benefit," French said, "with rents rising rapidly to a higher level than typical mortgage repayments throughout the decade, meaning would-be buyers were trapped saving for ever-larger deposits and the affordability gap between renting and buying grew".

He added: "The long period of low rates effectively embedded this advantage as property wealth became the main engine of financial security for millions of homeowners.”

Is it better to rent or buy?

Cost is just one factor when deciding between renting and buying a property.

Renting gives you flexibility while owning a home gives you an asset that typically rises in value and can be more stable as you are in control of your own property.

But high inflation may limit the scope for further interest rate cuts, keeping mortgage costs high.

French said: “Many homeowners' monthly mortgage repayments exceed typical rents after average mortgage rates more than tripled following the Bank of England sharply increasing rates to combat inflation.

"This has dramatically reduced how much buyers can borrow, and house prices have softened as a result with the key dynamic remaining the same: the balance between rates and prices may shift, but the underlying strain on households’ budgets will eventually return to a tolerable range."

Little has changed for a growing number of renters though who are competing for a tighter supply of rental properties which is keeping rents at around the same share of income.

French said: "Not only is it as tough as it has ever been to save for a deposit, but now the immediate financial hit of taking out a mortgage has become even harder to justify.”

That may leave renting as the only option but French says this doesn’t have to be the poor choice it is often portrayed to be, adding: “In a high-rate environment, renting can offer flexibility, particularly for younger workers, those unsure of where they want to settle, or anyone stretching their finances to breaking point to buy.

“Without the burden of maintenance costs or exposure to the risk of falling house prices, renters may find that they can focus on saving or investing in other assets that may offer better returns over time.”

With the Autumn Budget just over a month away, rumours of what will be announced are starting to ramp up.

At the start of the week, reports suggested the chancellor was considering introducing a minimum UK shareholding requirement for ISAs, effectively forcing stocks and shares ISA investors to put a portion of their money into UK equities.

Other reports suggest taxes are likely to rise in the Budget as GDP growth remains sluggish, and inflation remains above the Bank of England’s 2% target.

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Inflation in Britain is forecast to be the highest among all advanced economies in 2025 and 2026, according to new predictions by the International Monetary Fund (IMF), in a pre-Budget blow to chancellor Rachel Reeves.

Price growth in the UK is now predicted to have averaged 3.4% in 2025, up 20 basis points from the IMF’s July prediction of 3.2%, making it the highest among all advanced economies, says the World Economic Outlook report.

The predicted high average annual inflation rate will be no surprise to those who have followed the trajectory of CPI this year. It stood at 3% in January and was recorded at 3.8% in August.

The official figures for September are yet to be published, but the Bank of England expects inflation to have peaked at 4% last month.

The IMF says the rise in headline inflation in the UK in 2025 is partly due to the changes in regulated prices (those controlled by the government), many of which increased in ‘Awful April’.

The pain is set to continue into next year too as inflation is expected to average 2.5% in 2026, another 20 basis points higher than the IMF’s previous prediction (2.3%).

Thankfully, inflation is expected to fall much closer back towards the Bank of England’s 2% target by the end of 2026, which the IMF says will be helped by “a loosening labour market and moderating wage growth”.

The IMF’s prediction of inflation falling in 2026 is one shared by most inflation forecasters, including the Bank of England.

Meanwhile, the UK is also expected to endure the highest long-term borrowing costs of any major economy, putting further pressure on Reeves as she attempts to balance the books before her Autumn Budget.

2025 growth forecast is the silver lining

One area that the UK did lead in was economic growth, which is expected to average 1.3% in 2025, 20 basis points higher than the IMF’s previous forecast (1.1%), making it the second-fastest growing major economy after the United States.

However, economic growth forecasts have been downgraded for 2026 as UK GDP growth is expected to remain at 1.3%, down from the 1.4% predicted in July.

Chancellor Rachel Reeves welcomed the upwards growth revision for 2025, saying: “This is the second consecutive upgrade to this year's growth forecast from the IMF. It’s no surprise, Britain led the G7 in growth in the first half of this year, and average disposable income is up £800 since the election.

“But know this is just the start. For too many people, our economy feels stuck. Working people feel it every day, experts talk about it, and I am going to deal with it. Working together, we can deliver a Britain built for all.”

IMF report ‘grim reading’ ahead of the Budget

In contrast to Reeves’s upbeat response, Conservative shadow chancellor Mel Stride said: “The IMF assessment makes for grim reading. Inflation in the UK is now set to be the highest in the G7 this year and next – rising faster than expected because of the choices Rachel Reeves has made.

“Since taking office, Labour have allowed the cost of living to rise, debt to balloon, and business confidence to collapse to record lows. Taxes are rising to record highs, and families are being squeezed from all sides. Labour should be getting spending under control to bring down borrowing and avoid damaging tax rises, but Starmer and Reeves are simply too weak to do it.”

It’s not just Reeves’s political opponents who saw more bad than good in the IMF’s report.

Lindsay James, investment strategist at Quilter, said: “Despite the small uptick in growth forecasts from the IMF, today’s report is not welcome reading for the Treasury ahead of what is a crucial Budget in just over a month’s time.

“This should be a shot across the bows for Rachel Reeves. The next Budget must not push yet more costs onto businesses at a time when inflation risks becoming more embedded; it ultimately ends up being shouldered largely by consumers, the very ‘working people’ she has said she wants to protect.

“She will need to come to the despatch box with genuinely pro-growth policies or face the reality that spending will need to be reined in to ease the nation’s debt burden. It is an unenviable position given neither are particularly easy to achieve.”

Britain’s biggest investment platform, Hargreaves Lansdown, has launched its first-ever cash ISA product, offering customers the ability to save up to £1 million in a single cash product.

The new easy-access cash ISA, launched in partnership with challenger bank Shawbrook, will initially pay a variable interest rate of 3.45%.

Its interest rate will never go more than 65 basis points below the Bank of England’s base rate, meaning the product is set to occupy a competitive place in the ISA market.

While this guarantee does not necessarily mean the account will be among the highest-paying cash ISAs, it does mean savers are unlikely to be stung by the poorest rates available.

Mark Hicks, head of active savings at Hargreaves Lansdown, said the account will offer clients a “consistently competitive savings rate”.

The savings will be held by Shawbrook Bank and will be protected by the Financial ­Services Compensation Scheme (FSCS), which protects up to £85,000 per person, per bank, building society or credit union. Hargreaves Lansdown will directly control the interest rate offered to customers.

How does Hargreaves Lansdown’s cash ISA compare to others on the market?

What differentiates Hargreaves Lansdown’s new cash ISA from the many other options already on the market is its guarantee to never pay an interest rate more than 65 basis points below the Bank of England base rate.

At present, the base rate stands at 4% after the Bank of England’s Monetary Policy Committee (MPC) decided against an additional interest rate cut amid high inflation.

With the base rate at this level, the lowest possible interest rate that Hargreaves Lansdown can offer on their new cash ISA right now is 3.35%, though this minimum level will change in line with shifts to the base rate.

However, Hargreaves Lansdown’s 3.45% interest rate is far from the best available rate on the market at the moment.

The top easy-access cash ISA rate is almost a full percentage point higher at 4.38%, offered by Trading 212.

The rate offered is certainly not poor, being significantly higher than the average no notice cash ISA rate of 2.77%, according to Moneyfacts.

Hargreaves Lansdown already offers customers the ability to save in cash ISAs paying up to 4% interest on their platform through other banks, but the new product is the first to be done directly through Hargreaves Lansdown.

Hicks said: “While clients will be able to access better rates on our savings platform on an individual bank basis, this product will provide consistency and diversification benefits to savers who don’t want to have to continually switch products around to generate a competitive rate.”

He added: “Cash ISA providers often pay bonus rates to attract clients, but these rates expire, leaving them with a longer-term, lower rate. [The new product] will allow us to accelerate the growth of our platform, provide better client outcomes and give savers greater choice from a brand they trust.”

The run up to the Budget in November has already been dominated by headlines about a “meltdown” in the bond market and a yawning “£50 billion” black hole that will have to be filled by more tax increases. Some have even speculated that the UK is heading for another IMF bailout. Mercifully, the prospects may not be quite as dire as these reports suggest. But the recent increases in the cost of government borrowing are consistent with an emerging fiscal crisis. The chancellor is increasingly boxed in by her own fiscal rules – and there is no painless way out.

The problems are most apparent in the yields on 30-year UK government bonds, known as “gilts”, which have jumped to their highest level since 1998. This partly reflects a global shift upwards as investors become more jittery about increases in public debt worldwide. Similar headlines are being written in many other countries, notably France and Japan.

Nonetheless, the UK now consistently has the highest bond yields in the G7 group of advanced economies. The cost of new government borrowing for 10 years is currently around 4.6% in Britain, compared with 4.0% in the US, around 3.5% in France and Italy, 3.2% in Canada, 2.7% in Germany, and just 1.6% in Japan. This is all the more remarkable because UK public debt is not particularly high by international standards. In fact, the ratio of debt to national income in the UK, at around 100%, is lower than in Italy, at 135%, and much lower than in Japan, at 240%. Even Greece, with debt still over 150% of GDP, can borrow at 3.3%.

Why the UK seems stuck in a doom loop

Why has the UK become such an outlier? There are three main reasons.

First, many international investors are losing confidence in the Labour government’s willingness to take tough decisions to bring borrowing down, especially after the recent failures to curb welfare spending.

The prospect of more tax rises is simply reinforcing fears that the UK is stuck in a “doom loop” of sluggish growth and deteriorating public finances.

Second, the Bank of England has been actively selling its holdings of government bonds, reversing the previous policy known as “quantitative easing” (QE), and doing so more aggressively than other central banks.

The Bank itself has said that the new policy of “quantitative tightening” (QT) may have added as much as 0.25 percentage points to 10-year gilt yields. This additional selling is especially damaging at a time when there is less demand from defined-benefit pension funds, who traditionally have been big buyers of longer-dated government bonds. In turn, this helps to explain the relatively large rise in the yields on 30-year gilts.

Third, there are fears that higher inflation in the UK will keep official interest rates higher for longer too, while adding to the cost of inflation-index-linked borrowing (of which the UK has a relatively large amount). By contrast, yields in the euro area and Japan are anchored by relatively low inflation and the relatively low interest rates set by the European Central Bank and the Bank of Japan.

This does not mean that a full-blown debt crisis is imminent in the UK, or even inevitable. The increase in bond yields only affects the cost of new borrowing, not that of existing debt, which provides at least some breathing space. The average time remaining before each conventional gilt has to be refinanced is more than 13 years, with only 16% falling due in the next three years. The average left on index-linked bonds is even longer, at more than 17 years.

It is worth stressing, too, that the rise in government bond yields has been relatively orderly, with little contagion to other markets. Investors have been demanding higher returns to compensate for higher risks, but there has been no shortage of buyers at the lower prices. And when more cash is required, the government’s Debt Management Office is now selling more gilts with shorter maturities to avoid having to pay the higher interest rates on longer-dated bonds.

So far, this episode is therefore still different from the crisis in the wake of the mini-Budget in September 2022. The sell-off in gilts then was accompanied by a panic in the mortgage market, prompting residential lending to dry up. The sharp falls in the prices of gilts also caused immediate problems for some pension funds. The pound slumped too.

Is a 1970s-style debt crisis looming?

The UK is not yet on the cusp of an IMF bailout, either. Admittedly, an increasing number of commentators are warning of a “1970s-style debt crisis” unless the chancellor changes course.

These voices include three leading economists – Jagjit Chadha, Andrew Sentance and Willem Buiter – who are not the usual suspects and whose views should be taken seriously.

Chadha and others have also made the reasonable point that IMF involvement might enhance the credibility of the fiscal framework and restore some market confidence, thus attracting more private capital, which could dwarf the limited resources available to the IMF.

Nonetheless, the circumstances now are also different from the 1970s. The bailout from the IMF in 1976 was a US dollar loan. This was mainly used to pay back other countries that had lent foreign currencies to the UK government as it attempted to prop up the pound. That is not the problem now.

The UK is not facing a sterling crisis (at least, not yet) and the government would be right to let the pound fall if it were. Any IMF bailout would also come with such punitive conditions that it would be politically unacceptable, including big cuts in public spending.

Put another way, if the UK government were willing to take these tough decisions, we would not need the IMF in the first place. An IMF-imposed austerity programme would surely be the end for both Rachel Reeves and Keir Starmer, especially with the emerging threat from Jeremy Corbyn’s new far-left party. The markets would not necessarily be reassured.

More positively, the prospects for the UK are still better than in the 1970s – in some respects. The economy shrank by about 4% in total in 1974 and 1975, unemployment rose sharply (from a low of 3.7% in 1974 to a peak of 11.8% 10 years later), and both inflation (peaking at 24% in 1975) and interest rates (the Bank rate hit 15% in 1976) were much higher.

Averting a debt crisis: try the stop-gaps first

Finally, there are other things the authorities might try before calling in the IMF. In an emergency, the government could borrow short-term funds through an existing overdraft facility at the Bank of England, known as the “Ways and Means” (W&M).

There is a recent precedent; an agreement in April 2020 allowed for more use of the W&M during Covid, although this was never actually needed.

And if the bond markets did become disorderly, the Bank of England could step in to buy gilts again on a temporary basis – as it did (remarkably successfully) in September 2022.

But this is only partially reassuring. These stop-gaps could backfire if they are seen to underline just how big a mess the public finances are in, and if the government does not use the breathing space to tackle the underlying problems. Less positively, the public finances are now in a bigger mess than in the 1970s.

The annual budget deficit was similar (averaging 6% of GDP in 1974 and 1975), but the stock of debt was far lower (about 48% of GDP, compared with 96% now). Another new risk is that roughly a quarter of government debt is now linked directed to the rate of inflation.

In any event, the latest bond-market wobbles could hardly have come at a worse time. In a few weeks’ time, the Office for Budget Responsibility (OBR) will start to crunch the numbers for the Budget.

Importantly, the OBR’s forecasts will be based on whatever the markets are assuming about the path of interest rates over the next five years. These assumptions could therefore eat further into any remaining headroom against the government’s fiscal rules or, more likely, make the existing shortfall even larger.

In turn this could prompt Reeves to announce even larger increases in taxes, hitting consumer and business confidence hard and having an immediate impact on economic activity.

It is also still possible that the nervousness of bond investors will spill over into other markets, including equities. The property market already appears to have stalled again.

Sterling is especially vulnerable too if the loss of international confidence becomes a rout, which again could have an immediate impact on other asset prices, on inflation, and on the real economy.

At the moment, the risk of a sterling crisis is being minimised by the fact that other countries are in trouble, too. But that could easily change if the UK were seen as an even bigger outlier.

Time may be on the government's side

The main hope now is that conditions may improve before the Budget itself on 26 November. The relatively late timing has raised fears that a longer period of speculation and uncertainty will undermine confidence further. But there could be some advantages too.

Perhaps most obviously, the delay leaves more time for global bond markets to calm down, taking some of the pressure off borrowing costs in the UK.

This could also work in the opposite direction if there is more bad news from elsewhere, perhaps the US (for example, higher tariffs could finally feed through into consumer price inflation, exacerbating the tensions between Donald Trump and the Federal Reserve), or from France, or from half a dozen other countries where concerns about fiscal sustainability are also growing.

Fortunately, an improvement in global sentiment is not the only potential upside from having a late Budget. The second positive is that the UK government would have more time to find some new savings on the welfare bill to replace the £6 billion lost to the U-turns on working-age benefits and winter-fuel payments. These savings would still have to be acceptable to Labour MPs, but the government would have longer to get the politics right.

The government will also have extra time to persuade the OBR that the planned increases in public investment and supply-side reforms will boost the productive potential of the economy.

Indeed, the growth assumptions will be even more important than the assumptions about inflation and interest rates. The increase in gilt yields since the OBR’s forecast for the Spring Statement might add about £5 billion to the shortfall that has to be filled by spending cuts or tax increases. But this shortfall could swell to £50 billion if the OBR adopts the same pessimistic forecasts for productivity and growth as those used recently by the National Institute of Economic and Social Research (NIESR).

Fortunately, NIESR’s £50 billion is an outlier. It is still possible that the chancellor will be able to keep the fresh pain down to around £20 billion, with at least £5 billion of that coming from welfare savings rather than tax increases.

That might be the least bad outcome, and perhaps even a relief to some. But there can be little doubt that the UK is in the early stages of a crisis that could play out in many different ways – with or without the involvement of the IMF.

Julian Jessop is an independent economist.

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Speculation has reached fever pitch about the contents of the government’s forthcoming Autumn Budget. This follows the assessment of the highly respected NIESR (National Institute of Economic and Social Research, Britain’s oldest independent economic research institute) that the government is more than £40 billion adrift of the “fiscal rule” of achieving balance within five years. Allowing for a safety margin of £10 billion, that means a requirement for £51.1 billion, either in extra taxes or lower spending or both, annually by 2029-2030.

Slow growth, unexpectedly high inflation, disappointing tax revenues and overspending have caused the government’s finances to deteriorate rapidly. The promise of chancellor Rachel Reeves, that last year’s swingeing tax increases would be the last of this parliament looks set to be broken.

Most of the speculation has centred on tax increases on the well-off, whether on property, income or overall wealth. This is partly due to the Labour Party’s manifesto pledge not to increase the rates of income tax, national insurance or VAT; partly because there is little that excites the left more than the prospect of raising taxes on the better-off; and partly because the media loves scaring people about taxation.

Labour's unintended consequences

However, there is abundant evidence that last year’s tax increases have been counterproductive, slowing economic growth, reducing compliance and encouraging taxpayers to change their behaviour, even their residency, to reduce tax. These appear to be factors that the government and its Treasury advisers grossly underestimated, if it considered them at all. Or maybe they just didn’t care. The taxes were motivated by revenge on the government’s enemies as much as on raising revenue.

In theory, there are three ways Reeves could address the problem: cut spending, raise taxation or abandon the fiscal rules constraining the government’s room for manoeuvre. Given that even modest reductions in the growth of welfare spending have been defeated by backbench revolts and that increases in spending have been built into the government’s strategy, cutting spending is not an option.

Abolishing the fiscal target and allowing national debt to go on increasing may seem attractive but the cost of borrowing has continued to rise even as the Bank of England, more concerned to help the government than to exercise its theoretical independence, cuts interest rates. The cost of ten-year debt has risen to 4.7%, close to its January peak; that of 20-year debt to over 5.4%.

Some economists have been “crying wolf” about the risk of a spike in gilt yields, as supply continues to increase but demand drops away. So far, the trend has been slowly upwards, but that could change; the point about the parable of the boy who cried wolf is that nobody believes him when the wolf eventually arrives. Scaremongering has proved premature, but crises blow up very quickly. Anatole Kaletsky of Gavekal points out that rigid adherence to the fiscal rule leaves the chancellor unable to respond to an economic downturn. “Rather than benefiting from the Keynesian automatic stabilisers that have underpinned macroeconomic management since the late 1930s,” he writes, “the UK government has embraced a procyclical demand policy that might have been designed to amplify economic instability”. This is true but is the result of successive governments operating too close to the fiscal edge rather than leaving themselves room to respond to unexpected shocks.

Supply-side blunder

Kaletsky is on stronger ground criticising the government’s fiscal policy. “Starmer’s ban on any change to headline tax rates has compounded the demand-side error of pro-cyclical fiscal tightening with a supply-side blunder: imposing high marginal tax rates on a narrow base. This distorts the economy structurally, discourages investment, provokes political resistance, and encourages avoidance – guaranteeing disappointing revenue yields.”

He points out that “90% of British workers have qualified for big tax reductions since 1990” so that “fewer than 10% of taxpayers now bear the entire burden of financing the expansion of Britain’s welfare state, a shift to what may be the world’s most progressive income tax structure [that] occurred almost entirely during the 15 years of Conservative government from 2010 to 2024”.

He shows that “median British workers pay less tax than those in other rich economies”, leaving Britain’s finances dependent on “a very small minority of high earners who would probably prefer to abolish or bankrupt the welfare state rather than to pay ever higher taxes”. He goes on to argue that “the obvious – and, in my view, the only – solution that will ultimately convince the markets is for Britain to increase income tax and reverse the fiscal restructuring of the past 25 years”.

In other words, increase the basic rate of income tax to 22% and then to 25%. This, he argues, would restore bond investors’ faith in the sustainability of government finances, increase confidence and restart growth. More of government services would be funded with revenues contributed by the citizens who benefit from them. The NIESR also says that freezing tax thresholds and raising the standard and higher rates of income tax by 5% would close the fiscal gap, so Kaletsky is not alone.

The problem is that such a policy would drive a coach and horses through Labour’s manifesto commitment. For that reason, Kaletsky doesn’t expect this to be implemented in the Autumn Budget. Instead, “Reeves will likely propose intolerable tax increases that would extinguish any lingering hope of reviving growth – and prove politically unviable. The resulting backlash could spark a financial crisis and force a Black Wednesday-style U-turn in 2026.” Kaletsky believes that such a U-turn, which he thinks is inevitable, combined with a relaxation of the fiscal rule would, as in 1992, be “an economic liberation that could spark an unexpected national revival and growth boom”.

A fresh start?

There are, however, some problems with the 1992 analogy. Then, Britain was in recession with high interest rates and sterling tied to the over-valued deutschmark, providing no hope of escape. Breaking the link enabled interest rates to be cut and sterling to fall, though all the fall was recovered in the subsequent economic recovery. By 1997, the economy was growing strongly, the government’s finances were heading for surplus and taxes were being cut.

It’s very hard to see raising income tax as having the same effect, even if it would stabilise bond yields and interest rates. Moreover, despite the success of the 1992 U-turn, the Conservatives still lost the subsequent 1997 election decisively. Labour backbenchers will be well aware of this. Kaletsky is probably right – there is no alternative – but that does not mean that backbenchers or other members of the government will support it. It is more likely that the government will fall and be replaced either by a national government, as in 1931, or by an election.

That may sound like bad news but it will pave the way for a resolution. Several countries have faced a fiscal and economic crunch but have emerged revitalised. Not just the UK in 1992 (arguably a false dawn) but also Sweden, Greece, Italy and, most recently, Argentina. New governments implemented what was previously politically unthinkable, regained the confidence of the currency markets, deregulated, made government more efficient and revived growth. It just won’t happen under the current government.

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Thousands of savers will see their NS&I British Savings Bonds mature over the coming weeks.

The one-year bonds – which came in Guaranteed Growth and Guaranteed Income versions – were on offer exclusively to existing customers between 30 August and 5 October 2024. They paid 4.75% AER.

NS&I’s British Savings Bonds now pay a lower rate of 4.18%.

Customers will receive reminders 30 days in advance of their fixed-term bonds maturing, which means some will have already got reminders.

Many of them would have had an NS&I one-year savings account before opening their current one.

More than 225,000 customers bought NS&I’s one-year Guaranteed Growth and Guaranteed Income bonds back in 2023, when they paid between 6.03% and 6.2%. This was the highest ever interest rate offered on these products.

They were on sale between 30 August and 5 October 2023. Many customers would have then rolled over to the current bonds that are starting to mature.

About 486,000 people have a British Savings Bond, as at 31 March, although NS&I said it was unable to say how many of them have the ones that are coming to an end now.

Nonetheless, there's likely to be a large number of savers who will be wondering what to do with their cash that was previously locked up in a one-year savings account.

Anna Bowes, personal finance expert at The Private Office, tells MoneyWeek: "Two years ago, NS&I made an uncharacteristic move and launched a market-leading one-year bond paying 6.2% AER. Understandably it was extremely popular.

“This time last year, the rate NS&I was offering to its maturity customers was still a competitive deal – especially considering the government-backed security it came with. As a result, NS&I likely retained a lot of this maturing cash.”

We take a look at the options: should savers stick with NS&I or switch to a competitor, and which type of account might be best?

Should you stick with NS&I?

NS&I cut the interest rate on its British Savings Bonds several times last year, bringing it down from 4.75% in August to 3.95% by December.

However, it then increased the rate this year, raising it to 4.05% in April and then to 4.18% last month.

So, for anyone tempted to stay with NS&I, the growth bond currently pays 4.18%, while the monthly income option pays 4.11% gross / 4.18% AER.

This compares to a 4.75% rate that savers would have got a year ago.

Bowes notes that while the current rate is higher than the 4.05% on the previous issue, “it looks underwhelming compared to what’s currently available elsewhere, so savers may be tempted to walk”.

The top 10 one-year savings bonds all pay more than 4.3%. The top payer, JN Bank, has a one-year fixed savings account paying 4.39%, according to Moneyfactscompare.co.uk.

The next best, Tandem Bank, offers a 4.37% rate.

Bowes calculates that savers with £50,000 to lock away could earn £2,195 (before the deduction of tax) in interest by choosing a top-paying account, compared with £2,090 with NS&I – a notable difference of £105 over the year.

Adam French, head of news at Moneyfactscompare.co.uk, comments: “For savers who prefer the security of NS&I, its new one-year bond paying 4.18% offers a reasonable rate of return.

“While it doesn’t top the best-buy charts, it still outpaces current inflation forecasts making it less likely savings are going to lose value in real terms. However, those willing to shop around and commit to another fixed-term bond could secure returns closer to 4.5%.”

The interest rate is only part of the decision though. NS&I has an advantage over other savings providers in that it is backed by the government, so savers do not have to rely on the Financial Services Compensation Scheme (FSCS).

The scheme guarantees savings of up to £85,000 per person, per banking licence, should the bank or building society go bust. So, if you have a larger sum than this to put in a savings account, NS&I can be an attractive place to deposit your money. You can save up to £1 million in Guaranteed Growth and Income bonds.

The extra security – which basically guarantees 100% of your cash – could be a price worth paying to offset a lower interest rate.

Should you fix for longer?

Some savers may be wondering whether they should fix for longer than one year, especially as the Bank of England has been cutting rates and it looks likely we’ll see another cut either later this year or early next year.

Bowes comments: “The top five-year bond is paying 4.52% at the moment, from JN Bank. This is the highest five-year rate we've seen for months.

“The overall trajectory [of rate cuts] is still downwards. If rates do fall, you might be glad a year from now that you locked in today’s higher rates for the long term.”

In fact, JN Bank offers the best four-year (4.35%), three-year (4.45%), and two-year (4.41%) rates on the market right now.

The bank is part of Jamaica National Group and is regulated by the Financial Conduct Authority and protected by the FSCS.

According to French, any of the top 10 one-, two-, three- and four-year fixed savings accounts are paying more than the NS&I bond at the moment.

However, if you think you’ll need access to your money in the short term, and don’t want to tie it up for a year or more, an easy-access savings account is likely to be your best bet.

The top rates on offer are Chase (4.75%) and Revolut (4.5%), according to Moneyfactscompare.co.uk.

However, do watch out for the small print – many of the top-paying easy-access accounts come with various limitations – and beware that rates can change at any time.

Watch out for tax

While NS&I is a trusted brand that protects 100% of your money, savings account customers are still liable for tax.

Although NS&I’s Premium Bonds pay out tax-free prizes, and cash ISAs are of course tax-free, NS&I’s other products are subject to tax, in the same way other bank and building society savings accounts are.

French comments: “For anyone with maturing bonds, it is important to consider their personal saving allowance – particularly if they are a higher-rate taxpayer. Interest earned above £1,000, or £500 for higher-rate taxpayers, is subject to income tax, which can quickly erode the benefit of chasing the best rates of return.

“As a result, securing a top-paying cash ISA is increasingly appealing, with its tax-free wrapper ensuring every penny of interest earned is kept out of HMRC’s reach.”

Many of the top one-year fixed cash ISAs are paying a better rate than the NS&I bond. For example, Vida Savings and Shawbrook Bank both offer 4.31%. This compares to 4.18% if you roll onto another NS&I bond.

Cash ISAs come with the perk of a tax-free wrapper, but watch out for the £20,000 ISA limit per tax year.

If you have more to save, you could take a “mix and match” approach, using an ISA plus a taxable savings account – which could include the British Savings Bond if you have very large sums to save and want the security of NS&I's Treasury-backed guarantee.

Once a staple of everyday banking for Brits, cheques have steadily fallen out of vogue as consumers increasingly turn to online banking.

According to the latest data from trade body UK Finance, just 0.2% of all payments made in 2024 were by cheque – an 85% decrease over 10 years.

When you open a bank account, you often don’t even get a chequebook now.

But while you may not use a cheque for day to day banking, there are some occasions where you may need to use them.

But with hundreds of bank branch closures over the last few years, including many arms of Halifax, Lloyds, Santander, and others shutting their doors, you may be wondering how to pay in a cheque.

We look at what you should do if you get a cheque, whether they are still valid in the UK, and if they are safe.

Are cheques still valid?

Yes. Despite not being used as often today, you can still transfer money using a cheque as a valid means of payment. This does not mean, however, that all cheques are valid all the time.

In the UK, businesses have the legal right to refuse payments of any kind (including by cheque) and only take payment in whatever form they find convenient.

So while some vendors may accept a cheque as a valid form of payment, not all of them will.

If you want to pay for something using a cheque, it is best to check with the vendor and see if they are accepted.

How to pay in a cheque

Most banks give you a few options for you to pay in your cheque. Bear in mind, however, that different banks have different rules so it is best to check with them first.

We run through some of the common ways you can pay in a cheque.

In branch

If you live close to a branch of your bank, you can cash your cheque there, either at the counter or at some cash machines.

Some banks also allow you to pay in your cheque at a participating Post Office.

By post

Some banks allow you to pay in your cheque by post.

This can often be done by filling out a form with your details then sending it and your cheque to an address specified by your bank.

By app

Most large banks and digital banks now allow cheques to be paid in via your banking app.

If your bank does let you cash a cheque via its app, you will likely need to take a photo of both sides of the cheque using your phone, review the details, and then submit it.

Here is a list of the most popular UK banks and how you can deposit a cheque.

Do cheques have a time limit?

While cheques do not have a specific expiry date, many banks will often reject a cheque if you try to cash it in more than six months after it was issued.

The best way to find out if your cheque is still valid is by asking the bank. You may have to ask the issuer to resend another payment if you did not bank it on time.

Are cheques safe?

Sending a cheque in the post is safer than putting cash in an envelope, but that does not mean that cheques are perfectly safe in all circumstances.

Like all forms of bank transfer, there are ways that criminals can defraud you by forging a cheque from your account.

To minimise your risk of being a victim of cheque fraud, banks recommend that when you write out a cheque, you draw a line through all unused space and that you keep your cheques in a secure place.

Are cheques legal tender?

Cheques are not considered legal tender. This is because the term ‘legal tender’ has a very narrow technical meaning that does not come up in everyday life.

According to the Bank of England, it means that if you offer to pay off a debt to someone using what is considered legal tender (and you have not agreed to pay in another way), you cannot be sued for failing to repay the debt.

The only forms of payment that are considered ‘legal tender’ in England and Wales are Bank of England notes, Royal Mint coins, and £1 and £2 coins.

Smaller coins are also legal tender, but only up to a certain amount – 1p and 2p coins for any amount up to 20p, and 5p and 10p coins only count for any amount up to £5.

Old £20 and £50 paper notes are no longer legal tender after they were replaced with the new plastic notes. We explain how to exchange old notes and coins in a separate article.

Over the past couple of weeks, we have seen unusually open debates and divergent views about the path of short-term interest rates among the committee members of the US Federal Reserve (the Fed) and the Bank of England (BoE). Professional Fed watchers are in a spin. What is the problem all of a sudden? And why is the debate happening so publicly? Where is the certainty previously displayed by these policymakers, always confident that they can control inflation via the setting of short-term interest rates? All is not right in the rarefied world of central banking.

The cornerstone of monetary policy in recent decades has been the perceived independence of central banks from political influence. The idea was that we could trust politicians more if our monetary policy was set and executed by an independent technocratic committee of experts acting in the public interest. UK gilt investors welcomed this initiative in 1997 when Gordon Brown granted the Bank operational independence.

But things have changed. The UK electorate has grown to distrust its politicians and its institutions. The British Social Attitudes Survey in 2000 showed that 35%-40% of adults believed that the government would put the country’s interests first. Last year, the same measure was 9%-14%, with 58% saying that they rarely trusted politicians to tell the truth.

The hard truth is that a central bank cannot function without government funding and authority, and cannot be genuinely independent. Most bond investors understand this; however, it has, until recently, been what we might call uncommon knowledge. Things have changed, and the notion of central-bank independence is being openly questioned – primarily in the US, but also increasingly in the UK.

Fiscal dominance

Donald Trump lives in the public domain. He became a household name via reality TV and conducts public policy via social media. Conventionally, it’s thought that like sausages, government policies are better not seen being made. However, Trump does things differently and since April, has variously referred to his Chair of the Federal Reserve on Truth Social as “Jerome ‘Too Late’ Powell”; “Too Angry, Too Stupid, & Too Political”; “TOTAL LOSER”; “A FOOL”; “Stubborn MORON”; “and “the Worst”.

From a political perspective, what the electorate is witnessing might be the consequence of trying to divert public attention, maybe from the bombing of Iran or the contents of the “Epstein files”. However, the underlying economic driver here is what economists call fiscal dominance. As Ray Bourne, of the Cato Institute, puts it: “Under fiscal dominance, monetary and financial policies get subordinated to support the government’s financing needs, with more tolerance for high inflation... long-term, the graver danger to central bank autonomy isn’t Trump’s tweeting – it’s US politicians’ borrowing.”

In short, beyond the event horizon of out-of-control sovereign debt, accepted rules and market correlations stop functioning. Just like in a black hole where the accepted laws of physics no longer apply, so too in a world of fiscal black holes, the accepted norms of central banking monetary policy stop working. For context, the US federal deficit has increased by $1 trillion, or 2.8%, since the passage of the “big beautiful bill”, and the raising of the debt ceiling last month, and now stands at $37.2 trillion.

The annual campout for the world’s under-siege central bankers in Jackson Hole later this month can’t come soon enough. This year’s theme is “Labour Markets in Transition: Demographics, Productivity, and Macroeconomic Policy”. But between official proceedings, time will be found to discuss the real agenda occupying them: how do we remain independent, or at least appear to be independent, and how can we pretend inflation targeting is even possible in a fiscally dominant world?

While Trump overtly undermines, insults and publicly humiliates his Fed chairman, in the UK, we do things more subtly. This week, both Keir Starmer and Rachel Reeves claimed the Bank’s ambiguous “hawkish cut” decision to lower UK policy rates as evidence of their successful stewardship of the UK economy. It was, they said, all part of their orchestrated plan to put the UK on a more secure economic footing.

Aside from the (lack of) independence point, there are two issues here. First, market interest rates that set the government’s cost of borrowing rose sharply following the BoE decision. UK gilt yields from one-year to 30 years’ duration rose as the bond vigilantes sharpened their axes. Second, the BoE’s governor, Andrew Bailey, said with a straight face that he thought that they needed to cut rates even though he expects inflation to “temporarily increase” to 4% next month. Is this the same as transitory? Note that the UK’s inflation rate has been above target in 48 out of the last 50 months. Sure, the world is getting riskier, but their models are no longer fit for purpose in a fiscally dominant world, nor are their proponents.

The pretence under which the Fed and BoE operate is becoming too obvious to ignore. Their work is increasingly conflicted with their fiscally irresponsible political masters, who can no longer afford for their independent monetary experts to achieve their mandates. So say goodbye to the era of central bank orthodoxy and hello to the new era of central bank dependency. There’s a new boss in town with different ideas. As they might say in Wyoming, inflation ain’t going nowhere. There’s a new sheriff in town, and he kinda likes it.

A version of this article was first published by wealth management group Dowgate Wealth.

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Navigating financial markets requires a reliable set of instruments. Unfortunately, the pandemic exposed the shortcomings of even the most long-running data series. We have to accept that our statistical indicators have struggled to keep up with the pace of technological change, and have to adjust our course accordingly. It’s time to move from log tables to GPS.

The normally staid world of statistics was rocked by US president Donald Trump conducting yet another round of his reality-television show The Apprentice, when he fired the US commissioner of labour statistics. However, the US bureau of labour statistics (BLS) had already been struggling for some time. Over the last 18 months, it has “inadvertently” released inflation data early, posted the annual employment revisions late and informed some financial institutions (referred to by a BLS employee as “super users”) about details in the data that others might have missed. It has been a torrid time, even before Trump’s return.

At least the president is grasping the nettle of change. The UK remains without a permanent “national statistician”, after the prior holder, Sir Ian Diamond, resigned early for health reasons. The UK also remains without its main employment indicator ever since the Labour Force Survey (LFS) was withdrawn in October 2023. Its replacement might not be ready until 2027. The Bank of England has been left to cobble together its own version as the monetary policy committee unsurprisingly “continues to place less weight” on the official LFS data.

The problem with the data comes down to how it is collected. A letter is sent to households and then followed up by a phone call or an in-person interview. During Covid, this led to the response rate falling as low as 17%, but it has failed to recover enough to ensure the data is reliable. Who would respond to a phone call in the modern world – let alone a letter?

A small miscalculation can cost a lot

It’s not just citizens who cannot be relied upon. The Office for National Statistics (ONS) had to announce that April’s UK CPI data was inflated by 0.1 percentage points owing to an error in vehicle excise duty provided by the Department for Transport. Someone, somewhere in some spreadsheet, had overstated the number of vehicles subject to this duty in their first year of registration. On such small miscalculations can our navigation plot the wrong course; fortunes can be won or lost. The yield on short-dated index-linked gilts moved by several basis points on entirely the wrong information. Financial markets are volatile enough without supposedly reliable data adding to the confusion.

Statistics are supposed to be the signal within the noise: staging posts around which we divine where the path ahead lies. But what if we are looking at the completely wrong map? The world has changed utterly in the last five years. We were already in the midst of a multi-decade “technological revolution” when Covid arrived and accelerated the paradigm shift. Working remotely and conducting relationships entirely virtually encouraged resources to be deployed into fresh technology such as AI. With each step forward in computational power, we have taken a leap forward in our evolution.

In the new world, it makes less sense to monitor indicators such as the manufacturing cycle. Investors have long referred to the US ISM Manufacturing data as a bellwether for the US economy: it has been available since 1945 and has demonstrated a strong correlation with the US business cycle. With economics only a social science, experiments cannot be repeated in laboratory conditions – but a survey running for eight decades is about as good as it gets... until a once-in-a-century pandemic forces the economy to shut down and re-open again.

In one year, the ISM Manufacturing number plunged to a 12-year low and then surged to a 40-year high. A survey is only a sentiment indicator, not a hard gauge of activity. Firms went from staring disaster in the face to sheer relief once the fear wore off and vaccines emerged. There was no business cycle, no smooth journey from bust to boom. It was simply a shock. The ISM data told us very little about it.

We are still living through the consequences of that shock as the economy finds a new post-Covid equilibrium. Physical borders have been reimposed as technology spreads intangibly between consumers all over the globe. Indebted governments of ageing nations are struggling to marshal ever more scarce resources towards the drivers of growth. A basis point on unemployment or inflation no longer makes the marginal difference. The old data we have relied on for decades is making it harder to spot the path ahead.

Technology should make it easier to update, collect and disseminate information in a quick, clear and fair fashion. Real-time updates could come from Google mobility data, aggregated credit-card spending, LinkedIn and Indeed job postings, energy usage, or even satellite imagery of carparks and warehouses. If we can order food, taxis and romantic partners from an app in the palm of our hand, then technology companies should be able to publish aggregated activity data fairly easily. Losing trust in statistics will leave us all at sea. Technology ensures we can recalibrate before we drift too far off course.

Helen Thomas is the founder and CEO of Blonde Money, a macroeconomic consultancy.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

House prices rose by 0.4% in July, the biggest monthly increase since the start of the year.

The average UK property now costs £298,237, according to Halifax. The lender said house prices have risen by 2.4% over the past year, with Northern Ireland continuing to record the strongest annual price growth.

Amanda Bryden, head of mortgages at Halifax, says that while the national average is close to a record high, prices vary widely across the country depending on a number of factors, such as location and property type.

She adds: “Challenges remain for those looking to move up or onto the property ladder. But with mortgage rates continuing to ease and wages still rising, the picture on affordability is gradually improving.”

The UK housing market has been sluggish this year, with house price declines seen in February, March and May, according to Halifax’s house price index.

While Halifax says prices rose last month due to a resilient housing market and plenty of activity, Rightmove reports a “July slump”, with asking prices for UK properties falling by 1.2%, marking the biggest drop ever recorded by the firm.

However, the property website interprets the dip as showing that sellers are enticing buyers with more competitive deals during the traditionally slow summer period. The number of sales agreed upon is 5% higher than last year, suggesting realistic pricing is the key to selling a home.

Both sets of data are good news for a property market that has struggled with expensive mortgages and stamp duty hikes earlier this year.

We look at whether house prices will continue to rise in 2025, and which regions have seen the highest property price inflation so far.

Which regions have seen the highest house price growth?

Northern Ireland continues to be the strongest performing nation or region, with house prices rising by 9.3% over the past year (compared to a UK average of 2.4%). A typical home now costs £214,832.

Scotland also recorded positive house price growth in July, increasing by 4.7% with average prices now at £215,238.

Property prices in Wales saw a rise, up 2.7%, to an average of £227,928.

Among regions in England, the North West and Yorkshire and the Humber have the highest rate of property price inflation, up 4% over the past year to £242,293 and £215,532 respectively.

The South West, and London and the South East, continue to see moderate growth, with prices rising by just 0.2% and 0.5% respectively over the past 12 months. London remains the most expensive part of the UK. The average home in the capital costs £539,914.

What’s the outlook for UK house prices?

Most experts expect house prices to continue to rise this year. Halifax is forecasting “a steady path of modest gains through the rest of the year”.

The outlook will depend on whether the Bank of England cuts interest rates again, the supply and demand balance within the housing market, and affordability pressures.

Tomer Aboody, director of specialist lender MT Finance, comments: “Lower mortgage rates, combined with sellers pricing more sensibly even though the national average house price is close to a record high, is encouraging buyers to transact and take advantage of finding themselves in a reasonably strong position.

“With at least one more rate cut expected this year, both buyers and sellers are hoping for a strong second half of the year.”

Tom Bill, head of UK residential research at Knight Frank, notes that while the housing market is “getting back on its feet following the disruption of April’s stamp duty cliff edge”, high levels of supply are keeping prices in check.

“We expect low single-digit annual growth by the end of the year but that depends on the content of the Autumn Budget,” he added. “Some parts of the economy are already adopting the brace position and buyers could begin to hesitate after the summer if speculation over tax rises persists.”

Property buyers do have some good news in terms of falling mortgage rates and changes to mortgage rules.

Thomas Lambert, financial planner at Quilter, explains: “The Financial Conduct Authority has announced changes to its mortgage rules, easing affordability requirements for customers looking to switch to cheaper deals or reduce the term of their mortgage. Removing the need for a full affordability assessment in certain cases, such as reducing mortgage terms or switching to a more affordable product, should help borrowers make financially beneficial changes with less friction.”

The government’s new permanent 95% mortgage guarantee scheme will also help first-time buyers and home movers buy a home with a deposit of just 5%.

Summary

• The Bank of England’s Monetary Policy Committee (MPC) voted to hold the base rate at 4.5% today.
• The MPC voted 8-1 in favour of the proposition, with only Swati Dhingra voting against. Most experts had been forecasting a 7-2 split.
• The decision comes after inflation rose by more than expected in January, hitting 3%.
• The Bank of England has forecast that inflation could rise further to around 3.75% by the third quarter of the year.

The team at MoneyWeek is reporting live. Scroll for the latest updates and analysis.

| Bank of England predictions | MPC meeting dates | UK inflation forecast |

Good Wednesday morning. Welcome to our interest rates blog. We will be bringing you live updates on the Bank of England’s key decision tomorrow, starting with preview analysis today. Stick with us.

Interest rates expected to be held

Last time the Monetary Policy Committee (MPC) met (6 February), it voted to lower the base rate from 4.75% to 4.5%.

Anyone hoping that the upcoming meeting might bring another fall in interest rates is likely to be disappointed.

“We expect a largely uneventful affair at the March MPC meeting. The path ahead will be one of careful calibration,” said Sanjay Raja, senior economist at Deutsche Bank. “Uncertainty remains elevated. Growth has seemingly turned a corner… Price momentum, at least on a headline basis, points to more upward pressure – at least in the near term.

“We expect Bank Rate to remain unchanged at 4.5%.”

Interest rates: which way will MPC members vote?

At the MPC’s last meeting, the nine-person committee voted 7-2 in favour of a 25 basis-point interest rate cut, to 4.5%. The two members who voted against the proposition – Swati Dhingra and Catherine Mann – both favoured a more aggressive 50 basis-point rate cut.

The pair are widely expected to vote for a cut at the upcoming meeting, but will probably be outvoted by their fellow committee members, given inflationary pressures.

“We anticipate a 7-2 vote, with Dhingra and Mann supporting a cut, while the majority opts to hold steady for now,” said Steve Matthews, investment director at Canada Life Asset Management.

This echoes Deutsche Bank economist Sanjay Raja’s view: “The core of the committee has signed up to a 'gradual', 'careful', or 'cautious' calibration of monetary policy,” he says, which he views as more consistent “with a quarterly pace of rate cuts until uncertainty wanes or downside risks in the activity/inflation data emerge”.

He adds that “both Dhingra and Mann are likely to vote for a more 'forceful' rate cut given their views of demand-based weakness emerging in the UK economy, including more downside risks around inflation and wage growth”.

How dovish is the MPC?

While Dhingra and Mann both voted for faster cuts at the last MPC meeting, Paul Dales, chief UK economist at Capital Economics, cautions against reading a dovish stance into its approach to this meeting.

Referring back to the BoE analysis published alongside February's decision, he said: “The MPC as a whole placed ‘greater weight’ on scenarios in which both inflation and interest rates fall slower and the Bank dramatically revised up its forecast for CPI inflation.”

The MPC now expects inflation to peak at 3.7% in the third quarter.

Dales adds that the MPC’s emphasis on a “gradual” approach to interest rate cuts implies a 25 basis-point cut every other meeting. What’s more, in February, the committee for the first time indicated that it would be “careful” in its approach, implying that “there are both upside and downside risks to inflation”.

In other words, the MPC still thinks an easing in underlying inflation will allow it to reduce rates to less restrictive levels, but it doesn’t have enough confidence in that assessment to cut rates more quickly, Dales suggests.

The longer-term outlook for rates

Consultancy Capital Economics is expecting three further interest rate cuts this year, and one in early 2026, taking the base rate to 3.5% rather than the 4% being priced into markets. A lot will depend on future inflation reports, though.

“What happens beyond March depends on a whole host of factors, but will largely boil down to how far inflation rises, if that prompts any second-round effects in the form of higher-than-otherwise wage growth and inflation expectations, and the weakness of the economy,” said Paul Dales, the consultancy’s chief UK economist.

He outlines three broad scenarios:

1. If inflation rises beyond the 3.7% peak, the Bank will likely pause its rate cuts. “A pause after another two 25 basis-point rate cuts is similar to the scenario priced into the markets,” says Dales.
2. Alternatively, slowing inflation might prompt a faster rate-cutting approach.
3. If inflation is essentially as expected, the MPC’s current gradual approach will likely continue. This scenario, says Dales, is closest to Capital Economics’ forecast.

Reuters poll: strong likelihood of a “hold”

All 61 economists polled by news agency Reuters last week said they expect rates to hold steady at 4.5%.

A poll of MoneyWeek readers was more split. Sixty-six percent of readers expect no cut (165 out of 250), while 34% expect a reduction (85 out of 250).

Recap: What’s the latest with inflation?

Inflation rose by more than expected in January to 3%, up from 2.5% in December. Analysts had been expecting a reading of 2.8%.

The Bank of England has forecast that inflation will rise further this year, hitting 3.7% by the third quarter. It is primarily higher global energy prices that will drive the increase.

Despite this, the Bank isn’t overly concerned about the forecast currently, given that significant progress has been made with domestic price pressures. The MPC also expects the rise to be temporary.

Speaking at the February MPC press conference, BoE governor Andrew Bailey said: “While we expect inflation to rise again over the coming months, it is almost entirely due to factors that are not directly linked to underlying cost and price pressures in the economy, and factors that we expect to be temporary.”

That said, there are still some risks on the horizon. April’s increase to employers’ National Insurance contributions and Donald Trump’s erratic trade policy could both push prices higher.

How much attention will the Bank of England pay to Trump’s tariffs?

Trump’s erratic trade policy has dominated the headlines in recent weeks. Canada, Mexico and China have been the main targets, but the EU has also been slapped with more targeted measures (alcohol tariffs). Steel and aluminium imports from all countries are also subject to a 25% levy.

Trump has backtracked in several places, granting wide exemptions to Canada and Mexico shortly after initial measures kicked in, however significant damage had already been done. There has been a drop in business confidence as firms struggle to prepare for a landscape that is continually shifting, and consumers are bracing for higher prices as tariffs make goods more expensive.

How much attention will the Bank of England be paying to tariffs? Undoubtedly, Trump’s trade policy will be a concern. Tariffs won’t just push prices up in the US – the interconnected nature of the global economy means price pressures will be exported around the world, particularly when US trading partners respond with retaliatory tariffs of their own.

“The risks to the UK economy, and indeed the world economy, are substantial,” BoE governor Andrew Bailey recently told MPs.

That said, it is too early to determine whether tariffs will force the MPC to cut rates more or less quickly. On the one hand, tariffs are likely to push prices up. On the other hand, they could also act as a drag on economic growth.

“UK will also feel the effects as the trade war escalates”

While Trump hasn’t targeted the UK with tariffs so far other than the broader steel and aluminium tariffs, it would be foolish to believe we won’t be affected, experts suggest.

“Given how intertwined the UK is with the global economy, it will also feel the effects as the trade war escalates. Already growth is highly sluggish, only just crawling along by 0.1% in the final quarter of last year,” said Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown.

“There are hopes of a trade deal between the US and the UK, but given Trump’s capricious policymaking, until any agreement is signed, sealed and delivered, the UK is set to stay vulnerable,” she added.

With this in mind, Streeter believes we will have to wait until May at the earliest for another cut. The MPC doesn’t meet in April, so the next decision after tomorrow will be announced on 8 May.

UK growth has been slowing

The Bank of England has a dual mandate – as well as controlling inflation, it needs to support economic growth. UK growth has been limp for years, particularly since Brexit, but there has been a further slowing in recent months with some commentators issuing warnings about the potential onset of stagflation.

Monthly GDP contracted by 0.1% in January, and grew by just 0.2% on a three-month basis (versus the three months before).

“The Spring Statement is now less than two weeks away, and it is becoming increasingly clear that chancellor Rachel Reeves finds herself in a very difficult position,” said Richard Carter, head of fixed interest research at wealth manager Quilter.

“The Bank of England recently halved its forecast for economic growth from 1.5% to 0.75% in 2025. Given fiscal headroom is highly sensitive to changes in growth expectations, the previous £9.9bn of headroom will almost certainly no longer be available,” he added.

“The government is between a rock and a hard place given its repeated assurances that it will not raise taxes for working people. The alternative is to cut spending elsewhere and take from what are already stretched resources.”

Ongoing wage pressure could encourage a cautious stance from the BoE

Chris Arcari, head of capital markets at consultancy Hymans Robertson, says ongoing wage pressure could feed into a decision to hold rates tomorrow.

“Average weekly private-sector wage growth (excluding bonuses) came in at 6.1% year-on-year in the three months to January. This, in turn, has kept upwards pressure on service-sector inflation, which accelerated to 5% year-on-year,” he says.

“Additionally, while survey data points to employers cutting their hiring in response to the national-insurance increase announced in the October Budget, the data also suggest that at least as many businesses intend to raise prices in response, which will further contribute to price pressures.”

What will a 'hold' mean for mortgage rates?

Prospective homeowners and those looking to remortgage may be disheartened to hear that rates are unlikely to fall tomorrow. That said, it is worth remembering that rate cuts are typically priced into markets in advance. Mortgage rates have already fallen so far this year in anticipation of future rate cuts, with some sub-4% deals returning to the market.

"Despite expectations that we’re unlikely to see the Bank of England make a move [on 20 March], the market is still expecting two more rate cuts this year – with the first possibly as early as May. As a result, fixed-term rates have been gradually falling over the past six weeks," said Sarah Coles, head of personal finance at Hargreaves Lansdown.

The average two-year fixed-rate deal has fallen from 5.52% at the start of February to 5.34% today, according to financial information company Moneyfacts.

Despite this, rates remain high compared to their long-term average. Those coming to the end of a relatively cheap five-year deal could find themselves paying significantly more in monthly repayments once they refinance.

What about savings?

A hold on interest rates would be good news for savers, who have seen savings rates tumble over the past year or so – first in anticipation of rate cuts and then in response to them.

That said, the savings market (like any other market) takes forecasts into consideration as well as actual news. Around two or three more base rate cuts are expected before the end of the year, and are already priced into markets to a certain extent.

With this in mind, now could be a good time to put some money in a fixed-rate account, if you are willing to lock it away for a year or so. This will allow you to take advantage of higher rates before they disappear.

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings.

FTSE 100 continues to rise

The FTSE 100 is in the green so far this week. Investors are seemingly unconcerned about a likely 'hold' decision from the MPC tomorrow, potentially focusing on the longer-term outlook instead. Rates are expected to fall around two or three more times before the end of the year, which could give businesses a boost, provided economic growth doesn't take a significant downturn.

The FSTE is up around 2% over the past five days, and 5.4% year-to-date. It has outpaced both its US and global counterparts so far this year, which have been spooked by tariffs and the prospect of a Trumpcession.

Thank you for following our preview analysis today. We will be back tomorrow, sharing further insights as the Bank of England announces its decision at midday. Join us then.

Good morning and welcome back to our interest rates live blog. The Bank of England will announce its next interest rate decision at midday today.

A 'hold' vote is widely expected, keeping the base rate at 4.5%, but the summary documents published alongside the BoE's decision should still make for interesting reading, giving some hints about the future direction of policy. At the moment, most economists are expecting three further cuts this year, with the next one coming as early as May.

Stick with us.

What does the latest labour market data show?

The ONS published its latest labour market report this morning. The MPC watches this data closely. Wages are a big driver of inflation, while the unemployment rate gives a sense of the health of the overall economy.

The latest report showed that regular wages (excluding bonuses) grew by 5.9% on an annual basis between November and January. This marks no change from last month's report. Total wages (including bonuses) grew by 5.8%, down from 6% in the previous report.

The unemployment rate came in at 4.4% over the same period, unchanged from last month's report.

"Working purely with today’s numbers, things look pretty settled. Unemployment has held steady, wage growth has stayed firm and vacancy numbers have also remained pretty much where they were," said Danni Hewson, head of financial analysis at platform AJ Bell.

However, she adds that we can't look at these numbers without considering the bigger picture – notably the National Insurance changes that will kick in from April, and the global disruption being caused by Donald Trump's trade policy.

"Business after business has said that they expect the increased labour costs will impact their decisions in the year ahead and with growth expectations considerably softened, the case for investment might be one being pushed into the long grass," Hewson says. Meanwhile Trump's "chaotic implementation of tariffs has, in the words of Fed Chair Jerome Powell, ‘muddied the outlook’ for central bankers, governments and businesses alike," she adds.

It is still unclear whether NI changes and Trump's trade policy will boost the case for faster or slower rate cuts, though. Both policies are expected to push inflation up and slow economic growth down. While keeping interest rates high could help quash inflation, it could also act as a further drag on growth. The MPC has a tricky tightrope to walk.

Fed held rates steady yesterday – will the BoE follow suit?

Today's decision from the Bank of England comes a day after the US Federal Reserve's latest announcement.

The Fed voted to hold rates steady in a range between 4.25% and 4.5%, where they have been since December. The Fed also downgraded its annual growth expectations from 2.1% to 1.7% in 2025, and from 2% to 1.8% in 2026.

"Looking ahead, the new [Trump] administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation," Fed chairman Jerome Powell said.

"While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high... We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity," he added.

The BoE is also expected to hold rates steady today, although most economists believe the BoE will cut rates more rapidly than the Fed this year overall. The BoE has already made one cut so far in 2025 (in February), and two or three more reductions are expected before the year is out.

Back to the UK... wage growth still "stubbornly high"

Let's turn our attention back to the UK, with some more analysis on the latest labour market stats that dropped this morning. Deutsche Bank's chief economist Sanjay Raja has described the wage growth figures as "stubbornly high" and says they will do "little to hurry the MPC in its rate-cutting cycle".

Just to recap, the report showed that regular wages (excluding bonuses) grew by 5.9% on an annual basis between November and January. This marks no change from last month's report. If there's any good news, Raja says it's that private sector pay is "tracking ever so slightly below the MPC's forecast".

Job market looks resilient, for now at least

Stubbornly high wage growth figures and a stable unemployment rate could reduce the pace of future rate cuts (remember John Major's old phrase that "if it isn't hurting, it isn't working"), but they will come as good news to workers.

"The UK jobs market has held up surprisingly well so far despite the substantial economic pressures, and job vacancies were broadly unchanged on the quarter, coming in at 816,000 in December 2024 to February 2025," said Lindsay James, investment strategist at Quilter Investors.

"Demand for workers has by no means collapsed, and vacancies remain above pre-pandemic levels, but it is worth noting that there has been a consistent decline and we could see this pick up as businesses contend with higher costs."

ING: Bank of England becoming "more hawkish"

"Drama is not often synonymous with the Bank of England. But February’s meeting was nothing short of a bombshell," says James Smith, developed market economist at ING. Smith is referring to Catherine Mann's surprise decision to switch from a hold vote in December, to voting for a 50 basis-point cut in February.

"That posed the question: if the arch-hawk is prepared to vote for faster rate cuts, will the rest of the committee soon follow suit?," Smith explains. But the truth is somewhat different, in his view. He argues that the MPC as a whole has actually become more hawkish.

"Most officials that have spoken since [February's meeting] have struck a much more cautious tone," Smith says. He adds that the statement published alongside February's decision also had a "hawkish flavour".

This tallies with what the experts at consultancy Capital Economics are saying. They point out that, in its scenario analysis, the BoE is now placing greater weight on scenarios in which inflation and interest rates fall more slowly.

MPC announcement due at midday

The BoE's latest decision will be announced in around five minutes' time. To recap, the Bank is expected to hold rates at 4.5% today.

The MPC has cut rates three times so far from their peak of 5.25% – twice last year (August and November) and then once last month.

BREAKING: Bank of England holds rates at 4.5%

The Bank of England has voted to hold rates at their current level of 4.5%, as widely anticipated. All 61 economists polled by Reuters last week predicted this outcome.

We are looking at the MPC’s summary statement as we speak and will bring you the latest.

MPC voted 8-1 in favour of holding rates

The MPC voted by a majority of 8-1 to hold rates at 4.5%. Just one member (Swati Dhingra) voted against the proposition, preferring to cut rates by 25 basis points to 4.25%.

That means that Catherine Mann, who previously voted for a 50 basis-point cut in February's meeting, voted in favour of the 'hold' decision today.

"We expected no rate cut"

Reacting to the latest decision, Marion Amiot, chief UK economist at S&P Global Ratings, said: "We expected no rate cut and a cautious, gradual approach from the Bank of England.

"These are challenging times for the BoE. Like elsewhere, inflation in the UK has declined, but the persistent strength of wage growth – despite weak demand – remains puzzling, with the latest reading close to 6%.

"This suggests an underlying weakness in the country’s growth potential, likely stemming from the lasting effects of Covid and Brexit, which have constrained the labour force, alongside stagnating productivity."

BoE: Global trade policy uncertainty has intensified

The Bank of England likes to stay out of politics, but it has been forced to acknowledge the disruption being caused by Donald Trump's erratic trade policy.

In its meeting minutes, the MPC said: "Since the MPC’s February meeting, there had been a further increase in geopolitical and global trade policy uncertainty, and it was likely that this elevated uncertainty would persist."

As a result, "the Committee judged that the consequent risks around the near-term outlook for activity in a number of advanced economies, including the United Kingdom, remained to the downside."

BoE: Impact of Trump's tariffs on UK inflation still unclear

The BoE said that the impact of Trump's tariffs on UK inflation remains unclear for now. It will "depend on where other countries’ trade policies settle and how these transmit through different economic channels, including exchange rates," the MPC explained.

The MPC called it a "rapidly-evolving situation", which it will continue to monitor closely.

What did the Bank say about inflation?

When it comes to inflation, the MPC reiterated some of the language used in February's summary report: "Domestic price and wage pressures are moderating, but remain somewhat elevated".

The Bank added that although global energy prices have "fallen back recently", they are still higher than a year ago, with CPI inflation "still projected to rise to around 3¾% in 2025 Q3". The figure mentioned in last month's report was 3.7%.

Which factors will influence the BoE's decisions going forward?

The Bank of England used the "gradual and careful" phrase again this month when talking about the path of future rate cuts, wording that was introduced for the first time in February.

When making an assessment, the BoE is looking at supply and demand in the economy:

1. "Should there be greater or longer-lasting weakness in demand relative to supply, this could push down on inflationary pressures, warranting a less restrictive path of Bank Rate," the MPC said.
2. "Should there be more constrained supply relative to demand and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in CPI inflation, this would warrant a relatively tighter monetary policy path," it added.

Central banks unlikely to sway from quarterly rate cuts

"The pound has pared losses against the dollar and has jumped to a two-week high against the euro, as traders trim their bets for further rate cuts this year," said Kyle Chapman, FX markets analyst at Ballinger Group. Generally speaking, a currency weakens when rates are cut and strengthens when they are raised.

Chapman says today's decision was no surprise: "Every central bank on earth right now is banging on about uncertainty, and it means no reason to expect policymakers to sway from their quarterly pace of rate cuts".

Will the BoE cut rates at its next meeting in May?

The MPC won't meet in April, meaning the next interest rate decision will be announced on 8 May. Before then, two more inflation reports will be published (covering February and March). We will also have the next set of economic growth figures (covering February).

"The financial markets are pointing to May [for the next rate cut] – although there are no guarantees," said Myron Jobson, senior personal finance analyst at investment platform Interactive Investor.

"The BoE would prefer to cut the base rate in response to easing inflationary pressure, but a string of disappointing economic data could force its hand, with GDP growth – or the lack thereof – remaining a key concern," he added.

The BoE's job is challenging. As Jobson points out, it takes up to 18 months for interest rate changes to have their full effect, meaning the Bank has to anticipate what the economy will look like at that point. A former colleague of mine at Invesco once likened this process to a surgeon operating with a blindfold on.

What does a hold mean for your personal finances?

"Fourteen consecutive interest rate rises between December 2021 and August 2023 – a strategy needed to keep rapidly rising inflation in check – sent borrowing costs skyrocketing at a time when households were already grappling with the cost-of-living crisis," said Alice Haine, personal finance analyst at investment platform Bestinvest.

"While rates have since eased with three cuts since August last year, many households are still in recovery mode, with the outlook for personal finances littered with challenges," she added.

A slew of price hikes is on the cards next month, with energy bills, water bills, council tax and more all going up in April. The rate of inflation is also expected to rise further over the course of the year, hitting around 3.75% by the third quarter.

"Consumers should tread carefully from here," Haine warns. "Pessimism about the direction of inflation and the wider economic outlook is mounting, so running down emergency funds or borrowing to fund a major lifestyle cost should always be assessed very carefully to ensure repayments are fully affordable over the long term."

There should be "barely a ripple" in the mortgage market

Given that today's result was widely anticipated, there should be a limited knock-on effect in the mortgage market. "Barely a ripple effect" is the exact phrase David Hollingworth, associate director at L&C Mortgages, uses.

"Lenders remain highly competitive and continue to make small adjustments to improve rates wherever they possibly can. That trend looks likely to continue," he says.

"The Bank of England has consistently suggested that interest rates can fall further, adding to the three cuts since last summer," Hollingworth adds. "Consequently, fixed rates have already priced in further reductions to the base rate, but this is still expected to be a gradual process. Unless there is a marked shift in the Bank’s messaging, mortgage rates look set to remain relatively stable in the near term."

The average two-year fixed deal currently costs 5.33%, according to Moneyfacts, while the average five-year deal costs 5.18%. Borrowers can find lower rates than this by shopping around, with some lenders even offering sub-4% deals.

Savings rates are still falling, despite a 'hold'

Savers will be pleased with the 'hold' decision, but the top savings deals have been disappearing over the past year or so – both in anticipation of cuts and in response to them.

"Data from Moneyfacts found that the average easy-access savings rate has dropped by 0.33 percentage points in the past year. For someone with £15,000 of savings that equates to almost £50 a year in lost interest" said Laura Suter, director of personal finance at investment platform AJ Bell.

"Savers can get much higher rates by shopping around – and the tax year end is the perfect time to pick up a juicy rate from savings providers who want to lure in more customers," she added. "In particular, ISA interest rates have seen healthy competition so far this year."

It could also be worth opening a different type of account, if you only make use of variable-rate accounts currently. For example, opting for a fixed-rate deal will allow you to lock today's rates in for longer, if you have a pot of savings you are willing to lock away for a set period.

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings.

Deutsche Bank: "The MPC has given itself more flexibility"

Let's turn our attention back to the documents published by the MPC today. Sanjay Raja, Deutsche Bank's chief UK economist, points to two important developments in the MPC's meeting minutes.

"First, while there remains growing uncertainty around the demand outlook – as per the latest Bank Agents' Survey – there is increasing concern around the near-term inflation outlook, including the persistence of supply-led inflationary pressures," he says.

"Second, the MPC has given itself room for flexibility noting that there 'was no presumption that monetary policy was on a pre-set path over the next few meetings'. In our minds, this opens the door to a rate path that deviates from a quarterly pace of rate cuts – at least in the near-term," he adds.

That concludes our live coverage for today. Thank you for joining us.

The Monetary Policy Committee won't meet in April, which means the next interest rate announcement isn't due until 8 May. See our round-up of all MPC dates in 2025. A spring cut currently looks like a possibility.

We will be back with more live analysis before then, covering the next inflation report on 26 March, and also the Spring Forecast which will be delivered by chancellor Rachel Reeves the same day. Join us then.

Millions of Brits are leaving billions of pounds languishing in current accounts that pay zero interest, meaning their cash is left static and is slowly being eroded by inflation.

Of the total 86.3 million current accounts in credit in November 2025, 87% did not receive a single penny in interest payments on cash held as a current account balance, new analysis by Spring, a part of Paragon Bank, has revealed.

The average cash sum being left static in UK current account balances was £4,300.

If this £4,300 was instead put into the best savings account on the market at the moment, Chase’s easy-access saver with boosted rate, currently paying 4.5% interest, the average Brit could earn around £193 in interest over a year.

As Chase’s saver is an easy-access savings account, the money can be accessed at a moment’s notice, meaning there is little downside to storing cash there instead of leaving it as a current account balance.

Moving cash that is languishing in a current account into a high interest savings account means it is protected against inflation, which fell to 3% in January.

Inflation slowly erodes the real-terms value of your money as prices rise faster than your cash savings. This can be counteracted by putting your money in an inflation-beating savings account that pays interest and grows your money at a rate above inflation.

Accounts with high balances not protected from low interest rates

The problem of keeping large amounts of cash in current accounts earning no interest is also prevalent among those with higher balances, Spring’s analysis shows.

Over 6.5 million current accounts that contain a balance of over £10,000 are earning absolutely zero interest.

The average balance earning no interest among these accounts containing over £10,000 is £35,429. If that money were put into Chase’s 4.5% saver for a year, it would grow by £1,594, assuming the rate doesn’t change.

Those with very high current account balances are falling victim to this too – 340,000 accounts that have balances of over £100,000 are also earning no interest.

Assuming they moved £100,000 into a savings account paying 4.5% interest, this balance would grow by £4,500 in just one year.

The scourge of low interest rates is not contained to just current account balances. An increasing number of people are earning interest of 1% or less in their savings accounts.

Separate analysis by Spring found that 22.4 million UK savings accounts, collectively containing £71.3 billion, are earning these paltry interest rates.

Derek Sprawling, head of money at Spring, said: “It’s staggering that over six and a half million current accounts hold over £10,000 and are earning absolutely nothing, with some people leaving six-figure sums languishing in accounts that erodes the real value of their money.

“This isn’t about people being careless as our research shows many are stuck in old habits or feel overwhelmed by the choices available. But in a higher-rate environment, doing nothing can be incredibly costly. Even small changes, like moving surplus cash into a competitive savings account, could make a meaningful difference to people’s finances.”

Savers with accounts paying low interest rates might want to move their money into accounts that pay much higher interest rates.

As mentioned above, the top savings account on the market at the moment is Chase’s saver with a boosted rate, which pays 4.5% interest for the first year, before dropping to 2.25% thereafter. The boosted rate is fixed but the underlying rate is variable, meaning it can change.

If you know you will not need to use some of your money for a set period of time, you could consider locking it away to grow in a fixed-term savings account.

Currently, the best fixed rate cash ISAs can help you grow your tax-free savings and are returning up to 4.72% on your cash.

ISAs are some of the best savings vehicles you can use in the UK, as they allow for up to £20,000 of tax-free savings a year.

If you're seeking the best cash ISA with a fixed rate, we list the top options currently on the market. We look at how many ISAs you can have in another guide.

Best 1 year fixed rate cash ISAs

If you’re willing to lock away your money for one year without withdrawing any of it, you could grow your savings by up to 4.7%.

Best cash ISAs up to 18 months

If you are after an account that keeps your money growing for up to 18 months, you can earn up to 4.32% using one of the following savers.

Best 2 year cash ISAs

Two-year fixed rate ISAs are a good option for people who want to grow their money in the medium term without worrying about micro-managing their savings. Savers can earn up to 4.71%.

Best 3 year fixed rate ISAs

Savers who are willing to lock their cash away for three years can access interest rates of up to 4.66% by using one of the following savings accounts.

Best 4 year fixed rate ISAs

If you’re putting your money away for four years, you can earn up to 4% using one of the following accounts.

However, it is worth bearing in mind that if you are willing to keep your money in savings for an extra year, you can access a higher interest rate of 4.72%.

Best 5 year fixed rate ISAs

A five-year fixed-rate ISA is a good option for long-term savers who are trying to save towards a financial goal in the future.

The following accounts allow for up to 4.72% returns on your savings.

Summary

• The Bank of England cut interest rates at the first Monetary Policy Committee (MPC) meeting of the year, bringing the base rate from 4.75% to 4.5%.
• All nine members of the MPC voted to cut the base rate. Seven members voted to cut by 25 basis points, while two members voted for a larger cut of 50 basis points.
• The move was widely expected. Economists polled by Reuters unanimously said they expected the base rate to fall by 25 basis points.
• It came after December’s inflation reading (published in January) was lower than expected.
• The annual inflation rate slowed from 2.6% to 2.5%, surprising analysts who had expected the headline figure to hold steady or inch up slightly to 2.7%.

Scroll for full analysis from the team at MoneyWeek, who reported live as it happened with coverage starting the day before.

| When will interest rates fall further | MPC meeting dates | What is inflation? |

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.

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.

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.

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.”

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.

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.

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, says 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.”

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%

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, and savers should expect them to fall further if the MPC cuts the base rate tomorrow. With this in mind, 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.

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

Are annuities an attractive option for retirees?

Retirees thinking about purchasing an annuity might be wondering whether they should act sooner rather than later, with interest rates likely to fall further in the months to come. But they should take some time to consider whether this irreversible decision is definitely right for them. It could be sensible to speak to a financial advisor.

The good news is that annuity rates are likely to remain attractive for some time yet.

Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, said: “Interest rates are one factor affecting annuity incomes, but with gilt yields remaining robust, any interest rate cut should only have a relatively limited effect.

“Annuities are offering great value right now with the latest data from HL’s annuity search engine showing that a 65-year-old with a £100,000 pension can get up to £7,492 per year from a single-life level annuity with a five-year guarantee. This is just a whisper below the highs experienced in the aftermath of the mini-Budget.

“With any further interest rate cuts expected to happen only gradually, we can expect incomes to remain robust and interest to stay high among retirees looking to secure a guaranteed income.”

Longer term, Trump’s tariffs could actually speed rate cuts up

Let's move away from personal finances briefly and return to economics.

Tariffs have been a major talking point this week, trumping interest rate speculation as the main story and dominating the financial headlines. But they are unlikely to influence the BoE’s decision tomorrow – and longer term it is still unclear whether they will exert upward or downward pressure on rates.

Paul Dales, chief UK economist at consultancy Capital Economics, told MoneyWeek: “Concerns about tariffs aren’t the main driving force behind what we think will be a decision by the Bank of England to cut interest rates from 4.75% to 4.5% on Thursday. And it’s not clear whether tariffs would make the Bank more inclined to cut rates faster and further later this year or slower and not as far.

“That’s because tariffs could weigh on UK economic growth as well as boost UK inflation. My hunch, though, is that the Bank would be more concerned by the dampening influence on activity. As a result, tariffs would support our existing forecast that the Bank will eventually cut interest rates to 3.5% by early next year.”

What do falling interest rates mean for investors?

In theory, a falling interest rate environment is good news for equity investors. When interest rates go down, it is less expensive for companies to borrow money to fund growth projects. In turn, these projects can help companies boost their earnings.

Furthermore, the main reason the BoE is able to cut rates is that inflation has fallen significantly from its peak. Generally speaking, slowing inflation is good news for businesses as it helps them keep their cost base under control.

In reality, it isn’t quite that straightforward though. Central banks also cut rates when growth becomes a concern – and the UK economy has started to stagnate in recent months. The latest UK GDP report showed zero growth in the three months to November (versus the three months before).

There are also concerns about upcoming tax changes this April, when employers’ National Insurance contributions will go up. More analysis on the NI changes to follow.

NI changes: a headwind for UK equity investors?

As we have established, a falling interest rate environment can be good news for equity investors. But if you are looking at the outlook for UK stocks, there are other factors to consider too. This includes the upcoming changes to employers’ National Insurance contributions.

Jason Hollands, managing director at investment platform Bestinvest, recently told MoneyWeek: “The decision to raise National Insurance costs, alongside hiking the minimum wage and incoming workers’ rights legislation, places a significant cost burden on businesses.

“This is a disincentive to hire (and a reason to cut staff), and an incentive to pass those costs on to consumers. All of this takes more money out of the real economy through rising unemployment and inflation, as well as creating a headwind for earnings.”

UK funds are still seeing significant outflows, despite an improving rates environment

Data from funds network Calastone, published this week, shows that UK-focused funds shed £1.07 billion in January, the sixth-worth month on record. It is perhaps surprising in a month where the FTSE 100 hit a new high, but UK equities have been unloved for some time now. Negative sentiment in the aftermath of the Budget hasn’t helped, although the initial catalyst came several years ago in the form of Brexit.

Despite this, UK equity markets could offer valuation opportunities for stock pickers looking to bag a bargain, as they are far cheaper than their US and global counterparts.

Recent research from Rathbones, which uses regression analysis to compare UK and US markets on a like-for-like basis, showed that the average UK stock's forward PE ratio is 32% lower than the average US stock's. In other words, you can access the same earnings for less by shopping in the UK.

“The UK market contains global businesses that – on a level playing field, after adjusting for sector and quality and growth characteristics – appear significantly undervalued relative to international peers,” writes Oliver Jones, head of asset allocation at the firm.

What’s next for inflation?

The Bank of England pays close attention to the inflation outlook when weighing up how far and how fast to cut interest rates. So where exactly are prices expected to go over the longer term?

In October, the Office for Budget Responsibility (OBR) published a report on the economic and fiscal outlook for the next five years in response to changes in economic policy made by Rachel Reeves’s first Budget.

The OBR expects inflation to average out at 2.6% in 2025. It should then fall to 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2% in 2029.

It is worth noting that there is still room for error in these figures as external shocks to the market cannot be fully anticipated – nor can changes in government policy. The OBR will produce a similar report in March alongside the chancellor’s spring statement.

Energy prices could add to inflationary pressure

Although energy prices have fallen from their peak, they remain higher than pre-crisis levels. Furthermore, they are on the rise again. The energy price cap rose by 1.2% at the start of this year, and the latest forecasts from consultancy Cornwall Insight suggest it could rise by a further 2.7% in April.

The price of gas and electricity has a strong impact on inflation – and not just because of household bills. As energy is used in all parts of the supply chain, higher energy costs can push up the price of goods and services too.

It is unlikely to be enough to prevent the BoE from cutting rates tomorrow, though, particularly in light of the barely-growing economy.

Commenting on the likely outcome of the February meeting, Hetal Mehta, head of economic research at St James’s Place, said: “At the December meeting, the BoE made a dovish pivot that signalled a willingness to support growth despite the inflation risks. It would come as a major surprise to economists and markets alike if the BoE did not vote to cut rates.”

That concludes our interest rates coverage for today. We will be back tomorrow, ahead of the Bank of England's decision at midday. Thank you for joining us.

Good Thursday morning, and welcome back to our interest rates blog. This is Katie Williams and Daniel Hilton reporting live. There's less than two and a half hours to go until the Bank of England announces its next interest rates decision – and a cut is looking very likely. We will be sharing analysis in the lead-up and aftermath. Stick with us.

FTSE 100 hits another record high

The sun is shining and it is a positive start for markets today, with confidence about a rate cut buoying investor optimism. Tariff-related volatility has also quietened down – at least for now. It has been enough to push the FTSE 100 to another record high this morning.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, says a dying-down of the volatility has allowed investors to “zero in on a wave of big earnings reports,” as well as hopes of a rate cut.

“This positive vibe is spreading across Europe, giving global markets a much-needed boost,” he adds. “Seems like investors may be ready to dance to the tune of good news again.”

An economist’s bogeyman: what is stagflation?

While there is optimism in markets this morning, one of the things commentators have been talking about in recent months is the risk of stagflation. This is something the Bank of England will want to avoid at all costs. But what exactly is stagflation?

The term refers to a state of affairs in which the economy suffers from stagnant growth, high inflation, and high unemployment. The 1970s are often referred to as years where the UK, along with many other advanced economies, suffered from prolonged stagflation.

But why are commentators starting to talk about it again now?

Growth was decent in the first half of 2024, when the economy rebounded from the brief recession experienced at the end of 2023, but it flatlined in the second half of the year. There was zero growth at all in the third quarter. Fourth quarter figures have not yet been published, but the latest report (covering November) also showed zero growth on a three-month basis. Inflation is also expected to pick up later this year.

Labour's “number one mission” to boost growth

Since winning the election, Labour has been at pains to paint itself as the “party of growth”. Stimulating the economy and putting more money into the pockets of both individuals and businesses is one way to avoid stagnation, but will the government be successful?

In her growth speech last week, Rachel Reeves announced a number of infrastructure projects and reforms, including building a third runway at Heathrow and improving links between Oxford and Cambridge.

However, critics have countered that these projects will do little to undo the damage of a tax-raising Budget – in particular the decision to raise employers' National Insurance contributions.

Fixed mortgage rates have risen, despite base rate cuts

Five-year fixed mortgage rates are now at a six-month high, as borrowers fork out an average of 5.32%, up from 5.09% last November, according to new data from financial information company Moneyfacts.

Over the same time period, average two-year mortgages fell slightly from 5.56% to 5.52%. Conversely, the average ten-year mortgage rate rose from 5.58% to 5.65%.

Standard variable rates remain expensive, but have fallen over the past year from a high of 8.17% to 7.87% today.

The rises might come as a surprise given there have been two cuts to the base rate since the summer, with a third expected today, however recent volatility in swap rates is to blame.

Commenting on the findings, Rachel Springall, finance expert at Moneyfacts, said: “Borrowers will be disappointed to see a rise to fixed mortgage rates over the past month, with the average five-year fixed rate hitting a six-month high.”

“The Bank of England base rate dropped by 0.25% in November 2024 to 4.75%, so it would not be surprising to see borrowers frustrated that fixed mortgage rates are going up”, she continued.

Pound weakens against the dollar in anticipation of rate cut

The pound has weakened against the dollar in anticipation of a rate cut at midday today. Generally speaking, the domestic currency strengthens when interest rates go up and weakens when they go down.

Commenting on what the latest moves mean for UK companies, Russ Mould, investment director at AJ Bell, said: “A weaker pound against the US dollar benefits companies which earn some or all of their money in the American currency, hence why we saw miners, gambling group Entain, construction rental firm Ashtead and ratcatcher Rentokil get a boost.”

What's happening in the savings market?

Savings rates fell in the last year as the average easy-access account tumbled from 3.17% to 2.92%. Notice accounts also fell from 4.3% to 4%, according to data from Moneyfacts.

The same can be seen in the average interest rate for ISAs. Easy-access ISAs fell from 3.3% to 3.06% and notice ISAs fell from 4.16% to 3.92%.

With another reduction in the base rate anticipated from the Bank of England today, savings rates will likely tumble further.

Capital Economics: Inflation could rise to 3% this year

New insight from consultancy Capital Economics suggests CPI inflation could increase to around 3% later this year, before falling back below 2% in 2026.

Their economists anticipate that falling inflation in the medium-term will prompt the Bank of England to cut interest rates to 3.5% by early 2026, rather than to 3.75-4.00% as investors anticipate.

BREAKING: BoE cuts interest rates

The Bank of England has voted to reduce the base rate by 25 basis points, bringing it from 4.75% to 4.5%.

MPC voted decisively in favour of the cut

All nine members of the committee voted to reduce rates. Two members (Swati Dhingra and Catherine Mann) wanted to go further, voting to cut rates by 50 basis points. This resulted in the 7-2 split.

This is the third time rates have been cut since the start of the Covid-19 pandemic.

MPC: "Substantial progress on disinflation"

In its summary statement, the MPC said: "There has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.

"That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures."

Reeves welcomes rate cut but "dissatisfied" with growth

Responding to the latest news, chancellor Rachel Reeves said: “This interest rate cut is welcome news, helping ease the cost-of-living pressures felt by families across the country and making it easier for businesses to borrow to grow.

“However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets. That’s why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”

MPC will be monitoring tariffs "closely"

In the MPC's meeting minutes, they touched on the latest developments with US president Donald Trump's tariffs and tariff threats. They said the ultimate economic impact would "depend on the final composition of policies", but that they would be monitoring the situation closely. "Nevertheless, there [has] already been an increase in economic uncertainty globally and a pickup in financial market volatility," they added.

Markets pricing in two or three more rate cuts this year

In its meeting minutes, the MPC noted that inflation is expected to pick up again later this year, potentially rising as high as 3.7% in the third quarter. Higher global energy prices will be largely to blame. These are likely to push the headline figure up, even while domestic pressures wane.

Despite this, markets are still pricing in two or three further cuts over the course of the year. Several experts have said they expect one cut per quarter.

"For now, even at 4.5%, the bank rate is well above what might be considered the neutral level, and we expect the committee to stay its course of gradually removing monetary policy restraint," said Brad Holland, director of investment strategy at the digital wealth manager Nutmeg.

Which MPC members voted for a larger rate cut?

Two members of the MPC wanted to go further today, voting to reduce rates to 4.25% rather than 4.5% – Swati Dhingra and Catherine Mann.

Dhingra was appointed to the MPC in May 2022 and has attended 20 meetings. She has voted two times to increase, nine times to maintain, and nine times to reduce the rate. She is Associate Professor of Economics at the London School of Economics.

Mann has been on the MPC since September 2021 and has attended 28 meetings. This is the first time she has voted to reduce the rate. She voted 18 times to increase and nine times to maintain. Mann is a Professor of the Practice at Brandeis University.

Reeves's plan for growth

The MPC is currently answering questions in its interest rates press conference. Sky News asked the committee to comment on Reeves's plan for growth.

Committee members including Andrew Bailey and Claire Lombardelli were positive on the structural reforms announced by Reeves overall, calling them the "right thing to do" for the long term. However, they added that these projects would not show up in the MPC's shorter-term forecast period given the projects will take some time to come to life.

Bailey: Economy is not in a state of stagflation

The central bank’s governor, Andrew Bailey, has said that he will not use the term ‘stagflation’ to refer to Britain’s economy. He explained that indicators show a trend of disinflation, although he conceded that economic growth has been flat.

GDP growth will remain weak until 2027, says BoE governor

Growth in GDP has been weaker than the BoE expected since its report in November as business and consumer confidence have declined.

At the MPC press conference, BoE governor Andrew Bailey said that the central bank does not expect there to be strong GDP growth for the next two years, instead anticipating growth will remain at similar levels to now.

GDP is assumed to have fallen by 0.1% in Q4 2024, and is expected to grow by 0.1% in the first quarter of this year.

Bailey: Path of disinflation remains in place

Commenting on the outlook from here, BoE governor Andrew Bailey said: "We think the path of disinflation remains in place. There will be a bump in the road, but we don't think that bump is going to have a long-lasting effect."

The "bump" Bailey is referring to here is probably the spike in the headline CPI rate that is expected later this year, largely driven by higher energy prices. The BoE said the headline figure could hit 3.7% in the third quarter, before falling back to around the 2% target "thereafter".

Downgrade to growth forecast is "not a judgement on the Budget"

The BoE has slashed its growth forecast for 2025 in half from 1.5% to 0.75%. When asked if this was in response to recent political developments, Bailey said it was "not a judgement on the Budget".

He added that the MPC is currently faced with an economic puzzle. Output has remained the same and growth is flat, despite a larger population and labour force. The only conclusion from this is that productivity is lower.

Bailey said he would be surprised if this persisted, though.

Having covered the latest interest rates news, let's turn our attention back to your personal finances. What does today's decision mean for you?

Consumers should remain cautious

While a cut to interest rates sounds like good news, households should remember that one of the reasons the BoE has cut rates today is that the economy is in a fragile position. The MPC has halved the UK's growth forecast for 2025.

Separately, businesses have warned that they may need to raise prices this year in response to National Insurance changes announced in the Autumn Budget. They have also warned that the tax changes could result in redundancies.

Against this backdrop, caution is the order of the day when it comes to spending and saving.

"Consumers should not consider a third interest rate cut as a green light to splash out on big-ticket purchases that may have been put on the backburner for some time," says Alice Haine, personal finance analyst at Bestinvest.

"Uncertainty about the wider economic outlook and the future of interest rates still reigns, so running down emergency funds or borrowing to fund a major lifestyle cost should always be assessed very carefully to ensure repayments are fully affordable over the long term," she adds.

Rate cut was already baked into the savings market

Savings rates will fall further in response to the latest cuts, but Sarah Coles, head of personal finance at Hargreaves Lansdown, says the impact on the fixed-rate market might not be as dramatic as you would expect.

She explains: "This rate cut was all but nailed on. The savings market hadn’t just counted its chickens, it had roasted and sold them, pricing the rate cut firmly into fixed-rate deals [in advance]. It means the fixed-term market is unlikely to move far for now."

Rate cut could offer a welcome boost to the housing market

The decision to cut interest rates by 25 basis points is a “welcome shot in the arm for the UK housing market and the country’s stagnating economy”, according to specialist property lender Together.

The lender says that mortgage costs should fall as a result of the latest cut, allowing more first-time buyers to enter the market. However, as we pointed out earlier, the effect isn't always immediate and volatility in swap rates has actually pushed some mortgage rates up in recent months.

Affordability challenges also remain a hurdle for many prospective homeowners. Although wage growth outpaced house price inflation last year, recent data from Nationwide shows that the average first-time buyer is still paying five times their annual salary. This is significantly higher than the long-term average of 3.9 time earnings.

Those coming to the end of a fixed-rate mortgage deal could also face challenges, particularly if they are coming off a five-year deal that was agreed in 2020 when interest rates were still low.

What a rate cut means for pensioners

If you are on the brink of retirement, one of the main ways interest rates can affect you is by influencing how much you can get from an annuity. As we explored in a previous blog post, annuity rates currently look attractive and the latest rate cut is unlikely to result in much of a dent.

This means you can take your time when weighing up whether an annuity is the right strategy for you. This is generally a good idea, as buying an annuity is an irreversible decision. Data from Hargreaves Lansdown today shows that a 65-year-old with a £100,000 pension can get up to £7,492 per year from a single-life level annuity with a five-year guarantee.

There could be some clouds on the horizon in other areas, though. The summary statement that the BoE published today shows that inflation is expected to pick up to 3.7% in the third quarter of 2025. Nobody likes rising costs, but they can be particularly harmful to retirees on a fixed income. The state pension rises each year in line with the triple lock, but most other sources of pension income do not enjoy the same protections.

Furthermore, the uptick in inflation later this year will largely be driven by higher energy costs. Pensioners tend to be more energy-dependent than younger households, meaning they could feel the pinch more keenly.

Currency tailwinds could send the FTSE 100 higher

Some experts have argued that the Bank of England is now displaying a more dovish tone than the US Federal Reserve. If the two central banks diverge and the BoE cuts rates further and faster, it could cause the pound to weaken against the dollar. In turn, this could send the FTSE 100 higher.

The reason is that many FTSE 100 companies are global in nature and generate their revenue in dollars, before converting this to sterling. Their earnings are therefore flattered by a weaker pound, relative to the dollar.

Explaining the difference between the US and the UK outlook, Garry White, chief investment commentator at Charles Stanley, says: "Fewer interest rate cuts are expected across the Atlantic in 2025, as many of Donald Trump’s policies appear to be inflationary.

"These include tariffs, which are likely to be paid for by consumers, the deportation of undocumented migrants, which will increase the scarcity of low-skilled workers, and the extension of tax cuts for businesses and individuals."

Other things to look out for this month

The MPC will next meet in March. The big things to watch between now and then will be the upcoming inflation, GDP and labour market reports. These will be released on the following dates:

• Next GDP report (covering December and the fourth quarter of 2024): 13 February
• Next labour market report: 18 February
• Next inflation report (covering January): 19 February

That concludes our live coverage on interest rates. Thank you for joining us today! There are still seven meetings to go this year, which we will be covering in detail over the months to come. Check out our calendar of upcoming MPC meeting dates.

Inflation slowed to 2.8% in the 12 months to April 2026, according to the latest data from the Office for National Statistics (ONS).

However, price growth is still not tamed and most forecasters are expecting it to accelerate this year, making it all the more important that your savings are being held in accounts that pay inflation-beating interest rates.

But not all savings accounts on the market offer rates that guarantee real-terms growth.

Many have interest rates that are lower than the rate of inflation, meaning your money is slowly becoming worth less in real terms.

Are your savings keeping up with inflation?

Put simply, inflation measures how much the overall level of prices for goods and services consumed by households has increased in a given period of time.

Most economists agree that inflation of around 2% is healthy for an economy as it incentivises people to spend their money instead of hoarding it and waiting for prices to come down.

Whether inflation is at the 2% target or much higher, any level above 0% will mean your money is losing value in real terms. The only thing that changes is how fast this happens.

To mitigate the effects of inflation on your savings, you will need to put your money into an account that pays an interest rate at or above the current level of inflation.

The latest data from Moneyfacts shows the average interest rate for a savings account is 3.55%, which is just slightly higher than April’s inflation reading.

Over the entire market, 1,806 savings accounts beat inflation, including 202 easy access, 178 notice accounts, 180 variable rate ISAs, 410 fixed rate ISAs and 836 fixed rate savers, according to Moneyfacts on 20 May.

The Bank of England (BoE) currently predicts that price growth will creep close towards 4% in the next few months.

To protect against this, consider ensuring your savings are in an account with a high interest rate.

The top easy-access savings account on the market right now is Chase’s Saver With Boosted Rate, which pays an interest rate of 4.5%, inclusive of a 2.25% boost for 12 months. It beats April’s inflation reading by 1.7 percentage points.

To get the deal, you must be a new Chase current account customer and open the saver within 31 days of opening your account. You can put a maximum of £3 million into the savings account with withdrawals allowed, although the FSCS only covers up to £120,000 per person, per banking licence.

Be aware that the 2.25% boost will expire after 12 months, meaning your interest rate will tumble down to just 2.25% after a year, assuming the variable underlying rate hasn't changed.

But that isn’t the only option. We look at the best savings accounts currently on the market which can help you beat inflation.

Each of the accounts listed below currently have the highest rate on the market for someone saving £10,000 and are all FSCS-protected, according to Moneyfacts.

Which are the best savings accounts to beat inflation?

Best easy-access savings accounts

Best easy-access cash ISAs

Best one-year fixed savings accounts

Best one-year fixed cash ISAs

Interest rates summary

• The Bank of England has voted to keep interest rates on hold at 4.75%.
• The result is in line with expectations. Analysts had pretty much ruled a cut out after measures announced in the Autumn Budget were deemed inflationary.
• Inflation also ticked up in November to 2.6%, and wage growth accelerated to 5.2% in the latest report.
• So far this year, the Bank of England has cut interest rates twice from a peak of 5.25%.
• The TUC called for an interest rate cut ahead of the announcement, saying "the economy is still fragile".
• The US Federal Reserve cut interest rates overnight, but markets have fallen since in response to hawkish rhetoric.

Scroll for full coverage and analysis from the team at MoneyWeek.
Latest Bank of England predictions | MPC meeting dates | Live inflation updates

Good afternoon, and welcome to MoneyWeek’s interest rates live blog. We’ll be covering everything you need to know about Thursday’s Bank of England policy meeting, before and after the headline announcement.

If you haven’t already, make sure you visit MoneyWeek’s inflation report live blog for the key economic background to Thursday’s meeting. The headline: UK inflation rose to 2.6% in November, its highest level since March.

Interest rate expectations

Given the increase in inflation, alongside stronger-than-expected wage growth and the anticipated inflationary effects of the Autumn Budget kicking in next year, experts think it is unlikely that the Bank will lower interest rates at its December meeting.

“We don’t expect a cut this week,” says James Smith, developed markets economist at ING, “but better underlying inflation data could unlock faster easing in the spring.”

Similarly, Morningstar’s survey of FactSet analyst expectations suggests that the Bank is likely to hold rates steady at 4.75%.

More bad news for house buyers

Assuming interest rates do remain where they are, Sarah Coles, head of personal finance at Hargreaves Lansdown, says it’s “more bad news for [house] buyers” who are “faced with record-high prices and relatively high mortgage rates that show no sign of significant easing”.

It also complicates the picture for anyone in the market for a remortgage. “With some uncertainties remaining about the trajectory of rates and inflation, it may be worth locking in a rate as soon as you can,” says Coles. “That way if rates fall, you can shop around, and if they’re higher when your remortgage rolls around, you’ll have secured a better rate.”

Could the UK fall behind?

Interest rates in the UK are already higher than in other major economies. While the UK is currently in line with the US, the Federal Reserve is expected to lower interest rates by 25 basis points when it meets today.

Meanwhile, the European Central Bank lowered interest rates to 3.15% last week. Assuming the Bank of England keeps rates at 4.75% tomorrow, it could start to look like an outlier.

“The UK appears to be falling behind other central banks as they continue to lower the cost of borrowing,” says Tom Stevenson, investment director at Fidelity International.

While politicians will be desperate for interest rates to fall in order to stimulate economic activity, “the Bank of England will feel less inclined to add to its rate cuts” in light of today’s inflation reading.

How significant is November’s inflation reading?

Much is being made of the uptick in the CPI reading between October and November, and while it is one more reason why the Bank may hold rates as they stand tomorrow, one economist thinks it’s a relatively minor point.

George Lagarias, chief economist at Forvis Mazars, points out that prices only increased 0.1% month-over-month in November. The 2.6% figure is, he suggests, “slightly misleading” – prices rose six times as fast during October, month-over-month.

“The Bank of England should not worry about this month's inflation number,” he suggests. “Instead, it should look forward into 2025, to trade wars, the Chinese economy and US pro-cyclical policy to gauge how inflation might develop in the new year and adjust monetary policy accordingly.”

Why might the BoE be hesitant to cut rates?

There have already been two rates cuts from the Bank of England this year, and while borrowers, politicians and, to some extent, investors will be keen to see further falls, the Bank is likely to be cautious ahead of the New Year given the extent of economic uncertainty.

“The stubbornness of key elements of inflation and the heightened uncertainty surrounding the outlook will prevent the BoE from acting hurriedly around cutting interest rates further,” says Rob Morgan, chief investment analyst at Charles Stanley.

“With wage inflation remaining high, feeding into services costs, and a reacceleration of energy prices, the Bank will be wary of loosening too much too soon.”

Measures included in the Autumn Budget, such as elevated costs to employers through higher National Insurance costs and minimum wage increases, could continue to raise costs in the services sector, says Morgan.

“With two cuts so far this year, in August and at last month’s meeting, the BoE will no doubt feel it’s time to press the pause button again at its final meeting of the year.”

Elsewhere in interest rates

While we’ll have to wait until Thursday for the Bank of England’s interest rates decision, there will be a big announcement across the pond in the meantime.

The Federal Reserve is due to announce its interest rates policy today at 2pm Eastern time – 7pm in the UK.

Markets are anticipating a 25 basis point reduction in the Fed’s headline rate.

“The Fed is widely expected to cut the federal funds rate a quarter-point today, continuing their rate normalization plans in keeping with progress in reducing inflation,” says David Payne, chief economist at Kiplinger, MoneyWeek’s US sister site.

“However, the main story of the 2:30 pm EST press conference will be whether the Fed plans to continue cutting next year, or whether they will hold off given the new Administration's plans for further fiscal easing from tax cuts and possible upward pressure on inflation from tariffs.”

Payne adds that while Fed chair Jerome Powell is unlikely to comment directly on hypotheticals like these, sentiment in the wake of the announcement is likely to be driven by his perceived commitment to heading off inflationary trends.

‘’Investors are eyeing up another expected interest rate cut from the Federal Reserve later but may have to get used to the idea of interest rates descending in more spaced-out steps given the stubbornness of inflation,” says Susannah Streeter, head of money and markets at Hargreaves Lansdown.

To follow events in the US as they unfold, head to Kiplinger’s live Federal Reserve meeting blog.

TUC calls for interest rates cut

While most economists and market experts expect rates to remain unchanged, the Trades Union Congress (TUC) has called on the Bank of England to cut rates tomorrow, following today’s inflation reading.

Despite inflation returning to near target levels faster than many had expected over the past year, “the latest GDP and employment figures show the economy is still fragile and the priority must be turning this around,” says TUC general secretary Paul Nowak.

“So, it’s vital the Bank of England keeps moving and makes another interest rate cut tomorrow."

Thanks for joining us today. That’s all from us this evening, though as above, follow Kiplinger’s blog for live updates from the Federal Reserve’s meeting.

We’ll see you tomorrow morning for further analysis and commentary, ahead of the publication of the MPC’s summary and meeting minutes at midday.

Good morning, and welcome back to MoneyWeek's live interest rates blog. Dan here, ready to take you through this morning's analysis and build-up to the Bank of England's interest rates announcement. As a reminder, that's expected at 12pm today.

The big news overnight: the Federal Reserve cut US interest rates by 25 basis points yesterday, bringing the Fed Funds rate to 4.5%.

However, markets slumped as Fed chair Jerome Powell signalled a slowdown in the Fed's cutting cycle from here. The S&P 500 fell 2.9%, as Powell even hinted the Fed could raise rates next year if it deems it necessary.

There is still a "considerable amount of uncertainty" around the US economy, so the Fed is adopting a cautious stance, says Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.

FTSE 100 falls ahead of interest rates decision

US market uncertainty has spread to the UK; the FTSE 100 opened below Wednesday’s close this morning, with hopes for a rate cut announcement today fading.

“European markets posted sharp losses in early trading, with the FTSE 100 down 1.1%, tracking a global selloff sparked by the US Federal Reserve’s hawkish shift,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Closer to home, attention turns to the Bank of England, where rates are widely expected to remain on hold, offering little reprieve to jittery markets.”

What interest rates mean for your finances

As a reminder of why today’s interest rates decision matters, Moneyfactscompare.co.uk have today shared data on how changes to UK interest rates this year have impacted people’s finances.

In brief, the two rates cuts so far this year have been good news for borrowers. The average standard variable rate (SVR) has fallen to 7.85% this month, down from 8.18% at the start of the year. The average 10-year fixed rate mortgage stands at 5.69% this month, up month-over-month but down since the start of the year.

“Cuts to the base rate may also delight borrowers who are stuck on a variable rate deal or are soon to come off their low-rate fixed deal, indeed there are estimated to be millions of borrowers due to refinance in 2025,” says Rachel Springall, finance expert at Moneyfactscompare.co.uk.

Savers, however, have seen their returns fall. The average easy access rate has fallen from 3.15% in January to 2.96% now, while the average notice account rate has fallen from 4.39% to 4.10% over the same period.

“It will be interesting to see how hard savers are hit next year, as several base rate cuts are anticipated if inflation is kept under control,” says Springall.

Is the Bank one step ahead?

Assuming there is no cut to interest rates today, it could be argued that, rather than falling behind, the BoE is in fact out in front of its US counterpart in ending a rates cutting cycle in order to manage persistent inflation.

“The Bank of England seems to be one step ahead of the Fed for once,” says Russ Mould, investment director at AJ Bell. “It’s not expected to cut rates at the meeting today as sticky inflation and rising wages mean it has no reason to loosen monetary policy.”

With expectations of a rates hold fairly baked in at this stage, the focus in the aftermath of its announcement at midday will likely be on the details, specifically the minutes of the Bank’s Monetary Policy Committee meeting and the longer term outlook for inflation and interest rates.

“Like the Fed’s latest announcement, of more importance is any commentary from the Bank of England on where it sees rates going next year,” says Mould.

Breaking: Bank of England holds rates at 4.75%

As expected, the Bank of England has decided against a rate cut today. The devil will, of course, be in the detail. Here’s Katie Williams signing on to bring you all the afternoon’s reaction and analysis.

The decision to hold rates was based on a 6-3 voting split, with three members preferring to cut rates. They included Swati Dhingra, known for her dovish stance, Dave Ramsden and Alan Taylor.

Reeves responds to Bank decision

Chancellor Rachel Reeves has issued the following statement in response to the Bank of England’s interest rate decision:

"I know families are still struggling with high costs. We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that.

"Improving living standards across the country is our number one focus, and is why I chose to protect working people’s pay slips from tax rises, froze fuel duty and increased the National Living Wage for three million people."

Bank reiterates its gradual stance

In its summary statement, the Bank of England reiterated a message it has delivered before – one of gradual rate cuts.

"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," it said. "The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting."

"Bank of England risks backing itself into a corner"

Responding to the announcement, one expert said the 6-3 voting split and some "dovish" language in the minutes suggests a February cut is still in play when the Bank holds its first meeting in 2025. But he added that the MPC risks "backing itself into a corner" with stagflation risks on the horizon.

"With inflation likely to drift higher, the timing of future interest rate cuts could become increasingly complex, especially if stagflation fears become reality," said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

"Against this backdrop, rate setters are likely to take baby steps in cutting interest rates over the next year, particularly in the face of growing domestic and international inflation risks," he added.

Where will interest rates go in 2025?

The Bank of England is now in a rate-cutting cycle, after holding rates at a 16-year high of 5.25% for over a year until August. The question now is how fast (and to what extent) rates will fall further in 2025.

Experts have dialled back their expectations in the wake of the Autumn Budget. Services inflation also remains high. This is a key area of focus for the Bank of England, as the services sector accounts for around 80% of the UK economy. The MPC wants to see further evidence that domestic inflationary pressures are abating.

"The outlook for rates has changed meaningfully over the past few weeks with markets pricing in roughly one fewer rate cuts over the next 12 months than had been the case a month ago," said Ed Monk, associate director at Fidelity International.

"Inflation has proved more difficult to shift, with the official rate creeping back to 2.6% and ending the year higher than the Bank had been forecasting. Further increases are expected in the first half of 2025," he added.

What does it mean for mortgage rates?

Prospective first-time buyers and those about to refix their mortgage may be disappointed that rates were kept on hold today. However, it's worth pointing out that the decision was widely expected and priced into markets in advance.

Indeed, the real movement was in the aftermath of the Budget at the end of October and start of November, as the market priced in a "higher for longer" inflation and interest rates scenario. Mortgage rates have since fallen back somewhat.

"Today’s decision to hold is no surprise but borrowers hoping to see more positive movement next year will be buoyed by the three votes for a cut this month," says David Hollingworth, associate director at L&C Mortgages. "Markets are anticipating that stubborn inflation may hold back the pace of those cuts, which has knocked on into fixed-rate pricing."

He adds: "I expect mortgage lenders to be quick out of the blocks in January and to continue to price as sharply as possible, but the Bank has been consistent in its tone, suggesting the likely pace of rate cutting will be gradual."

What is stagflation – and are we heading towards it?

With inflation inching up and growth slowing down, commentators have started to utter the dreaded s-word – stagflation. This can be defined as an environment of high inflation, stagnant growth and high unemployment.

"It must be said there is currently a high degree of uncertainty over the future course of inflation, in part driven by a question mark over how much of Donald Trump’s rhetoric is going to find its way into policy, especially in terms of trade tariffs," said Laith Khalaf, head of investment analysis at AJ Bell.

"No-one is expecting inflation to rise to double digits again, but sticky inflation still limits the capacity of the Bank of England to cut rates, even if it is only modestly above target. That’s going to keep borrowing costs elevated for companies, dampening the prospects for economic growth," he added.

How have markets reacted to the base rate decision?

Although the decision was widely expected, markets have reacted negatively. "The FTSE 100 stayed deep in the red, while the pound started to slide again against the dollar, trading at $1.26," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Cuts in February?

One of the key lines from the Monetary Policy Committee’s meeting notes is the guidance that “a gradual approach to removing monetary policy restraint remains appropriate”.

In itself, this is slightly unusual.

“Cutting cycles are usually quick and meaningful,” says James Lynch, investment manager at Aegon Asset Management. “When central banks need to cut interest rates, it’s usually because there is a real problem somewhere in the economy (or in financial markets that might spill over to the economy).”

Absent such a problem, the Bank is taking its time cutting rates.

However, as indicated by the three MPC members who voted for a rates cut, ”there is still a sense that they see policy rates as a bit too high, and in the meantime 25 basis points every three meetings seems to be enough.”

As such, says Lynch, “we would expect the next move to 4.50% in February”.

On the other hand...

Markets are pricing in just two price cuts next year, according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“The Bank of England is ringing in the same discordant notes of caution as the Federal Reserve,” she says, adding that central banks “remain cautious about inflationary risks ahead - fresh tariffs from Trump are looming and in the UK the effects of the Budget changes on prices are still hard to calculate."

Even if the Bank remains on a cutting trajectory, it will proceed at a reduced speed.

This could be good news for anyone in the market for an annuity, according to Streeter.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says that a gradual cutting cycle would be “good news for the annuity market as this will help incomes remain steady.

“The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,281 per year from a single life level annuity with a five-year guarantee,” she adds. “This is not much lower than the £7,586 top rate available in the aftermath of the mini-Budget, so annuities are still offering great value for money and will prove a tempting prospect for people on the hunt for a guaranteed income in retirement.”

That's all from us today. Thanks for following our live blog, and we look forward to joining you again for the next Bank of England interest rates meeting.

Summary of the Monetary Policy Committee November meeting

• The Bank of England cut interest rates to 4.75%, as widely anticipated.
• It comes after inflation fell below the Bank’s 2% target in September 2024, for the first time in over three years.
• The Monetary Policy Committee (MPC) has cut rates twice this year.
• Before August 2024, the MPC had held the base rate at a 16-year high of 5.25% for over a year.

Scroll for full reporting and analysis from the team at MoneyWeek.

| Latest Bank of England predictions | MPC meeting dates | Inflation forecast |

Good Wednesday morning, it’s Katie Williams and Ruth Emery here reporting from MoneyWeek’s live blog. Interest rate day is almost upon us. At midday tomorrow, the MPC will announce whether it has decided to cut rates or keep them on ice at 5%.

Stay with us as we bring you the latest forecasts in the lead-up to the announcement. We’ll also be analysing what each result could mean for your personal finances.

Will the MPC cut rates tomorrow?

Markets are confident that rates will be cut by 25 basis points tomorrow, taking the base rate to 4.75%. But we won’t know for sure until the announcement is made.

When the MPC last met in September, the committee voted to hold rates by a decisive 8-1 majority. Have there been enough economic developments over the past seven weeks to persuade four members to change their vote? Let’s take a closer look.

Inflation below target in September

September’s inflation report moved the dial in favour of a November rate cut. The Consumer Prices Index (CPI) came in at 1.7% on an annual basis in September. This was the slowest rate of inflation in over three years, coming in below the Bank of England’s 2% target.

It is worth remembering that prices were rising by around 11% when inflation peaked a couple of years ago. We have made significant progress from that point.

What about the services sector?

More significantly, services inflation also slowed from 5.6% to 4.9% in September, coming in comfortably below the Bank of England’s 5.5% forecast.

The MPC has been watching this figure closely, as the services sector accounts for around 80% of UK economic output. Services inflation has been particularly sticky in previous reports, suggesting an ongoing problem with inflationary pressures in the domestic economy.

Time for some aggression?

Everything was shaping up nicely for a November rate cut, particularly in light of comments made by the governor of the Bank of England last month. Andrew Bailey told The Guardian that UK policymakers could become a “bit more aggressive” with rate cuts if inflation continues to cool.

Enter the Budget

Since then, the Autumn Budget has created a bit of a hiccup. Some of the measures announced by chancellor Rachel Reeves are likely to prove inflationary.

Reeves announced plans to increase government spending by £70bn annually – an attempt to avoid cuts to public services and to fund investment projects.

She also unveiled £40bn in tax hikes, with a large part of this being funded by an increase in employer National Insurance contributions. The concern is that businesses will pass this cost on to consumers by putting their prices up.

Plans to increase the National Living Wage by 6.7% from April could also contribute to inflation by keeping wage growth high.

How much harm can a little red box do?

The independent Office for Budget Responsibility (OBR) said it expects Budget policy measures to “increase inflation by 0.4 percentage points at their peak effect in 2026”.

Meanwhile, economists at consultancy Capital Economics have adjusted their forecasts upwards by 0.2% and 0.1% in 2025 and 2026 respectively.

“The Budget won’t reignite inflation. But it will keep it a little hotter for a little longer than previously looked likely,” chief UK economist Paul Dales told MoneyWeek.

A close decision?

“Following the recent upheaval in bond markets after last week's Budget, we expect a close 5-4 vote in favour of a 25 basis point cut at Thursday’s MPC meeting,” says Steve Matthews, liquidity investment director at Canada Life Asset Management.

“Since the last meeting in September, when rates were held, economic growth and inflation data have softened, though not enough to shift the MPC’s current cautious approach.”

How many MPC meetings are left in 2024?

There are only two MPC meetings left this year – tomorrow and 19 December. Before the Autumn Budget, markets were set on a November rate cut with some experts saying they thought a consecutive cut would follow in December. Is a December cut now out of the question?

Back-to-back cuts in November and December now look less likely

“After Thursday’s meeting, we don’t expect fireworks anytime soon with the MPC settling into a quarterly cutting cycle, with the next cut expected in February,” Matthews says.

Longer term, he says that markets have already tempered their expectations and are now forecasting two or three cuts in 2025, down from previous projections of four of five.

What does it mean for your personal finances?

Mortgage holders – especially those due to refix – are desperately hoping for interest rates to fall further. Savers may be less keen, although they will be pleased to see a lower rate of inflation.

Let’s take a closer look at the implications policy can have on your back pocket.

Savings rates – should you fix?

Savings rates have been on a downward trend after peaking last year. Providers reduced their rates in anticipation of cuts from the Bank of England, with further cuts following after the MPC lowered the base rate on 1 August.

Rates are likely to tumble further if the MPC cuts the base rate tomorrow, meaning it could make sense to fix your savings to lock in a higher rate for longer.

The top providers are still offering rates of around 5% (or just under) on their easy-access and one-year fixed accounts. However, these deals are becoming increasingly rare so you may need to act quickly. Shopping around will help you secure the best deal.

See our round-up of the best easy-access and one-year fixed-rate savings accounts.

Currently, savers may find better rates on cash ISAs than regular savings accounts.

• Best easy-access ISA: The Trading 212 and Moneybox Cash ISAs both pay 5.17%.
• Best easy-access savings account: The Cahoot Sunny Day Saver and the Chip Easy-Access Saver both pay 5%.

Although fixed rates are slightly lower than easy-access rates at the moment, they offer savers a guaranteed rate. This could prove advantageous when interest rates fall further. Meanwhile, the variable rate on an easy-access account can be slashed at any time.

• Best one-year fixed account: The Atom Bank One-Year Fixed Saver pays 4.8%.

What about mortgage rates?

Mortgage rates have fallen significantly from their peak last summer, and came down further in the aftermath of the base rate cut on 1 August. Despite this, they remain higher today than they have been for much of the past decade.

The average two-year fixed rate is currently 5.40%, according to Moneyfacts. The average five-year rate is 5.11%.

Why a base rate reduction doesn’t always result in a cut in mortgage rates

Many homeowners and first-time buyers will be crossing their fingers for a base rate cut, believing that it will feed through to lower mortgage rates.

However, Nick Mendes, mortgage technical manager at the broker John Charcol, says a drop in the base rate won’t necessarily result in an immediate reduction in mortgage rates. “When setting their rates, lenders take multiple elements into account, including their service levels, swap rates, and overall market conditions,” he explains.

Mendes adds that after the MPC’s decision, the Bank of England governor’s statement and voting patterns will be analysed, and if the outlook suggests fewer cuts ahead, swap rates may rise. “This could lead to higher mortgage rates even after a Bank rate cut.”

Mortgage rates have risen following last week’s Autumn Budget, with lenders like HSBC, Coventry Building Society and Virgin Money hiking their rates.

How will equity markets respond to a rate cut?

Rate cuts are generally good news for equity markets, as they ease borrowing costs for businesses and can help invigorate the economy, boosting earnings. However, markets tend to price this sort of information into valuations in advance.

Investors don’t just focus on a single event, but consider how quickly and how dramatically central banks will cut rates over a period of time.

They also look at how one region’s rate path compares to others worldwide.

How has the FTSE 100 performed today?

The FTSE 100 opened higher this morning in response to the US election outcome, but has since fallen back as investors digest the full implications of a Trump win. By market close, the index was pretty much level with yesterday.

Trump has threatened to impose additional tariffs on imported goods. Tariffs often disrupt supply chains and can prove inflationary.

According to widely-quoted research from the National Institute of Economic and Social Research (NIESR), UK inflation could be 3-4 points higher over the next two years if Trump imposes the tariffs that have been threatened. Interest rates could be 2-3 points higher.

Thank you for joining us on our live blog today. We will be back with further analysis tomorrow morning ahead of the MPC decision at midday. Have a lovely evening!

Good Thursday morning, and welcome back. It’s Katie Williams and Ruth Emery reporting on our live blog again today. It’s a gloomy November morning here in London but a rate cut at midday could brighten the outlook for many. Stick with us as we share our analysis.

Where next for inflation?

Inflation slowed to below the Bank of England’s 2% target in September – but where is it forecast to go next? Unfortunately, October’s CPI report (due on 20 November) is unlikely to look quite so good.

Household energy prices went up at the start of October, when the Ofgem price cap surged by 10%. This will feed through into the October data.

“When measured against a fall a year earlier, it’s going to look particularly grim,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.

Looking beyond today’s MPC meeting, how will the expected uptick in inflation impact the December interest rate decision?

Two more CPI reports are due before then, one on 20 November and one on 18 December. The Bank of England will be analysing this information closely.

It’s likely the Bank will be less concerned with the headline rate of inflation than metrics like core and services inflation. It wants to see evidence that domestic inflationary pressures are continuing to wane.

The next wage growth reports will be important too, as rising wages are another domestic driver of inflation.

That said, markets have turned bearish on the idea of back-to-back rate cuts in November and December in the wake of the Autumn Budget.

Most experts now think we will end the year with rates at 4.75%.

What are economists saying?

In the latest poll from news agency Reuters, all 72 economists said they expect the Bank of England to cut rates to 4.75% today.

Almost two-thirds (46 out of 72) said they expect rates to be kept on hold at the subsequent meeting in December.

It is worth mentioning that the poll was conducted between 22 and 28 October, before the Autumn Budget took place.

Another rate decision across the pond

The Bank of England isn’t the only central bank to make a rate decision today. We will hear from the US Federal Reserve too. The Fed is also expected to announce a quarter-point cut. This would take the federal funds rate down to a range of 4.5-4.75%.

“Perhaps of more importance will be comments about the future direction of travel with markets now expecting only two further cuts in 2025, due to the impact of a fresh Trump presidency with tariff hikes and tax cuts which are expected to be inflationary,” says Derren Nathan, head of equity research at Hargreaves Lansdown.

Back to the Budget

How much attention will be given to the Budget in the MPC minutes and summary document? Most commentators don’t think the Budget will influence the outcome of today’s decision, but it could slow the pace of cuts going forward.

“If a Budget the size of Labour’s had come out of the blue then we would very much expect the Monetary Policy Committee to be more cautious with cutting rates. However, given that the Budget was heavily signposted it is unlikely to be enough to stop an interest rate cut today,” says William Marshall, chief investment officer at financial services company Hymans Robertson.

“That being said, the extent of the size of the borrowing communicated in the Budget may have slightly surprised the MPC, given that Rachel Reeves hinted that she would not borrow for day-to-day spending,” he adds. “The consequence is that we may see a slower pace of rate cuts next year.”

BREAKING: BoE cuts rates to 4.75%

MPC voting split

The MPC voted for the rate cut by a decisive 8-1 majority. Only Catherine Mann voted against the decision, preferring to hold the base rate at 5%.

The MPC is still cautious

Despite cutting rates today, the MPC isn’t throwing caution to the wind. In its summary comments, it repeated a message it had put out before.

“Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate. 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.”

What did the MPC say about the Budget?

The committee appears to have discussed the Budget and its impact on the economy at length, with specific reference to the National Living Wage and employer National Insurance contributions.

This influenced Catherine Mann’s decision to vote against the cut. She expressed concern about wage growth and price-setting dynamics.

Her argument is summarised in the meeting minutes: “In the face of these uncertainties, maintaining the current level of Bank Rate would allow time to evaluate whether these upside pressures would materialise.”

Mann was outnumbered 8-1.

Patience may be required going forward

“Today’s rate cut was nailed on, but households may have to be more patient for borrowing costs to fall over the next year,” says Ed Monk, associate director at financial services company Fidelity International. “Today’s Monetary Policy Report forecasts another rise in inflation to 2.75% – back above target – over the next year.”

What does a rate cut mean for UK equities?

“Lower rates in the UK should be good news for domestically-focused British companies, which are more prevalent in the FTSE 250 than the FTSE 100,” says Rachel Winter, partner at financial services company Killik & Co.

“That said, the international companies in the FTSE 100 will benefit from the recent strength of the dollar, as they earn revenue in dollars and report their profits in sterling,” she adds.

Winter points out that markets are still adjusting to the latest political developments, including the UK Budget and US presidential election. Against a volatile backdrop, portfolio diversification is more important than ever.

Another warning for savers

Savings rates are likely to tumble further in the wake of today’s base rate cut. Moneyfacts data shows that the average rates are currently as follows:

• Easy-access saver: 3.03%
• Easy-access ISA: 3.23%
• One-year fixed saver: 4.22%
• One-year fixed ISA: 4.07%

These are just the average rates based on a balance of £10,000. You can secure a better deal by shopping around – but you may need to act quickly as rates are being pulled all the time.

If you don’t need to access the cash in the short term, you could consider opting for a fixed-rate account to lock in a higher level of interest for longer.

Mortgage rates could continue to rise

Mortgage rates have been on the rise since the Autumn Budget and the US election. Variable-rate deals will come down on the back of today’s news, but experts warn that the rate cut could actually lead to lenders hiking their fixed mortgage rates.

David Hollingworth, associate director at L&C Mortgages, comments: “Last week’s Budget and the US election have added a hint of uncertainty around future rate movements. That has already caused a flurry of price changes to feed through with most resulting in fixed rates being hiked.

“That is likely to continue unless markets are reassured by today’s decision and funding costs ease back.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, adds: “The Bank says it’ll keep an eye out for inflationary risks, and the market is pricing in fewer cuts between now and the end of 2025. We’re likely to see some repricing to reflect that – so mortgage rates could rise again.”

How will the rate cut affect annuities?

A cut in interest rates can lead to a fall in annuity rates, but annuity incomes are actually at a two-year peak. This is thanks to long-term gilt yields, which have risen off the back of the Budget and are keeping annuity rates high.

Could today’s announcement lead to a dip in annuity rates? Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, comments: “We may see some downward pressure in the coming weeks but with news that the path for future cuts will be slow and steady we can expect annuities to remain attractive for some time yet.”

Thank you for joining us on our live blog today. All eyes are now turning to the US Federal Reserve, which will make its own interest rate announcement in just under two hours' time.

Over here in the UK, there is only one MPC meeting left before the end of the year. This will take place on 19 December. We will be back then with more live analysis.

UK inflation was unexpectedly steady in May, but experts warn that higher inflation could be on horizon as the UK starts to feel the economic consequences of the Iran war.

Inflation was 2.8% in the year to May, holding at the same level it was in April, according to the latest data from the Office for National Statistics (ONS).

Most experts had anticipated price growth to rise after oil and gas prices soared in the wake of the Iran war.

However, the economy proved to be more resilient than most expected. One driving factor in May’s data was low food inflation.

In the year to May, food prices grew by 2.2%, the slowest rate in 17 months. This helped push overall inflation down by 0.07 percentage points.

Other notable downwards contributions to the inflation rate came from the housing and household services, furniture, clothing, restaurant, and recreation sectors.

Meanwhile, the largest upwards contributor was the transport sector, where inflation was 6.8% in the year to May. Price growth for airfares, vehicle taxes, and motor fuel costs pushed May’s overall inflation up by 0.29 percentage points.

However, while lower-than-expected inflation in May was a positive sign, experts have warned that low inflation is unlikely to hold.

Where could inflation go next?

Experts think inflation is likely to rise in the following months as we continue to feel the effects of disrupted global trade thanks to the Iran war.

In particular, the war led to the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, being shut.

That made oil prices surge, impacting motor fuel and heating oil prices. But as oil is used in the production of a significant portion of the things we use and buy every day, price shocks will likely be felt more widely.

While the Iran war looks to be winding down, with a memorandum of understanding set to be signed, oil prices have fallen. However, it will still be some time before they go back to pre-war levels as the production and distribution of oil needs to be restarted.

With prices remaining at elevated levels, inflation will still likely tick up in the UK during the rest of the year.

Meanwhile, the energy market is also under pressure because of the war.

Energy bills for millions of households and businesses will increase in July when the next Ofgem energy price cap comes in.

The new cap will reflect the increased wholesale price of energy because of the war, meaning households on the price cap will be paying an average of 13% more for their energy than they did between April and June.

Prices are set to stay high in the final quarter of 2026 too, with energy consultancy Cornwall Insight, whose price cap forecasts are well-regarded, expecting the price cap to rise by a further 2% in October.

Before the war, the consultancy thought energy prices would be around £1,645 in July this year – more than £200 lower than July’s confirmed level.

The UK is particularly sensitive to the wholesale energy market because it is a net importer of energy from overseas, meaning it is left at the whim of the market to set prices.

Moreover, even firms that do not produce goods derived from oil and gas markets will likely need to hike prices as the costs associated with running the business (such as energy bills and transportation costs) are still exposed to those markets. These costs will likely be passed on to the consumer.

Where do experts think inflation will go?

Unfortunately for Brits, most economists are united in thinking that inflation will rise for the rest of 2026.

The latest forecast from the Bank of England estimates that inflation will stay just under 3% for most of 2026 before rising to a “little over” 3.25% in the final quarter of the year.

While this means that inflation is likely going to stay well above the 2% target for the rest of the year, the positive news is that this latest prediction is significantly better than the one produced by the central bank in April, which said prices could peak at 3.6% this year in their best-case scenario or 6.2% in their worst-case scenario.

Deutsche Bank expects inflation is set to rise in 2026, but to a less extreme peak than previously thought.

Sanjay Raja, chief UK economist at Deutsche Bank, said: “With a US-Iran [memorandum of understanding] in sight, the prospects of a softer rise in CPI have increased.

With oil prices dropping meaningfully, this is expected to slowly filter through to the overall inflation data over the summer and winter, helping it stay lower than previously expected, he said.

Raja added: “And, in even better news, the fall in oil prices has coincided with a fall in gas prices. It’s looking increasingly likely that the Ofgem price cap could be lower as opposed to higher come October 2026, bringing some much-needed relief for UK households and businesses.”

While this news is positive for the inflationary outlook in the UK, it all rests on the assumption that inflation will still be above target for the entire year.

And though expectations are now far from April’s worst-case scenario, it still means prices will accelerate one percentage point faster than many economists had previously expected in 2026.

What’s the link between inflation and interest rates?

Inflation above the 2% target is always a cause for concern for economists, policymakers and consumers.

The Bank of England is particularly focused on inflation, as it has a remit to ensure prices do not spiral out of control.

This is largely done through setting interest rates, which are typically raised to fight inflation.

The trade-off to fighting inflation with higher interest rates is reduced economic activity. When interest rates are high, people have to use more of their earnings on expenses like their mortgage and are incentivised to save their cash as savings rates tend to be higher.

What does the inflation outlook mean for future interest rate cuts?

With inflation expected to stay significantly above the Bank of England’s target, interest rates are unlikely to be cut any time soon.

In the most recent meeting of the Monetary Policy Committee on 18 June, members decided to hold interest rates at 3.75% for the fourth consecutive meeting. The motion passed by seven to two.

The two members who did not vote with the majority (Huw Pill and Megan Greene) voted to hike rates to 4% as a preventative measure against the potential for more severe second-order inflationary effects.

This move was in line with most forecasts by economists, and experts believe that interest rates will stay at 3.75% until at least early 2027.

Deutsche Bank believes that the first time we could potentially see a rate cut on the table again is spring 2027. Meanwhile, Oxford Economics believes that the first cut may be seen in late 2027.

For more on the future of interest rates, read our article on where interest rates will go next.

Another interest rate cut looks likely next month, after the rate of UK inflation fell by more than many analysts were expecting in today’s report.

The Consumer Prices Index (CPI) slowed to 1.7% on an annual basis in September. This is the lowest rate in over three years. The last time inflation was lower was in April 2021, according to data from the Office for National Statistics (ONS). 

Many analysts were expecting September’s inflation rate to fall below 2%, but the scale of the drop was larger than expected. The experts at ING and Capital Economics predicted a fall to 1.9%, while Deutsche Bank said CPI could drop to 1.8%. 

Perhaps more significantly, services inflation plunged from 5.6% to 4.9% – a meaningful move in the right direction. The metric is being closely watched by the Bank of England, as the services sector accounts for around 80% of the UK economy. Services inflation has proved sticky in previous reports. 

Core inflation (which strips out volatile categories like energy, food, alcohol and tobacco) also slowed to 3.2%, down from 3.6% in August. 

A positive inflation rate means prices are still rising overall but at a significantly slower rate than they were previously. Remember that inflation peaked at 11.1% in October 2021. Despite this, it is widely expected to pick up again next month after the energy price cap surged by 10% on 1 October.

“When measured against a fall a year earlier, [energy price rises are] going to look particularly grim,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. “Petrol prices are likely to add insult to injury. They’ll be back on an upwards trajectory thanks to conflict in the Middle East and rising oil prices,” she adds.

We take a closer look at what the latest inflation reading means for the interest rate outlook and your personal finances.

Where are prices rising and where are they falling?

The largest downward contribution to the monthly change in CPI came from transport, the ONS says. Air fares fell by 34.8% in September, as is typical after the busy summer period. Petrol and diesel prices also fell by 5.5p and 6p per litre respectively.

Meanwhile, the largest offsetting upward contribution came from food and non-alcoholic beverages. The cost of milk, cheese, eggs, mineral waters, soft drinks, juices and fruit all went up in September.

“While the latest inflation data appears positive for consumers, almost three years of rapid price rises have left their mark on household budgets,” says Alice Haine, personal finance analyst at Bestinvest. 

She adds that “many are still trying to balance the books as their finances slowly recover from the high borrowing and living costs seen at the height of the cost-of-living squeeze”. 

If another base rate cut materialises in November, as widely predicted, it could further alleviate the pain for consumers battling with higher borrowing costs. Mortgage rates have fallen significantly from their highs in 2023, but remain elevated.

Will interest rates fall in November?

The latest inflation figure will be welcomed by those hoping for a rate cut at the Bank of England’s next meeting on 7 November. 

Governor Andrew Bailey recently told The Guardian that UK policymakers could become a “bit more aggressive” in their approach if inflation continues to cool – and it is now showing signs of doing just that.

Today’s report showed a significant slowdown in the headline rate, services inflation and core inflation. This follows on from yesterday’s labour market report, which showed wages are now growing at the slowest rate in over two years.

Against this backdrop, a 0.25% cut is “pretty much nailed on” in November, according to Danni Hewson, head of financial analysis at AJ Bell. She adds that expectations for December have also jumped, with markets pricing in more than an 80% chance of back-to-back cuts. This would bring the base rate to 4.5% by the end of the year.

Households and investors shouldn’t count their chickens before they have hatched, though. We still have the Budget to get through on 30 October. This will take place eight days before the next Monetary Policy Committee (MPC) meeting. 

The prime minister has already warned that the Budget will be “painful”, fuelling speculation that several taxes will go up. In recent weeks, speculation has also been mounting that chancellor Rachel Reeves could change government borrowing rules to facilitate more investment in the UK economy.

The Bank of England will be watching closely to understand how the measures announced impact the economic data.

What do the latest inflation figures mean for your personal finances?

It is always important to keep tabs on inflation and its impact on your finances, as it is one of the biggest destroyers of wealth. However, the September CPI report is more significant than most as it is used to calculate a range of government benefits – including the state pension. 

Under triple lock rules, state pension payments go up each year in line with earnings growth, inflation or by 2.5% – whichever measure is highest. The yardsticks that are used are September’s CPI reading and May-July’s earnings growth figure. 

This year, earnings growth (4.1%) was higher than the September CPI. It was also higher than the minimum 2.5% increase.

“The latest official data pretty much inks in a rise of 4.1% in pensioner incomes from the state pension from next April,” says Becky O'Connor, director of public affairs at PensionBee. 

She adds: “For a retiree on the full new state pension, this means a £473 increase, taking their annual income to £11,975 and inching closer to the personal income tax allowance of £12,570.

“Most pensioners do not receive the full amount of state pension and the majority must also factor in the loss of winter fuel payments. So this rise will be welcome, but the edge may be taken off by biting cuts elsewhere.”

What does the latest CPI report mean for savings?

Today’s inflation reading also has wide-ranging implications for savers, as markets gear up for a probable rate cut in November. There is now only a short window of opportunity to lock in higher interest rates by opening a fixed-rate account.

We have already seen how quickly savings rates can plummet after a base rate cut, as scores of providers slashed their rates after the Bank of England’s 1 August decision. Against this backdrop, a one or two-year fixed-rate bond could prove attractive – but remember that you won’t be able to access the cash until the fixed period ends.

You should also review the rate on any easy-access accounts regularly to ensure they are still competitive. Loyalty rarely pays when it comes to savings providers. Comparison sites can be helpful and you may find that challenger banks offer better deals than some of the high street giants. 

Before opening an account, always check that it is covered by the Financial Services Compensation Scheme. The challenger banks covered under this scheme enjoy the same £85,000 protection as high street names.

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings.

The Bank of England has announced it will keep interest rates on hold at 5% for at least the next two months. The decision is a blow for households and businesses struggling with high borrowing costs, but one that was widely expected. 

The decision from the Monetary Policy Committee (MPC) was clear-cut, with members voting to hold rates by an 8-1 majority. The only committee member who voted to reduce the base rate to 4.75% was Swati Dhingra, who has repeatedly advocated for a more dovish stance from the UK central bank. 

It comes after interest rates were cut from their 16-year high of 5.25% on 1 August. Experts had warned the likelihood of another rate cut today was slim, after the Bank of England set a cautious tone in its comments last month. 

Since then, inflation has inched up to 2.2%, and services inflation and wage growth remain elevated at 5.6% and 5.1% respectively. What’s more, inflation is expected to rise further later this year when energy prices go up. 

The next MPC meeting won’t take place until November, at which point a rate cut looks more likely. Markets have been pricing in one to two more cuts before the end of the year, with November looking like the most likely month. 

Economists are slightly more cautious, though. In the latest poll from news agency Reuters, 49 out of 65 survey respondents said they expect just one more cut in 2024. Forty-eight said it will come in November, while just one opted for December. 

Laura Suter, director of personal finance at AJ Bell, says: “The lack of a meeting in October means the Bank avoids the thorny issue of making a decision on interest rates immediately ahead of the Budget, and gives time to digest the government’s fiscal plans before making its next decision at the start of November.” 

Will interest rates continue to fall?

Although the base rate hasn’t budged this month, experts agree that interest rates are on a downward path going forward. The question is how fast and how far they will fall. Many have been pointing to the old adage that rates tend to rise like a rocket but fall like a feather.

In its summary comments today, the MPC said there had not been any "material developments" in the economic data since it last met in August. As a result, it concluded that "a gradual approach to removing policy restraint remains appropriate". 

The MPC then reiterated a statement that has appeared in previous summary documents: "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 Bank of England will watch the economic data closely when assessing the timing of its next rate cut. It is likely it will want to see further progress in areas like wage growth, giving the MPC comfort that domestic inflationary pressures are firmly in the rearview mirror.

“The rate of wage increases is still running at more than twice the rate of consumer price growth and there are still niggles of worry that those high wage bills might be passed on as higher prices for goods and services,” says Susannah Streeter, head of money and markets at Hargreaves Lansdown. 

Despite ongoing pressures, the rate-cutting cycle now appears to be underway across large parts of the world. Last week, the European Central Bank (ECB) cut interest rates to 3.5% – its second cut this year. Yesterday, the US Federal Reserve also joined the rate-cutting club, opting for a bumper cut of 0.5%. 

It comes as concerns about economic growth have been ramping up. Weak labour market data prompted fears of a US recession over the summer, causing a rout in global equity markets. Meanwhile, here in the UK, the latest GDP figures show the economy stalled for a second month in July, experiencing no growth at all. 

Ed Monk, associate director for personal investing at Fidelity International, says: "The strength of the MPC's vote [...] perhaps suggests that the Bank sees a period of below-potential growth as being necessary to get the last bit of high inflation under control. It means borrowers will have to be patient in their wait for rates to fall, even if that is now the direction of travel."

What do frozen interest rates mean for savers?

The MPC’s decision to keep rates on ice will come as good news to savers, who have seen savings rates tumble since the Bank of England’s first cut on 1 August. 

Despite this, savers will need to act quickly to take advantage of the best deals, as savings rates often fall in anticipation of cuts as well as in response to them. With one to two more cuts expected before the end of the year, savings rates are on a downward trajectory. 

“Those who are happy to lock their cash away for a guaranteed return could look towards a fixed-rate bond or fixed cash ISA, and with rates expected to decrease further, savers may wish to choose a longer-term deal,” says Rachel Springall, finance expert at Moneyfacts.

While speed is of the essence, savers should still take time to shop around as savings rates vary enormously between the most and least-competitive providers. 

“Challenger banks and building societies continue to offer some of the top returns and have the same deposit protections in place as the more familiar high street banks, so there is little reason to overlook them in favour of a well-known brand,” Springall adds. 

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings. 

What does the Bank of England’s decision mean for mortgage holders? 

Mortgage rates have been coming down in recent months, both in anticipation of base rate cuts and in response to the MPC’s decision on 1 August. Competition between lenders has brought rates down further since, and some sub-4% deals are now available on the market.

Despite this, mortgage rates remain high compared to the levels seen in the late-2010s. Furthermore, around 1.6 million mortgage holders will see their deals expire this year, according to trade body UK Finance. 

Unfortunately, those who are coming to the end of a relatively cheap five-year fixed-rate deal will see their monthly repayments rise by a significant amount when they remortgage. A second base rate cut would have been helpful in reducing the strain on these borrowers. 

“Their next big decision centres on whether it is best to lock in another fixed-rate deal, or whether a tracker might work out best over the longer term," says Alice Haine, personal finance analyst at Bestinvest. 

"Whatever option they choose, committing to a new deal is key otherwise they risk reverting to their lender’s ultra-expensive standard variable rate, with the average SVR remaining high at just below the 8% mark," she adds. 

Despite this, there could be good news for homeowners looking to sell. The housing market has been dampened by higher mortgage rates since prices peaked in the summer of 2022, but the outlook is now starting to improve. Further interest rate cuts later this year could bring more buyers to the market, giving house prices a boost. 

House prices typically rise when interest rates are cut, as affordability constraints loosen and buyer demand picks up. This is something to keep an eye on if you are thinking about the best time to sell your house.

Is now a good time to buy an annuity?

Those planning for retirement may be wondering whether now is a good time to buy an annuity before interest rates fall further. After the base rate held steady today, savers now have a little longer to contemplate their decision – but they shouldn’t leave it too long. 

After years in the doldrums, annuities are now offering decent value for money. The latest data from Hargreaves Lansdown’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,102 per year from a single-life level annuity. 

Despite this, annuity rates have probably peaked as the amount of income you can earn from an annuity is linked to government bond yields, which are influenced by the underlying interest rate environment. 

“The prospect of cuts looming on the horizon in the coming months does mean we can expect to see incomes shift downwards, though it’s fair to say they will not fall anywhere near as far or as fast as they were hiked,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. 

“This means we should continue to see strong interest in people looking to secure a guaranteed income from the annuity market, though it is vital to make sure that you check quotes across the market before making a final decision,” she adds. “Simply opting for the first quote could see you thousands of pounds worse off over the course of your retirement.”

While annuity rates look fairly good right now, that doesn’t mean they are the right retirement strategy for everyone. Some people prefer to keep their pension pot in drawdown or opt for a combination of the two approaches (drawdown and annuity). Using your pension pot to buy an annuity is an irreversible decision, so you need to think carefully before making your mind up. You should seek financial advice if you are unsure.

You’ve heard of keeping up with the Kardashians but, when it comes to your personal finances, the real influencers you want to be watching are the Bank of England policymakers. Let’s call it monitoring the Monetary Policy Committee (MPC). 

The Bank of England sets interest rates in an attempt to control inflation and promote economic growth. All of these things play a vital role in dictating the health of your finances. But the latest data suggests a worrying proportion of the population is out of touch when it comes to the state of the UK economy. 

According to the latest inflation attitudes survey from the Bank of England (conducted in August), most people thought the current inflation rate was 5.2%. In fact, it is considerably lower at 2.2%. 

Meanwhile, 29% of respondents said they expect interest rates to rise over the next 12 months when, in fact, most experts agree they are on a downward trajectory after the Bank of England started cutting interest rates from their sixteen-year high last month. 

“There’s no reason why absolutely everyone should be completely across inflation and interest rates on a daily basis. People have a lot going on, and sometimes keeping abreast of financial changes falls off the to-do list,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. 

“However, if you're saving, borrowing or investing, it’s worth making a date to check in once every few months, to make sure these things haven’t been quietly shifting while you were otherwise occupied,” she adds.

Inflation impacts the value of your savings and investments, while interest rates influence day-to-day costs like how much you are paying on your mortgage. As such, failing to keep up with the latest developments could leave you thousands of pounds out of pocket.

What’s the latest on UK interest rates and why is this information important?

The Bank of England cut interest rates for the first time in over four years on 1 August, bringing the base rate to 5%. This had important implications for savings rates, mortgage rates, house prices and investment markets.

Savings rates have been falling for several months now in anticipation of cuts to the Bank of England base rate, and they tumbled further after the Bank of England’s decision last month. 

Knowing where interest rates are at (and where they could be heading next) can help you make important decisions about where best to put your money. 

Some of the top savings accounts are still offering rates of around 5%, but these deals aren’t sticking around for long and savers might want to think about locking some money away in a fixed-rate savings account, if they don’t need to access the money in the short term. 

Meanwhile, if you are thinking about buying a house or you need to remortgage soon, knowing where interest rates are heading could help you answer important questions like: “Should I fix my mortgage for two years or five years?”

Mortgage rates have been tumbling in recent weeks, creating good opportunities for those who keep up to date with the latest market developments. “The high street giants have announced another raft of cuts this week, and there are now fixed-rate deals charging less than 4%,” Coles points out. 

The close link between interest rates and mortgage rates means MPC decisions have an important bearing on the UK property market too. Earlier this month, Amanda Bryden, head of mortgages at Halifax, said that “prospective homebuyers are feeling more confident thanks to easing interest rates”. 

This is gradually translating into house prices which were up 4.3% annually in August, according to the latest Halifax House Price Index.

Interest rates also have an important bearing on investment markets, so it is important to stay up to date if you are thinking about which investments to add to your pension or stocks and shares ISA. See our recent feature: “Where to invest as interest rates fall”. 

The Bank of England will meet this week to make its next interest rate decision. 

How does inflation impact your finances?

Inflation might be a quiet thief, but it is one of the biggest wealth destroyers. Imagine you had £1,000 stashed under the bed (a terrible idea, by the way). Even if inflation were to sit at around 2%, it would only take 36 years for the value of your nest egg to halve. 

Of course, over the past few years, the rate of inflation has been far higher than this. UK inflation peaked at 11.1% in October 2022. At this elevated level, it would only take around six years for the value of your money to halve. 

The good news is that many savings accounts are now offering real returns – but you need to stay on top of the latest economic news to know whether your provider is giving you a good deal. If you aren’t earning a competitive rate, now is the time to switch. This is particularly important if your rate isn’t even beating inflation.

Knowing the rate of inflation (and the outlook going forward) is important from a budgeting perspective as well. It can help you calculate how much your regular outgoings are likely to change in the near future. 

This will influence how much you are able to save and how much you will need to earn to cover the essentials. If costs are going up, it might be reasonable to have a conversation with your employer about whether salaries are likely to increase in line with inflation too. 

Understanding the rate and impact of inflation is also important if you are an investor, as some investments are more sensitive to inflation than others. For example, gold is often heralded as an asset that retains its value well. Equities can also be a good hedge against inflation in some instances, while assets like bonds and cash don’t tend to do so well. 

Interest rates have been cut to 5% today (1 August), in the first downward move from the Bank of England since the frantic days of the coronavirus pandemic. 

The Monetary Policy Committee (MPC) was closely split, voting to cut rates by a majority of 5-4. Governor Andrew Bailey cast the deciding vote. 

Deputy governor Clare Lombardelli, who was voting for the first time after joining the MPC in July, also voted in favour of the proposition.

"It is now appropriate to reduce slightly the degree of policy restrictiveness," the MPC said in its report. "The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation."

This comes as good news to households and businesses struggling with the cost of mortgage and debt repayments. 

As the reins start to loosen, it could also bode well for UK markets and economic growth, particularly if consumers start to feel they have more money in their pocket to spend.

Savers may be less pleased, though. Many of the best savings deals have already been pulled in recent months and savings rates are likely to fall further as the base rate is cut. 

Experts had warned that today’s interest rate decision rested on a knife-edge after inflation returned to 2% in May and June, but services inflation and wage growth remained high. 

However, markets had been warming up to the prospect of a cut over the course of this week. Late on Wednesday, they were pricing in more than a 60% chance of a first move from the Bank of England.

Economists were also bullish, with the latest Reuters poll showing that 80% expected August to be the month. 

We look at what the Bank of England decision means for your money. Plus, will interest rates continue to fall?

Will interest rates continue to fall?

Households and businesses will breathe a sigh of relief, but it is too early to pop the champagne. 

The MPC has warned that it expects the headline rate of inflation to rise to around 2.75% in the second half of this year, as "declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures". 

While the Bank of England has taken the first step towards normalising monetary policy, we should not expect rates to come down hard and fast. 

In its summary report, the MPC said: "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."

Onlookers will continue to watch the upcoming inflation, wage growth, and GDP reports with interest. Services inflation and wage growth are still coming in quite strong. 

The services sector accounts for around 80% of the UK’s economic output, so it is an important area to watch.

Services inflation came in at 5.7% in May and held steady in June, with some commentators holding Taylor Swift responsible after her Eras Tour hit UK soil in June, causing hotel and restaurant costs to surge. 

Wage growth also came in at 5.7% between March and May, and chancellor Rachel Reeves announced a series of public sector pay rises earlier this week (29 July). Teachers will see their pay go up by 5.5%, while junior doctors could see a 22% rise over the next two years.  

That said, James Smith, developed market economist at ING, told MoneyWeek that this shouldn’t impact the MPC’s thinking. He said: “The Bank of England can’t ignore it, but does this change how far or fast interest rates are cut? I doubt it. 

“The question is whether this sparks further pay growth in the private sector, but actually I think the causality is the other way around. Private-sector pay growth has been outpacing the public sector for some time and the latter is playing catch up.”

What does a rate cut mean for mortgages?

Falling interest rates are good news for mortgage holders, who have seen their monthly repayments skyrocket in recent years. Mortgage rates have already started to come down so far this year in anticipation of base rate cuts.

“Fixed mortgage rates have been falling at a steady pace, with lenders feeling more encouraged to re-price their deals due to positive swap rates,” explains Rachel Springall, finance expert at Moneyfacts.

As a result, average two and five-year fixed mortgage rates decreased month-on-month for the first time since February 2024, and now sit at 5.77% and 5.38% respectively, according to Moneyfacts.

First-time buyers and those looking to remortgage will still benefit from shopping around, though. Last month, sub-4% mortgages returned to the market for the first time since April 2024. 

That said, rates still remain high compared to where they were in the late 2010s – and around 1.6 million homeowners are expected to see their fixed-rate deals come to an end this year, according to trade body UK Finance.

Those who are coming to the end of a five-year fixed-rate deal will see their monthly repayments rise by a significant amount. See our article on how to cope with higher mortgage costs.

What does it mean for savings?

Those with a significant amount of cash in savings pots will be less pleased about today's decision. The best easy-access savings accounts currently offer rates north of 5%, but they are unlikely to hang around for long now that the base rate has come down. 

"Those that want to preserve their return must move fast by locking in the best deal possible while interest rates remain relatively high," says Alice Haine, personal finance analyst at Bestinvest.

"This is particularly important for anyone with money idling in an account offering an ultra-low return," she adds.

If you don't need to access the funds in your account in the short term, you could consider putting the money in a one or two-year fixed-rate account. 

Many providers allow you to lock your cash away for even longer than this. However, if you have a time horizon of three to five years or more, you could be better off putting your money in the stock market. 

Investment returns almost always beat cash over the long run, as long as you invest in a diversified range of stock market investments, manage risk appropriately, and keep your money in the market for a sufficient period of time (to ride out any short-term volatility). 

What do interest rate cuts mean for the property market?

The property market has been fairly limp for much of this year, after high interest rates dampened house price growth. 

However, the latest house price data from Nationwide shows house prices are up 0.3% month-on-month in July, with the annual growth rate picking up to 2.1% (up from 1.5% in June). 

This is the fastest pace of growth since December 2022 – although Nationwide's chief economist Robert Gardner adds that prices are "still around 2.8% below the all-time highs recorded in the summer of 2022".

Falling interest rates should create a more supportive environment for house price growth going forward, but it will take some time. Mortgage costs aren't expected to come down precipitously or all at once.

Nevertheless, sellers will be hoping that the market is slowly shifting in their favour. 

It has been a buyer's market so far this year, as high borrowing costs have resulted in a slowdown in sales. As a result, sellers have had to be more realistic about the prices they are willing to accept. 

Sellers will be hoping to see more buyers coming to the market as mortgage rates come down. This could already be starting to happen.

"We’ve already seen monthly mortgage approvals sitting at consistently high levels as pent-up demand across the market has been released and, in recent weeks, mortgage rates have continued to trend downwards, with several five-year fixed-term mortgages available with rates below four percent," says Guy Gittins, chief executive at Foxtons.

A global payments glitch that could have threatened property purchases and sales has been resolved.

The Bank of England warned earlier today that a global payments issue affecting its  CHAPS (Clearing House Automated Payments System) service could impact buyers and sellers completing on property transactions.

It said the issues was delaying some "high value and time-sensitive payments, including some house purchases."

This could mean money being transferred to solicitors or to and from mortgage lenders for a home sale or to buy a property could be delayed.

It is unclear what caused the issue but the Bank now says the third party supplier has restored service and CHAPS payments are settling as normal. 

The Bank says: "We expect that all payments received by the Bank today will be settled by the end of the day.

"If you are concerned about a CHAPS payment you plan to make or receive today, please contact your bank, or other payment service provider."

How will payment delays hit the property market?

The CHAPS system is used by mortgage lenders and the legal industry to transfer funds. Estate agents, conveyancers, buyers and sellers will be waiting for money to clear before a deal can complete and keys can be handed over.

Friday is typically one of the busiest days for moving home so there could have been issues if the delays had run into tomorrow.

Toby Leek, president of estate agent trade body Propertymark, warns payment issues can leave buyers waiting outside their new property with a removal van full of their belongings in very extreme cases.

“Completing on a property can be extremely stressful even without technical issues," he says.

"However it is important to remember that should systems ever cause unexpected problems at a vital moment within the transactional process, these issues do tend to be fixed quickly."

Simon Bridgland, director at advisory firm Release Freedom, suggests it is best to keep calm in these situations as there is nothing borrowers can really do about the delay.

"Conveyancing firms would have usually already arranged for funds to be sent across to them in advance, so short-term CHAPS issues, in the main, should not delay completions," he says.

"But tell that to the poor sole at the top of a chain waiting on their cash."

The Spring bank holiday falls on the coming Monday, meaning the UK stock market will be closed on Monday, 25 May.

Typically, the UK stock market opening times are 8am to 4.30pm Monday to Friday, with a small break between 12pm and 12.02pm.

We look at the trading calendar below.

Is the stock market open on Spring bank holiday?

No. The London Stock Exchange (LSE) will be closed on the Spring bank holiday, which falls on Monday, 25 May 2026.

This is one of the eight standard holidays the stock exchange observes throughout the year, including Easter, Christmas and New Year.

The London Stock Exchange only observes English and Welsh holidays – not Scottish or Northern Irish. For instance, St Andrew’s Day on 30 November is a trading day for the markets, despite it being a bank holiday in Scotland.

If you want to know the key money dates for 2026, we cover those in a separate guide.

UK stock market holidays 2026

We’ve rounded up all the upcoming UK stock market holidays in 2026 and how they will impact trading on those days.

Source: London Stock Exchange

When is the US stock market closed in 2026?

If you invest in the US, you may want to know the New York Stock Exchange (NYSE) and Nasdaq’s open times and upcoming holidays this year.

Both stock exchanges’ standard opening hours are Monday to Friday 9:30am to 4pm Eastern Standard Time (EST) time, which is 2:30pm to 9pm BST in the UK.

The US stock markets will also be closed on Monday, 25 May, as it’s Memorial Day, which is a federal holiday.

Interest rates have been held at 5.25% for the seventh time in a row by the Bank of England.

It means interest rates remain at a 16-year high. 

Despite inflation hitting the Bank’s 2% target yesterday for the first time in almost three years, most economists had predicted that rates would stay frozen today.

The cost of borrowing has been stuck at 5.25% since August 2023.

The news will come as a blow for homeowners and first-time buyers facing high mortgage costs, while savers may be happy that interest rates haven’t been cut just yet.

Monetary Policy Committee (MPC) members voted to hold the rate by 7-2, the same as the MPC split in May. Two members preferred to reduce Bank rate by 0.25 percentage points, to 5%.

The Bank of England’s governor Andrew Bailey, said it was “good news that inflation has returned to our 2% target", adding: “We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

Kevin Shaw, national sales managing director at property services group LRG, comments: “The Bank of England’s decision to hold interest rates at 5.25% is no surprise given the proximity to the general election.

“Had the Bank lowered rates for the first time in 11 months just two weeks before the polls, the decision may have been interpreted as politicking.”

What is the outlook for UK interest rates?

Analysts have spent much of the year wondering when interest rates will finally go down.

There were hopes that a rate cut would materialise early this year as inflation started to slow, reaching a three-year low of 3.2% in March.

But it hasn’t dropped as fast as the markets hoped. While inflation finally hit the Bank of England’s 2% target yesterday, analysts believe the Bank will wait to see if inflation stays at 2% before reducing rates.

The next MPC meeting is on 1 August, with the following one on 19 September.

The minutes of today's MPC meeting suggest that the Bank could be open to cutting rates in August. It said: "As part of the August forecast round, members of the committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding. On that basis, the committee will keep under review for how long Bank rate should be maintained at its current level."

Shaw is optimistic that rates will drop on 1 August. “It was in August last year that interest rates reached their recent high (the highest since February 2008) and the property industry, including the millions of consumers impacted, would welcome a long-awaited reduction.

“The housing market has seen cumulative growth throughout 2024 but affordability remains an issue for some, specifically first-time buyers. 

“So while I wouldn’t dare to predict the news headlines on 5 July [following the general election], I am reasonably confident in predicting a drop in interest rates on 1 August.”

Kevin Brown, savings specialist at Scottish Friendly, agrees, saying: “The likelihood now is, as we have a summer break of sorts, that the MPC will reconvene in August to observe the lay of the land, where we’re likely to see a first cut, assuming inflation doesn’t tick up again."

The next set of inflation data will be released on 17 July. This will cover the 12 months to June.

What the interest rate freeze means for mortgage borrowers

Mortgage rates have risen over the past four months as hopes of an interest rate cut get pushed further back.

The average two-year fixed-rate mortgage has increased from 5.8% in April to 5.96% today, and from 5.39% to 5.53% on a five-year deal, according to Moneyfactscompare.co.uk.

With the Bank of England holding the cost of borrowing, there is little motivation for mortgage lenders to cut rates.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said the rising cost of mortgages was causing “deep concern” for borrowers about to come off a fixed-rate deal and needing to refinance, and for first-time buyers.

“Homeowners unsure on whether to lock into a new fixed-rate mortgage may still find it more affordable than falling onto a standard variable rate (SVR), which stands above 8%. 

“This rate has almost doubled since the Bank of England started increasing base rate back in December 2021. A typical mortgage being charged the current average SVR of 8.18% would be paying £287 more per month, compared to a typical two-year fixed rate (5.93%).”

What the interest rate freeze means for savers 

Savers may feel relieved that the Bank has left interest rates at 5.25% again. And despite a rise in mortgage rates - due to expectations of a rate cut - savings rates have not dropped by much this year.

Data from Moneyfactscompare.co.uk reveals that the average easy-access savings rate has only fallen from 3.18% to 3.12% since December 2023, while the average easy-access cash ISA rate stands at 3.31%, as it did six months ago.

Springall notes: “The top rate tables continue to be dominated by challenger banks and building societies, but with the average rate on easy-access accounts around 3%, there will be many savers out there getting a poor return. It is very unpredictable to know where interest rates are going, but the consecutive base rate hikes from the Bank of England between December 2021 and August 2023 worked in favour of savers. 

“The cash ISA market has also seen a flurry of activity over the past six months, but variable rates are slightly down month-on-month. However, this should not deter savers from reaping the benefits of investing cash in an ISA wrapper, to protect any interest earned from tax.”

Tobias Gruber, CEO of My Community Finance, adds: “The Bank of England’s decision to hold the base rate will give savers more time to review their options and move their savings to a provider offering generous returns before interest rates are cut. 

“When one savings provider changes their rates, others quickly follow suit, so it’s important for savers to take action sooner rather than later before the best deals disappear.”

UK inflation slowed to 2% in the 12 months to May, down from 2.3% in April. This is the lowest level in almost three years, according to data from the Office for National Statistics (ONS). Prices are still rising but at a significantly slower rate than they once were. Inflation peaked at 11.1% in October 2022. 

Economists will not be surprised by the reading. They had expected the headline inflation rate to fall back to 2%, according to a recent poll from Reuters. However, it’s unlikely to be enough to prompt the Bank of England to cut rates at its Monetary Policy Committee (MPC) meeting tomorrow. Most experts believe August is the most likely month for a first cut. 

We share our analysis on this morning's data. What’s next for the economy and when will the Bank of England cut interest rates? Plus, what does the latest inflation reading mean for consumers, savers and mortgage holders? 

Why has UK inflation slowed?

The largest downward contribution to the CPI rate came from food, the ONS reports. Food prices fell this year but rose a year ago, it adds. Meanwhile, the largest upward contribution came from motor fuels, where prices rose slightly this year after falling a year ago.

Inflation has been gradually slowing from its peak as the pandemic recedes further into the background, supply chains normalise, energy prices fall and higher interest rates take effect.

While the headline rate of inflation is back to 2%, core and services inflation remain elevated. Core inflation came in at 3.5% in the 12 months to May, down from 3.9% in April. Meanwhile, services inflation came in at 5.7%, down from 5.9%. 

Core CPI excludes volatile measures such as energy, food, alcohol and tobacco. It is a better measure of how embedded inflation is in the economy. Meanwhile, the Bank of England keeps a close eye on services inflation, as the UK is a service-oriented economy. 

“Hitting the 2% inflation milestone will be a major moment for the BoE after a long, drawn-out battle to bring rampant inflation down from the double-digit levels seen just over a year ago,” says Alice Haine, personal finance analyst at Bestinvest. 

However, “while the news will be comforting for households, it is unlikely to result in an immediate rate cut tomorrow,” she adds, pointing to the core and services inflation figures.

When will interest rates fall?

The Bank of England will announce its next interest rate decision tomorrow, 20 June. Most economists do not expect the MPC to cut rates at this meeting. 

While governor Andrew Bailey has previously indicated that things are “moving in the right direction”, April’s inflation reading (2.3%) surprised to the upside last month. As well as core and services inflation proving sticky, wage growth is still coming in fairly strong at 6% too. The Bank of England keeps a close eye on wages as they are a key driver of inflation. 

What’s more, with a general election fast approaching on 4 July, the Bank of England could be worried that a June rate cut would end up being politicised. Rishi Sunak has already claimed that a vote for the Conservatives is a vote for interest rate cuts. 

“We are the party who has committed to bringing down inflation, which is the necessary condition for bringing down interest rates,” he told The Times. 

As global inflationary pressures continue to cool, several central banks have started cutting interest rates in recent weeks. The European Central Bank (ECB) made its first interest rate cut in almost five years earlier this month, joining the likes of Sweden, Switzerland and Canada, who have also started to loosen their monetary policy.

Meanwhile, when it comes to the Bank of England, a little more patience is likely to be required. In a recent poll from Reuters, 63 out of 65 economists voted for August as the most likely month for a first cut to the base rate. The two economists who disagreed with the consensus pointed to September, with none of the respondents voting for June. 

This is a marked change from a few weeks ago. Before April’s inflation data was released, economists had been split between June and August. 

Is the cost-of-living crisis over?

“The return of inflation to the Bank of England’s 2% target is not the end of the cost-of-living crisis but it may mean we are through the worst,” says Tom Stevenson, investment director at Fidelity International. 

Nevertheless, in the leadup to the general election, the latest inflation reading is likely to be “highlighted by the government as evidence that the economy has stabilised, despite growth stagnating in April,” he adds.

The good news for workers is that real wages have been rising as inflation slows. This should mean they are seeing their money stretch further. They will also have benefitted from “two cuts to the headline rate of National Insurance this year”, Haine points out.

Despite this, interest rates remain high and many mortgage holders are in for higher costs once their fixed-rate period comes to an end, if it hasn’t ended already. Recent analysis revealed that hundreds of thousands of fixed-rate mortgages are set to expire before the general election. 

On top of this, the unemployment rate continues to pick up, climbing to 4.4% in the three months to April. This is the highest rate since September 2021. This could suggest higher interest rates are starting to have a negative impact on businesses. Any threat of layoffs would be worrying news for workers.

Haine points out that the general election could throw further uncertainty into the ring. “A new government has the potential to bring in a raft of changes with their own implications for people’s personal finances,” she says. 

Her advice to those with “lingering financial concerns” is that they “stick on the cautious path for now, reining in expenditure where possible, keeping emergency funds topped up and paying down expensive debts”. She also suggests “considering how to save and invest in a tax-efficient way”. 

See our ISA guide for information on how you can shield your cash savings and investments from the taxman. 

Is it time to fix your savings?

A lower rate of inflation is usually good news for savers. It means the purchasing power of their hard-earned cash is no longer being eroded at such a fast rate. If inflation had stuck around at its peak of 11.1%, it would only have taken around six years for the value of your savings to halve.

The bad news is that, once interest rates are cut, savings rates are likely to fall too. Some of the best deals are already being pulled from the market – which means you will need to act fast if you want to take advantage while they last.

For now, a huge number of providers are offering inflation-busting rates. What’s more, the best easy-access savings accounts are paying interest at a rate of 5% or more. If you want to lock these attractive rates in for longer and don’t need to access the money in the short term, you could consider fixing your savings. 

“The implications of any possible reductions to the base rate may mean some people will be keen to grab a deal quickly and review their existing accounts,” says James Hyde, spokesperson at Moneyfacts.

He adds: “For those willing to lock their cash away for a set period, there are still some one and two-year fixed bonds paying over 5% interest. Some easy-access accounts also pay above this threshold at present, though these rates are subject to change with very short notice.”

What does the latest inflation news mean for mortgage holders?

Mortgage holders are eagerly anticipating an interest rate cut from the Bank of England. Any news that brings them closer to this event will be gladly received. 

Mortgage rates skyrocketed in the aftermath of Liz Truss’s disastrous mini-Budget, and remain elevated and volatile to this day. While they have now come down from their peak last summer when they weren’t far off 7%, rates remain significantly higher than those seen towards the end of the 2010s. 

Those who were at the beginning of a five-year fix when rates started going up won’t yet have rolled onto higher monthly costs. However, trade association UK Finance reports that around 1.6 million fixed-rate mortgages are due to expire at some point in 2024. If your mortgage is coming up for renewal soon, you could well be feeling nervous. 

As inflation continues to slow, interest rate cuts should be just around the corner. However, the base rate is unlikely to be cut dramatically at first. This means mortgage costs could remain elevated for some time. 

We share our tips on how to cope with higher mortgage costs. 

Interest rates have been held at their 16-year high of 5.25% by the Bank of England (BoE).

It is the sixth consecutive monetary policy committee (MPC) meeting where interest rates have remained frozen in a blow for mortgage borrowers hoping for some relief from recent price rises on home loans.

The cost of borrowing has now been stuck at 5.25% since August 2023 after the BoE spent much of the first half of the year raising rates to combat double digit inflation.

MPC members voted to hold the rate by 7-2 votes, which is a shift from the 8-1 split in the previous month, indicating that there is a gradual shift towards an eventual cut.

Minutes from the MPC meeting highlighted that while inflation has continued to fall back, it remains "elevated."

This means monetary policy will need to "remain restrictive for sufficiently long to return inflation to the 2% target sustainably," the minutes said.

"The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates," the MPC said.

Laura Suter, director of personal finance at AJ Bell, says the real impact of a delay in rate cuts will be felt by homeowners, who will have to endure higher rates for longer. 

"It means more people will come off their cheap mortgage deals and onto higher interest rates before base rate is cut," she says.

"It also means that those people who gambled on a tracker deal at the start of the year, in the hope of imminent rate cuts, will have to pay their mortgage on higher rates for longer."

What is the outlook for UK interest rates?

Analysts and borrowers have spent much of the year wondering when will interest rates go down in 2024.

There were hopes that a rate cut would materialise early this year as inflation has started to slow, hitting a three-year low of 3.2% in March.

But it hasn’t dropped as fast as the markets hoped and remains above the BoE’s 2% target, pushing back expectations of a cut.

It comes as across the pond in the US, the Federal Reserve has indicated that there may not be any rate cuts this year, which could have an impact on the Bank of England’s policy.

The voting pattern may provide some hope though as while seven members backed holding rates, two voted for a 0.25 percentage points reduction to 5%.

Just one member had backed a reduction in the previous March meeting.

The freeze won’t be much comfort for borrowers hoping for some respite from consistently high borrowing costs, warns Alice Haine, personal finance analyst at Bestinvest.

“What was comforting, however, was the shift in sentiment from the rate-setting MPC with signals that softening UK inflation is paving the way for rate cuts in the coming months," she says.

“The BoE may be sticking by  its ‘higher for longer’ stance for now but with inflation falling to 3.2% in the 12 months to March and expected to retreat further in April, a reflection of the latest reduction in the Ofgem Energy Price Cap, eyes will be firmly pinned on the summer to see how soon the central bank makes its first move to cut the base rate. 

"Whether there will only be one interest rate cut or more before the year is out remains to be seen."

Nicholas Hyett, investment manager at Wealth Club, says the Bank of England is facing an "increasing delicate balancing act" of tackling inflation but also risking that  the economic cure "might end up being worse than the disease."

The picture is murky, he suggests.

"The market expects Friday’s GDP data to show the UK returned to growth in the first quarter, ending last year’s short-lived recession," says Hyett.

"But a 12% cut in the energy price cap will probably drag inflation back below the bank’s 2% target this month – at least temporarily. The former suggests interest rates are just fine where they are, the second that rates could do with a trim.

"The result is a natural inclination to sit on the fence a little longer, especially since cutting too early risks sinking sterling and kick starting another bout of inflation."

But Hyett warns that leaving it too late to cut rates risks "accidently cratering" the economy in its eagerness to get inflation under control. 

What the rate freeze means for mortgage borrowers

The mortgage price war that benefited borrowers earlier this year appears to have dissipated as wholesale funding costs - sxwap rates - rise and are being passed on to borrowers.

Moneyfacts data shows that while since the start of November 2023, the average two-year fixed rate mortgage has fallen from 6.29% to 5.91% and the average five-year fixed rate has fallen from 5.86% to 5.48%, pricing has increased over the past month and it is much harder to find a deal below 4%.

The average two-year fixed rate mortgage has increased from 5.8% to 5.9% between April and May, and from 5.39% to 5.48% on a five-year deal, according to Moneyfacts.

With the Bank of England holding the cost of borrowing, there is little motivation for lenders to cut their mortgage rates.

"Until a reduction in the bank rate occurs, there will be a period of uncertainty that prompts markets to speculate and continually adjust their forecasts," says
Nicholas Mendes, mortgage technical manager for broker John Charcol.

"This situation is expected to lead to an ongoing phase of repricing by lenders. Lenders are continually adjusting their profitability margins in response to changes in funding lines and shifts in market competition. 

"This adjustment process is a direct reaction to the uncertain financial environment, as lenders strive to maintain their competitive edge while managing their financial risks."

Mendes adds that swap rates have reduced slightly in recent days as markets price in a rate reduction, which should pave the way for lenders to reprice marginal decreases over the next fortnight.

Simon Gammon, managing partner at Knight Frank Finance, suggests the MPC minutes show the BoE could be close to rate cuts.

"This report should reinforce the current view that the first cut will arrive this summer and there will be at least another before the year is out," he says.

"Unless we see some big surprises in the inflation data in the next few months, that should mean mortgage rates are close to peaking and should glide down slowly through the rest of the year."

What the rate freeze means for savers

Savers were the big winners from interest rate rises last year, with returns on products hitting 15-year highs.

Falling inflation means many savings products are beating the cost of living measure and many providers are paying above 5%.

But with the BoE seen as more likely to cut rather than raise rates in the future, savings providers are unlikely to improve their returns.

In many cases, top products are being pulled due to high levels of demand and expectations that rates will eventually fall, so you need to act fast to grab the best savings deals.

Haine adds that locking in a top deal now while interest rates are still high "is wise for anyone with money idling in an account offering a low return."

But watch out for the small print so you are aware of restrictions on how much you can save and withdraw.

Interest rates have been frozen by the Bank of England (BoE) for the fifth consecutive monetary policy committee meeting (MPC).

The central bank opted to hold interest rates during its March meeting, meaning the cost of borrowing has been at the same level since August 2023.

Committee members voted to hold the rate by 8-1 votes, which is a shift from the 6-3 split in the previous month.

It comes after the BoE had hiked rates for much of the first half of 2023 in an effort to bring down inflation.

The rate of inflation has slowed in recent months and hit a two-year low of 3.4% during February.

This has raised hopes of an interest rate cut.

“The financial markets have been betting on rate cuts this year, but when this will happen exactly has been a topic of much conjecture," says Alice Haine, personal finance analyst for Bestinvest.

"For now, however, the BoE is sticking to its guns and holding rates at a 16-year high as it waits for more concrete evidence that inflationary pressures have been well and truly stamped out. 

 “Hints of the shifting sentiment were evident in the rate-setting Monetary Policy Committee’s split decision, with eight in favour of holding the status quo and one calling for a rate cut.

"This is a slight change in stance from the MPC’s last 6-3 voting pattern when six voted to leave rates unchanged, two voted for a quarter-point increase and one opted for a rate cut."

What is the outlook for interest rates?

The BoE has a delicate balance between getting inflation to its 2% inflation rate target and not causing too much damage to the economy by pushing up the cost of borrowing.

The interest rate rises of last year appear to have brought inflation down and analysts believe the most likely future direction is a cut.

The question is timing.

The BoE doesn’t want to move too early and risk pushing inflation further up.

The bank has previously said it is monitoring what is going on with wage growth, which remains above inflation, before it decides on a cut.

Some costs such as food and housing also still remain high, while the BoE may want to be reassured that the UK is out of a recession after entering one at the end of 2023.

The majority of MPC committee members voted to hold rates on this occasion, with just one backing a cut to 5%.

This is a shift from the February meeting when six voted for a hold, two wanted an increase and one backed a cut.

Ben Laidler, analyst at investment platform eToro, said the voting pattern suggests a dovish shift after two members removed their calls for rate hikes and all now looking for unchanged or lower interest rates. 

"This will have been encouraged by recent better-than-expected headline inflation readings, even as underlying core price rises remain the highest among developed market peers," he says. 

The MPC suggested that while recent Spring Budget measures will boost GDP, uncertainties remain around the jobs market and pay growth.

It suggested that current high interest rates are bringing inflation down but said it "remains prepared" to adjust monetary policy as needed according to economic data to return inflation to the 2% target sustainably. 

Richard Carter, head of fixed interest research at Quilter Cheviot, warns that wage growth continues to be a "significant driver" of inflation, particularly in the service sector.

"Though this is now slowing a little it will no doubt make this (2%) target harder to achieve," he says.

"There are also signs that the UK has already pulled itself out of the recession it entered at the end of last year with a return to a modest level of growth. As such, the Bank has reiterated that it will maintain its data dependent resolve until it is satisfied that inflation has come down far enough and will not see a further spike."

What the rate freeze means for mortgage borrowers

The interest rate freeze is good news for mortgage borrowers on trackers as it means their monthly repayments won’t rise. Some may have hoped for a cut though to reduce their outgoings.

Fixed rate mortgage pricing had started to come down earlier this year, reaching below 4% for larger loans.

But lenders have been increasing mortgage rates in recent weeks as the cost of wholesale funding has risen amid uncertainty about the UK’s economic performance as well as questions about when rates will be cut and how quickly inflation will fall.

Since the start of September 2023, the average two-year fixed rate has fallen from 6.70% to 5.76% and the average five-year fixed rate has fallen from 6.19% to 5.34%, according to Moneyfacts.

These average rates have, however, risen from 5.56% and 5.18% respectively since last month.

Borrowers may hope that the latest freeze reassures lenders and generates more competitive pricing.

"No change does not mean stagnation in mortgage rates as other influences remain at play, so borrowers must not be complacent if they are searching for a new deal," says Rachel Springall, finance expert at Moneyfacts.

"Indeed, lenders have been quick to reassess their rate pricing over the past month and even pulled deals from the market."

What the rate freeze means for savers

Savers have benefited from interest rate returns hitting 15-year highs in recent months in response to the higher base rate.

Many of the top savings deals have started disappearing though as interest rates are expected to have peaked.

The fall in inflation this week means many savers in the best savings deals will be earning more than the cost of living measure.

But the downward trend and freeze in interest rates may prompt providers to make their own cuts, making it all the more important to grab the best deals while you can.

Mark Hicks, head of active savings at Hargreaves Lansdown, says markets have been busy pricing in for rates to stay higher for longer, so today's decision is unlikely to shake those expectations.

"There’s plenty of good news for savers, who are running into the cash ISA season with some competitive rates still above 5%," he says.

"These have already stuck around for much longer than was initially expected, so there are plenty of reasons to get this year’s cash ISA sorted sooner rather than later. It’s a sensible time to fix either savings or cash ISAs too, because if the Bank of England does cut as expected in the summer, you’ll have locked in a decent rate.”

The UK’s rate of inflation dipped to 2.8% in the 12 months to April, but experts have warned that inflation is set to soar in the rest of 2026 as the economy deals with the fallout from the Iran war.

The Consumer Prices Index (CPI) figures published by the Office for National Statistics (ONS) showed the drop in inflation was largely driven by a cut to energy bills, but was partially offset by rising prices for motor fuel.

Experts also noted that the latest data looks lower than it should be as prices in April 2025 were abnormally high thanks to a set of bill increases that landed that month.

Higher prices a year ago makes price growth between April 2025 and April 2026 look smaller in comparison.

Most economists forecast that inflation will climb from this recent low back to a level closer to 4% by the end of this year due to the economic consequences of the war in Iran.

But when are the next CPI figures published? We reveal the key dates for 2026 you should know below.

Next UK inflation figures

In the UK, the main measure of inflation is CPI. The Office for National Statistics (ONS) releases this once a month. Each reading covers the previous month.

CPI release dates for 2026

• 17 June (covering May)
• 22 July (covering June)
• 19 August (covering July)
• 16 September (covering August)
• 21 October (covering September)
• 18 November (covering October)
• 16 December (covering November)
• 20 January 2027 (covering December)

What time is CPI released in the UK? 

The ONS publishes the latest inflation data at 7am on the above release days.

All key macroeconomic data from the ONS is published at 7am – this includes GDP, labour market and wage data.

What is CPI and how is it calculated?

CPI, the main measure of inflation used in the UK, tells you how fast the cost of living is increasing (or decreasing).

It is calculated using a basket of typical household goods and services which changes once per year to reflect current trends and consumption.

Houmous and non-alcoholic beer were added to the basket in 2026.

The Bank of England keeps a close eye on CPI when setting interest rates. If inflation is too high, the Bank may raise interest rates to slow consumer spending and cool the economy.

This works to bring prices down because households have less money to spend when mortgage rates are high and debts are more expensive to repay.

Meanwhile, if inflation is too low, the Bank may reduce interest rates so consumers have more disposable income to spend. Due to the laws of supply and demand, this should push prices back up and stimulate growth in the economy.

The Bank of England meets eight times a year to set the base rate, which is the core interest rate for the UK.

The base rate (also called the bank rate) is the rate of interest that the Bank of England charges commercial banks, building societies, and other financial institutions that hold money with, or borrow from, the central bank.

Changes to the base rate therefore have a knock-on effect on mortgages, savings and loans to consumers.

If the base rate is lowered, you may find your mortgage rate is cut or your savings account pays less in interest. The reverse is true if the bank hikes rates.

The base rate is usually adjusted as a way to control inflation in the economy. The central bank typically increases rates when inflation is too high, and eases them when price growth returns closer to the bank’s 2% target.

The Bank of England had been gradually cutting interest rates since the summer of 2024, bringing them down from a peak of 5.25% to 3.75% in December 2025. They’ve since been held at that level.

However, war in Iran has spooked markets around the globe and economists have warned that it could lead to significantly increased inflation in the UK.

It was for this reason that interest rates were held at 3.75% at the most recent meeting of the bank’s Monetary Policy Committee (MPC), despite most analysts predicting a March rate cut before the war.

The nine members of the MPC voted by a majority of 8-1 to hold interest rates, with the one outlier, Huw Pill, voting to raise rates by 0.25 percentage points to 4%.

Many analysts now believe the MPC will not cut interest rates at all in 2026 in order to protect the country from the threat of soaring inflation, though some experts argue that rate rises are on the cards.

The next MPC meeting decision is due to be confirmed on 18 June.

Bank of England interest rate announcement dates

The MPC meets roughly every six weeks to set the base rate. The meetings usually happen the day before the interest rate announcement.

Here is the full list of dates when the MPC interest rate decision will be announced by the Bank of England in 2026:

• 18 June
• 30 July
• 17 September
• 5 November
• 17 December

What is the Bank of England’s Monetary Policy Committee?

The Bank of England’s Monetary Policy Committee is the body that is responsible for setting the bank rate.

The committee is made up of nine members and is currently chaired by BoE governor Andrew Bailey.

Five of the members are internal staff, while the remaining four are external experts appointed to make sure the MPC benefits from expertise outside the Bank of England.

During each meeting, the committee votes on whether to cut, hold or raise interest rates.

A representative from HM Treasury also sits with the MPC at its meetings, and can discuss policy issues, but is not allowed to vote. They are simply there to make sure the ratesetters are briefed on fiscal policy developments in government, and that the chancellor is kept fully informed about goings on at the bank.

The Bank of England has held interest rates at 5.25% for the fourth time in a row.

The central bank’s monetary policy committee (MPC) held its first rate setting meeting of 2024 and announced that the cost of borrowing would remain frozen.

MPC members voted by 6 to 3 hold interest rates at the same level since August, a 15-year high.

The move was expected by analysts but attention will turn to when interest rates will be cut.

The MPC minutes said headline consumer price index inflation has fallen back "relatively sharply", suggesting monetary policy is weighing on activity in the real economy and is leading to a looser labour market. 

It follows a similar decision by the Federal Reserve in the US yesterday to leave interest rates at a 12 year high.

"Financial markets have been betting on a string of rate cuts this year, with some analysts expecting changes as early as May but, for now, the Bank of England is sticking with its cautious stance, stressing it remains determined to keep inflationary pressures at bay," says Alice Haine, personal finance analyst for Bestinvest.

What is the outlook for interest rates?

Inflation slowed towards the end of last year, hitting a two-year low of 3.9% in November, while the economy shrank 0.3% in October, suggesting that the Bank of England’s round of rate hikes was working and interest rates could be cut quicker than expected.

However, inflation rose to 4% in December, while wage growth remains higher at 6.6%, so the Bank of England still has work to do and rates could be higher for longer.

Risks to inflation remain and could mean rates stay higher for longer, the Bank of England said.

"Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated," the MPC minutes say.

"As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.

"The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates."

Two MPC members even preferred to increase interest rates by 0.25 percentage points, to 5.5%, while one voted for a cut to 5%.

This is a slight shift since December’s 6-3 voting pattern when six voted to leave rates unchanged and three voted for a quarter-point increase. 

“With UK inflation still double its 2% target, economic growth has been better-than-feared, and the government set for more tax cuts at its March budget,” says Ben Laidler, global markets strategist at eToro.

“But enough inflation-fighting progress has been made for the Bank to begin opening the door to lower interest rates starting this summer, with four cuts likely in the second half. This would lag behind the US Fed and Europe’s European Central Bank but be welcome, and borrowers have already started to benefit from the fall in bond yields.”

Nicholas Hyett, investment manager at Wealth Club, says there is a logic to holding rates.

"The economy isn’t glowing," he says.

"But it’s not screaming in distress either. Growth is ping-ponging around zero, and wage growth is slowing but still moving upwards and rising energy prices could yet move inflation higher again later in the year. 

"However, monetary policy is a supertanker not a speedboat – leave a change of direction too late and the economy will hit the rocks before central bankers can get it to slow.”

Myron Jobson, senior personal finance analyst at interactive investor says cuts are seemingly still inbound and it’s a question of when, and not if.

"The fact remains that we are in a high-interest rate environment, and we’re likely to stay in a high-interest rate environment for some time to come," he says.

"There are no indications that we will see the return of ultra-low-interest rates that ensued after the financial crash. Any cuts to the base rate are likely to be modest compared to the substantial rise in rates since early 2022.

"High-interest rates continue to have ripple effects on personal finances. As such, it remains important to keep on top of your finances and make the necessary adjustments to maintain financial resilience."

What the rate freeze means for mortgage borrowers

Borrowers on tracker mortgages will breathe a sigh of relief as the freeze means their monthly repayments will remain the same.

Lenders have been cutting mortgage rates in recent months in anticipation that the cost of borrowing hikes are over and that wholesale funding could eventually drop.

This has benefited mortgage borrowers, with average rates at 5.56% for a two-year fix and 5.18% for five years, according to Moneyfacts, while some best buy deals are below 4%.

Commentators suggests mortgage pricing could even drop further but the top rates can be pulled quickly due to high demand.

“Mortgage rates are heading in a downward trajectory, which will delight borrowers looking to get a new deal this year,” says Rachell Springall, personal finance expert at Moneyfacts.

She warns that pricing has been volatile recently, with swap rates rising slightly, making it more pressing for borrowers to secure a deal as soon as possible.

“Lenders can pull deals if they have an influx of applications, and a volatile swap rate market can put pressure on pricing where margins are already tight. It would be inevitable to see a mix of both fixed rate rises and cuts when lenders endeavour to manage consumer demand, any targets and future rate expectations,” she adds.

But Quilter mortgage expert Karen Noye has questioned how much further mortgage rates can fall without the certainty of a further cut.

"Speculation about rate cuts later in the year fuels optimism for a more buoyant housing market, potentially leading to increased affordability for homebuyers," she says.

"However, the path forward is fraught with uncertainty. Fixed-rate mortgages, which have so far benefited from a more competitive environment, may face upward pressure if the anticipated easing of monetary policy does not materialise as expected."

Mark Harris, chief executive of mortgage broker SPF Private Clients, said those coming up to remortgage in the next few months will still face a payment shock due to the higher interest rate environment, but it won’t be as bad as it could have been. 

"Borrowers should plan ahead if they need a new mortgage this year and speak to a whole-of-market broker about the best deals available," he says.

"Rates can be booked up to six months before required so if you reserve one now for peace of mind you can always switch onto a cheaper rate when you come to remortgage should a lower rate become available."

What the rate freeze means for savers

Savings rates were pushed to 15-year highs last year as the base rate rose, with some deals hitting between 5% and 6%.

But the recent pause in rate hikes has also dampened enthusiasm among providers and many of the top savings deals have been pulled in recent weeks.

Springall adds that the interest rate freeze makes it important to grab the top savings deals while you can.

“Any cuts to base rate, or indeed expectations for interest rates to drop, can have a notable impact on variable savings rates, so it will be interesting to see how resilient the market will be in the months to come,” adds Springall.

 “Savers must not be apathetic and assume they are benefitting from rate rises on their existing account. It is imperative consumers are proactive to review and switch their savings account if their loyalty is not being rewarded.”

 With talk of interest rate cuts getting louder, adds Haine, savings rates are likely to ease further from here. 

"Savers with money sitting idle in accounts offering dismal returns should lock in a top fixed-rate deal while they still can," she says.

In brief:

Cash ISAs from less well-known banks and building societies are offering interest rates higher than the current rate of inflation. When MoneyWeek researched rates in July 2026, it found the best easy-access account allowing penalty-free withdrawals offered 4.62% interest. Savers who don’t need to access their cash can earn 4.7% by placing it in a one-year fixed ISA and 4.66% in a two-year or three-year fixed ISA.

The best cash ISAs are currently offering inflation-busting rates of up to 4.7%. For savers who are happy to lock their money away for a set period, fixed-rate cash ISAs can be a good place to start.

Every adult in the UK gets a £20,000 tax-free Individual Savings Account (ISA) allowance each tax year. We've rounded up the best cash ISA rates currently on the market.

The best cash ISAs in June 2026

The best easy access cash ISAs

Easy access cash ISAs do what they say on the tin, letting you access your savings without penalty. You can currently earn up to 4.62% with this type of ISA.

The best one-year fixed rate cash ISAs

If you’re happy to lock your cash away without any withdrawals for a year, then you're guaranteed returns of up to 4.7% until your fixed term ends.

The best two-year fixed rate cash ISAs

If you have savings you’re happy to lock away for at least two years, you’ll find rates on cash ISAs of up to 4.66%.

The best three-year fixed rate cash ISAs

If you wish to lock away your cash for at least three years, the best fixed rate cash ISAs are offering up to 4.66%.

What you need to know about the best cash ISAs

When choosing a cash ISA, there are two main factors to look out for: how long you are comfortable locking your cash up for and the interest rate.

• Easy access ISA accounts allow you to withdraw funds without incurring a penalty.
• Fixed-rate cash ISAs offer a fixed rate of return – usually higher the longer you are prepared to lock your money away. Note: if you withdraw money before the end of the term, then you are likely to be penalised, usually with a reduction in the rate of interest.

Generally speaking, the longer you leave the money untouched, the more interest you can earn. Many ISAs are classed as ‘flexible’, meaning you can replace any funds you withdraw in the same tax year without affecting your annual ISA allowance – which is currently £20,000.

However, make sure you're making your money work hard for you, and earning inflation-beating savings rates on your cash.

James McCaffrey of TotallyMoney says: “If you’re sitting on savings, check the rate your provider is paying, and if it’s below 4%, then consider moving your money. It’s as simple as filling out a form, and you can transfer all or part of your savings, with cash ISA transfers taking no longer than 15 days."

We have an ISA guide to help you learn everything you need to know about how they work, how much you can pay in, what investments you can hold, and how to transfer one.

Interest rates have been held by the Bank of England (BoE) for the third time in a row.

The Bank of England's Monetary Policy Committee announced today that interest rates will remain at their 15-year high of 5.25%.

The move was expected by the markets, with analysts now anticipating when interest rates will be cut next year.

MPC members voted by 6-3 to hold rates, with three people voting to raise the cost of borrowing to 5.5%.

Its report highlighted that slowing inflation and wage growth suggest the BoE's current stance is "restrictive," removing some of the pressure to raise rates further.

Inflation has dropped to its lowest level for two years, at 4.6% in the 12 months to October, while GDP also unexpectedly shrank by 0.3% and wage growth fell to 7.3% - the steepest drop for two years.

Bank of England governor Andrew Bailey was non-committal on the prospect of rate cuts.

"We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10% in January to 4.6% in October, but there is still some way to go," he says.

“We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to 2%.”

What is the outlook for interest rates?

Attention has now turned to when rates will be cut rather than if they will be raised again.

The Federal Reserve also kept rates unchanged in the US this week and suggested a discussion on cuts is “coming into view.”

The BoE is expected to follow suit eventually, although there were no votes for a cut at its latest meeting.

"The prevailing sentiment among market analysts is it is not a case of 'if' the Bank of England will cut interest rates, but 'when,'" says Myron Jobson, senior personal finance analyst at interactive investor.

"Serious cracks in the UK economy are starting to show, with gross domestic product falling more than expected. 

"This, along with the easing of inflation, could suggest that interest rates don’t need to go higher to slam the brakes on the economy even more – but this is not a forgone conclusion."

Nicholas Hyett, investment manager at Wealth Club, says there is logic to holding rates steady at the moment.

"Central banks have a history of folding under the economic pressure and declaring victory on inflation too early," he says.

"But leave rate cuts too long and there’s a risk the interest rate cure becomes worse than the inflationary disease.”

Hetal Mehta, head of economic research at St. James’s Place, said the decision to maintain a hawkish message sets the BoE apart from the Fed.

"Underlying inflation is still uncomfortably high and the recent pricing of multiple rate cuts from early next year was clearly an easing of financial conditions that the BoE felt the need to push back against," he says.

"The fall in wage inflation so far is not enough to be consistent with the 2% inflation target.”

What the rate freeze means for homeowners

The latest interest rate decision is good news for borrowers on tracker mortgages as it means their monthly repayments won’t rise and they may be more optimistic of them eventually falling if rates are cut next year.

There are also signs that the hold on the cost of borrowing is feeding into lower mortgage rates, with the average two-year fix falling below 6% for the first time since June.

Karen Noye, mortgage expert at wealth manager Quilter, suggests the further pause may boost housing market confidence.

"More potential buyers should start to feel confident about entering the market, potentially sustaining or even boosting housing prices," she says.

"Recent house price indices have shown that as a result of limited housing stock prices have modestly increased.

"However, the broader economic context remains challenging. The ongoing cost-of-living squeeze, with rising energy costs and still relatively high mortgage rates continue to strain household budgets. This suggests that while the interest rate hold may bring some stability, many households will still face significant financial pressures as we enter into the new year."

Sarah Coles, senior personal finance analyst for Hargreaves Lansdown, said borrowers coming to the end of a fixed rate deal may now be tempted to take on a variable product in the hope that rates drop in the coming months.

"However, there are no guarantees. If you’re worried about uncertainty, you might opt for a fixed rate deal," she says.

"Of course, for anyone who fixed two years ago or more, even after the falls of recent weeks, a remortgage is going to be incredibly painful, because they’re likely to have fixed for less than 2%. 

"We’ve seen nosebleed-inducing ups and downs in the mortgage market over the past two years – with two-year fixed rate deals hitting a recent peak of 6.85% at the start of August, before dropping back below 6%. However, this is a completely different mortgage landscape to two years ago, and there’s no expectation that we’ll return to the good old days in a particular hurry.”

What the rate freeze means for savers.

Savers have slowly been benefiting from interest rate rises, with savings rates at their highest for 15 years.

Some easy-access savings accounts are paying above 5%, while you can get around 5.55% on a one-year fix and 8% on the best regular saver account.

These rates currently beat inflation.

However, as inflation falls and rates continue to be held, some of the best deals on the market are disappearing.

So, if you spot a savings account you like, you may need to act fast.

"While fixed-rate deals of 6% plus became a feature in the summer months, these offers have already disappeared and with rate cuts expected next year, savings rates are likely to ease further from here," says Alice Haine, personal finance analyst for Bestinvest.

"Savers with money sitting idle in accounts offering dismal returns should nab a top fixed-rate deal while they still can."

While the best savings deals have reached a 15-year high and we are now seeing inflation-busting rates, you will need to act fast to bag the top rates as MoneyWeek data shows savings deals might have reached their peak. 

Inflation has fallen sharply to 4.6%, meaning hundreds of savings accounts now beat the cost of living for the first time in two years.

However, the best deals might not last for long. The Bank of England’s decision to freeze interest rates for the second time at 5.25% earlier this month has caused a number of savings providers to reduce or withdraw their top rates - including some of the best easy-access accounts and one-year fixed deals. 

Find out which savings accounts beat inflation, and whether savings rates will continue to fall. 

Which savings accounts beat inflation?

According to Office for National Statistics data, the Consumer Prices Index (CPI) measure of inflation fell to 4.6% in the 12 months to October - the lowest level in two years and a sharp drop from the 6.7% figure recorded in September. 

The big reduction is owed largely to falling energy costs, even though prices are still significantly higher than pre-pandemic levels. 

As a result, hundreds of savings accounts now offer inflation-busting rates. According to Moneyfacts, there are 56 easy-access accounts, 86 notice accounts, 46 variable-rate ISAs, 215 fixed-rate ISAs and 489 fixed-rate bonds that beat inflation.

Rachel Springall, finance expert at Moneyfacts, said: “It has taken over two years, but finally inflation has fallen to a level where there are now some standard savings accounts that can outpace its eroding prowess. 

“The incentive to switch remains for those savers with flexible pots, as many of the top-rate deals that pay 5% or more for new customers do not come from the biggest high-street bank brands.”

Currently, the top easy-access savings account offers 5.22%, from Metro Bank. The provider also offers a 5.91% market-leading one-year fixed bond. 

This means that after inflation, savers would earn a real return of 0.62% in Metro Bank’s easy-access account, and 1.31% in the one-year account.

The Isa market has been picking up recently, offering competitive rates of around 5.5% for a one-year fixed Isa. Plus, with rumours of new Isa reforms to be announced in the Autumn Statement, Isas could become more attractive to savers. 

The top easy-access cash Isa, from Zopa, pays 5.08% tax-free interest to savers. After inflation, this amounts to 0.48%.

Why savers should move quickly to snap up the best deals

However, while savers may be celebrating the return of inflation-busting interest rates, they should act quickly as some of the top deals could have a short lifespan. 

Springall explains: “The savings market has felt a few rate cuts since last month’s inflation announcement, with fixed-rate bonds under the spotlight. Savers will no longer find a bond that pays more than 6%, but it is worth noting that challenger banks are still holding the top spots despite shuffling positions. 

“These institutions can launch enticing offers to attract deposits for their future lending, but they also act quickly to pull offers when they become fully subscribed. Consumers will need to act quickly to grab the top deals on offer and consider the more unfamiliar brands when comparing deals.”

Will savings rates fall?

A string of base rate hikes by the BoE earlier this year was an attempt to ease inflation. It meant fixed savings rates soared above 6%. 

But now the government has reached its target to halve inflation and the BoE has held the base rate at 5.25% at two consecutive meetings, this could be a sign that interest rates will soon start to fall - pushing savings rates down too. 

Adam Thrower, head of savings at Shawbrook Bank, says savers should view a fall in inflation as a warning sign. “While it might not happen immediately, if inflation keeps falling interest rates could reduce as quickly as they’ve increased - so people should get a move on, review their savings asap, and switch to a better paying account while they can.”

MoneyWeek data shows that on 14 September, our one-year fixed-rate best-buy guide consisted of multiple savings rates of 6% or above, with NS&I topping the table with its 6.2% rate. This was followed by Union Bank of India with 6.11% and Ahli United Bank UK with 6.1%. 

But now there are no savings providers offering a rate of 6% or more on a one-year bond.

In fact, one-year rates haven’t risen since 9 October, and this month they’ve been on the decline. 

Plus, we recently saw top easy-access rates fall amid another interest rate freeze, including Paragon Bank trimming its market-leading 5.25% rate to 5.16% (currently 5.05%), and Beehive Money cutting its 5.2% rate to 5.15%. 

Sarah Coles, head of personal finance at the wealth manager Hargreaves Lansdown, comments: “We’re past the peak for savings, with the most competitive fixed rates across all periods now dropping below 6%. We’re not expecting dramatic overnight falls, but we are expecting a gradual reduction, so if you were considering a fixed-rate account, it’s worth taking advantage of the best rates while you can.”

National Savings and Investments (NS&I) has cut the rate on its popular Green Savings Bonds amid expectations that interest rates have peaked.

The state-backed bank has released a new issue of its three-year Green Savings Bond at 3.95%, down from 5.7%.

The rate had only just been raised in August from 4.2%.

It comes as the Bank of England held interest rates for the second consecutive month, prompting speculating that the cost of borrowing could remain steady for now.

That could mean the higher interest rates that savers have been enjoying in recent weeks could start to dissipate.

HOW MUCH CAN YOU SAVE IN NS&I GREEN BONDS?

NS&I’s Green Savings Bonds were launched in 2021 to help savers fund green government projects across the UK.

The minimum investment in Green Savings Bonds is £100, with a maximum limit of £100,000 per person for each issue.

Investors need to be aged 16 or over to purchase the bonds and the full amount deposited will be held for three years and cannot be withdrawn during this time.

This means you need to be happy to have your money locked up for an extended period.

Interest is calculated daily and added yearly on the investment’s anniversary date, but paid at the end of term.

You can purchase the bond online at nsandi.

IS THE NEW NS&I GREEN BONDS RATE ANY GOOD?

The rate paid on NS&I’s Green Bonds at launch was a paltry 0.65% but it has improved recently in line with other savings deals, reaching 5.7% in August.

The 5.7% rate was competitive, up from the 4.2% offered in February, and sat among the best buys for a three-year savings bond.

But the new rate of 3.95% moves NS&I down the savings tables.

For someone with £10,000 saved, that’s a loss of £577 in interest across the three years.

In comparison, savers can earn 5.9% with JN Bank over three years with a minimum investment of £1,000 or 5.61% with Zopa.

Similar to the NS&I product, no withdrawals or early access is allowed but you need to be age 18 or over to open an account.

There are benefits to sticking with NS&I though.

It is backed by the Treasury so all your savings are protected, compared with other banks where up to £85,000 is covered by the Financial Services Compensation Scheme.

Some savers may also be happy to receive a lower rate in return for backing green projects.

However, there are other green savings accounts such as Triodos Bank, which offers a 3.45% easy access account or an Ethical Savings Bond paying 4.25% for one year and 4.5% for two.

"After a fairly dismal summer for inflows, we know that NS&I’s guaranteed bonds attracted a huge amount of savers' money – meaning the provider has already hit its funding target for the year," says Laura Suter, head of personal finance at AJ Bell.

"In turn, that means its other savings products will become less attractive, as it doesn’t need to use high rates to lure more savers in.

 "The rate is below some of the other environmentally-focused accounts on the market, many of which don’t require a three-year tie-up to beat the rate. 

"Anyone hunting around for a green savings option needs to scrutinise the competition carefully, to ensure that what they are doing with their money tallies with their own beliefs."

The interest rate hiking cycle has ended - or that’s what it looks like anyway following the latest decisions from the European Central Bank, Bank of England and Federal Reserve. 

In the past week, all of these central banks have announced they’re pausing one of the most aggressive rate hiking cycles in the history of independent central banks. The BoE’s monetary policy committee (MPC) held the base rate at 5.25% at their meeting yesterday, the second meeting they’ve kept rates constant. 

Only the day before, the US Federal Open Market Committee voted to keep rates on hold for the second time, at a 22-year high of 5.25-5.50% (unlike the BoE, the Fed sets a range for its Fed Funds rate). And last week, the ECB held rates at 4%. 

All three of these leading central banks have hiked rates from zero over the past 18 months, as they’ve tried to bring inflation under control.  

Inflation begins to fall  

So far, the medicine seems to be working. Eurozone inflation dropped to a two-year low in October of 2.9%, from 4.3% a month earlier. Meanwhile, inflation dropped to 3.7% in the US for the 12 months ended September. 

Here in the UK, inflation has proved tougher to control. Since CPI inflation reached 11.1% in October last year it has fallen by more than 4 percentage points, although it flatlined at 6.7% in September. Inflation has remained sticker in the UK due to the energy price cap, which works with a lag. 

Unlike the US and Eurozone, where lower energy prices have already filtered through to consumers and businesses, the price cap is preventing prices from falling as fast here in the UK.

As energy is a big component of the inflation figures, this is something policymakers will be taking into consideration when setting interest rates. 

Higher interest rates are starting to have an impact 

Inflation is just part of the equation for central bankers. While The Fed, BoE and ECB all have a mandate to keep inflation under control, they don’t want to crush their respective economies at the same time. So they have a tough balancing act to practise.

That said, coming off the pedal too early could reverse much of the progress they’ve already made in the fight against inflation. BoE governor Andrew Bailey has said rates must stay, “sufficiently restrictive for sufficiently long”. He’s also recently added, “It’s far too early to be thinking about rate cuts.” 

Across the pond, Fed chairman Jerome Powell has summarised the Fed’s stance as being “not confident we have reached sufficiently restrictive [financial conditions], but not confident we haven’t”.

The markets have a bit of a different view. The market is pricing in interest rate cuts starting in the second half of next year and is only assigning a slim chance to further rate increases from both the BoE and the Fed. 

There are signs on both sides of the pond higher rates are starting to have an impact on economic growth. In the UK in particular, activity in the construction sector has fallen off a cliff and consumers are pulling back on spending as higher interest rates bite. It’s also more appealing than it has been for over a decade to save rather than spend (one of the main reasons why interest rates are so effective at controlling prices). 

Higher interest rates mean it’s more expensive for companies and consumers to borrow money to spend and invest, which reduces demand, forcing businesses to lower their prices. While inflation remains high in the UK, shop price inflation has been falling, suggesting part of this equation is already playing out as businesses compete for customers’ shrinking spending power.  

An upcoming election  

The BoE will have this in mind when it’s thinking about interest rates going forward. If businesses have to fight for consumers' money, business activity in the economy will fall (as is already happening in the construction industry) and that could lead to a recession. Higher interest rates are already forcing the government, which relies of debt to fund the day-to-day running of essential services, to consider benefit and spending freezes. 

With an election coming up, the government may start putting pressure on the BoE to cut rates, or at least hold off on any further rate increases to avoid sending the economy into a recession or driving harsh spending cuts in 2024. 

All in all, there’s a chance the BoE could push rates higher in the coming months if inflation surprises to the upside, but with risks to the economy growing, and inflation falling in the rest of the world, (which will filter through to the UK over time) the central bank may decide to hold off on any further changes or even cut in 2024. 

Over the past 18 months, the Bank of England (BoE) has hiked interest rates from 0.1% to 5.25%, but after driving one of the most aggressive rate cycles in history, the central bank hit pause at its last meeting. 

The Monetary Policy Committee (MPC), responsible for setting interest rates, held the key rate at 5.25% when it last met in September. The next rate-setting meeting is Thursday, 2 November 2023. 

The Bank of England’s balancing act  

The MPC faces a tough choice when it next meets. 

One of the main aims of the central bank is to keep inflation at or around 2%, which it does by increasing or reducing interest rates. Inflation has slowed this year, falling from a high of 10.7% printed toward the end of 2022 thanks, in part, to the BoE’s aggressive hiking cycle. 

However, the most recent data showed inflation held steady at 6.7% in September thanks to rising petrol prices, bucking forecasts for a further slowdown.

This trend could further complicate the BoE’s decision. The UK and other global economies are facing the threat of conflict across the Middle East, which could spike oil and gas prices, cause another supply-driven inflation shock, and impact confidence, hitting the country’s fragile economy.

GDP grew just 0.2% in August, following a 0.6% quarter-on-quarter fall in July, and consumer, as well as business confidence, has continued to fall, suggesting the economy is only getting weaker. Meanwhile, the UK's wage growth is notably higher than in the US and the eurozone, suggesting inflation could remain sticky.

The “Table Mountain” approach  

While it’s unclear at this stage which direction the BoE will take, its chief economist, Huw Pill, has referred to their preferred approach as the "Table Mountain" strategy, named after the flat-topped landmark in South Africa, which reflects their plan to sustain high-interest rates until the inflation threat subsides.

This strategy aims to prepare the UK public for a prolonged period of high borrowing costs to significantly suppress inflation rather than destabilising the economy with sharp rate hikes followed by steep cuts.

The BoE’s decision will likely have a different impact on different assets. Here’s how markets could react to the central bank’s next rate decision. 

How assets could react to the next interest rate decision  

Sterling

Sterling dipped to an all-time low against the US dollar last year amid the turbulence of the short-lived Lizz Truss government. 

While the pound has recovered over the past year, it remains under pressure due to the UK's fragile economic position and the growing divergence between the UK economy and the US economy. 

If the BoE decides to hold or cut interest rates, it could signal further weakness ahead for the pound against the dollar and other currencies. 

However, if the central bank abandons its dovish stance, and decides to hike rates further after September’s decision to hold, it could be good news for the pound. 

Real estate stocks

Real estate stocks, such as housebuilders and real estate investment trusts (REITs) could see some buying if the MPC holds interest rates at their current level. 

Higher rates are already having a noticeable impact on the UK’s property market, with house prices weakening and construction activity falling. 

If the BoE decides to hold rates at 5.25% at the next announcement, it could be a net positive for the sector as it’ll remove uncertainty around future financing costs and promote stability in the mortgage market. 

On the other hand, a hawkish hike or hawkish commentary from the MPC could lead to higher costs for mortgage borrowers and depress overall sentiment in the sector. 

Bank stocks 

UK bank equities could see a bid off the back of another BoE hike as they’ll be able to increase the rate of interest they charge to borrowers when taking out loans. They’ll also be able to earn a higher rate of return on their reserves, which are mainly held at the BoE and invested in short-term government securities. 

That being said, if higher rates start to have a detrimental impact on the UK economy, banks will suffer as the demand for loans will fall and lenders may have to increase loan loss provisions as borrowers fall behind on repayments. 

UK gilts 

UK gilt prices move inversely to interest rates, and as the BoE has hiked rates, gilt prices have slumped with some longer-dated issues losing as much as 70% of their face value (longer-dated gilts, such as 50-year issues, are far more sensitive to higher rates. While the price can vary during the life of the issue they’re redeemed at par at the end of their life.)

If the MPC decides to push interest rates higher, UK bonds are likely to continue to sell off. The cost of government debt will also rise, good news for savers but bad news for the government’s financial position. 

At the same time, investors will be looking for further commentary around the BoE’s bond sales programme, or quantitative tightening. 

In September the MPC unanimously agreed to raise the pace of its quantitative tightening process for the year ahead from £80bn in 2022-23 to £100bn in 2023-24 - putting further selling pressure on bonds. A slowdown in sales will be favourable for bond prices. 

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Paragon Bank has launched a best buy easy access savings account, paying 5.25% AER (variable). The rate makes the account the best buy for savings accounts.

While the rate doesn’t beat inflation, which currently sits at 6.7%, the new easy-access savings rate matches the Bank of England’s base rate, frozen at 5.25%, after months of interest rates going up. 

Paragon launched the first issue of this savings account in July and has since been hiking the rates - the last time it increased the rates was in September, when it pushed the rates from 4.75% AER to 5.05% AER- but this rate was pulled within three weeks due to popular demand. 

If you’re looking to take advantage of this rate, then it is worth noting there are some restrictions and we explain why you may need to act fast to bag it. 

How does the Paragon savings account work? 

Although the account is an easy access account, it is double access, meaning you can access your cash twice before you hit a penalty. 

Derek Sprawling, Paragon Bank savings director, said: “This product could suit those

savers who are happy to lock their money away, but may want to retain access to it in the event of a rainy day.”

If you make more than two withdrawals within a 12 month period, the rates drop to just 1.5%.

How much do I need to open a savings account with Paragon Bank? 

You can start saving in the account with £1,000 and save up to a maximum of £500,000 - but only up to £85,000 is protected by the Financial Services Compensation Scheme (FSCS). 

You must make your initial minimum deposit within 28 days of opening your account, otherwise your saver will be closed. Plus, if at any point your balance falls below £1,000, the account will be closed.

As the rate is variable, it could change. Paragon says that if the rate rises on your account, you will be notified as soon as possible, but this could be after the rate comes into effect. If the rate drops, you will be told 14 days before the change. 

How long is the Paragon bank rate available for? 

The bank has confirmed the new rate on its Double Access Saver will only be on sale for a limited time, so you will need to act fast to bag the new 5.25% top rate.

Best buy rates are usually axed once the account reaches capacity. 

For example, HSBC pulled its one-year fixed ISA which offered a top rate of 5.7% AER for a limited time. 

NS&I also withdrew its market-leading one-year fixed bond offering 6.2% AER after only five weeks of being on the market. This was the highest rate seen on bond products since 2008. 

High-street giant Santander dropped the rate on its market-leading 5.2% easy-access savings account one week earlier than expected, due to high demand. 

What are the alternatives to Paragon?

If you are looking for an easy access account without a limit on the number of withdrawals, then there are alternatives where the interest rate difference is minimal. 

Beehive Money Limited Issue Easy Access pays 5.2% with unlimited withdrawals, and its minimum £1,000 deposit, the same as Paragon.

To be eligible for this account, you must be a UK resident aged 18 years or over. You can open and manage the account online, and you can choose to have interest paid either monthly or annually. 

Other alternatives include:

If you’re looking for an account that offers freedom with withdrawals, you can opt for either the Beehive Money Saver or Ulster Bank. 

And if you don’t have a minimum balance of £5,000 to save in Ulster Bank, Beehive Money only requires £1,000.

Of course, if you’re willing to fix your money, you can earn a higher rate on your savings. Currently, the best one-year fixed savings accounts offer more than 6%.

Plus, if you have less than £20,000 to save over a year, it may be worth opening an ISA and giving your cash a tax wrapper- read more on which is better, a savings account or an ISA.  

It's been tough to get excited about banks over the past decade. Near zero interest rates have made it difficult for the sector to increase profitability and return profits to investors. However, following the string of interest rate hikes from the Bank of England over the past 12 months, UK banks are starting to look appealing again. 

Banking isn't supposed to be exciting. Banks essentially take money from depositors and loan this money out to borrowers at a higher interest rate. Since the financial crisis, regulators have discouraged them from speculating and trading in financial markets. While some (notably HSBC and Barclays) still do, most of the UK’s lenders focus on the relatively straightforward business of lending and accepting deposits. 

This means they’re highly sensitive to changes in interest rates. Banks can charge borrowers more if there's a significant increase in interest rates, although they don't have to pass on the rate increase to savers. 

US banks have been publishing their earnings for the third quarter over the past week, and their figures give us some insight into what to expect from UK banks when they report earnings this week. 

US banks lead the way 

All three of the banks to report earnings first, JPMorgan, Wells Fargo and Citigroup, beat expectations mainly thanks to higher interest income. 

This group reported more than $22bn in profits for the third quarter, up more than a third from a year earlier. While all three of these lenders also reported additional profits from their trading arms, the bulk of the growth in third-quarter profit was driven by an increase in interest income. Wells Fargo and JPMorgan also said they expect net interest income to grow more than expected in 2023. 

Bank of America reported its numbers for the quarter shortly after, showing a 4% increase in net interest income year over year. And like its peers, expects earnings to continue expanding over the coming quarters. 

Another factor analysts were watching closely in the third quarter earning season for US banks was credit impairments. Credit impairments can provide a good indicator of the economy's underlying health as they show us how many consumers are struggling to pay their bills. For the most part, credit impairments across the most prominent US lenders increased but increased from very low levels, suggesting consumers are still relatively well off. 

The outlook for UK banks  

The UK bank earnings season begins on October 24, and UK banks are likely to report similar trends in their earnings regarding the net interest margin, although the trend is unlikely to be as pronounced. 

The UK banking market is far more competitive than the US, and the big lenders have faced far more pressure to pass higher interest rates onto consumers by the regulator. 

UK consumers have also faced more financial pressure than their US peers over the past 12 months, which is already filtering into loan impairments. In Lloyds Bank’s half-year results, the lender reported a 76% increase in loan impairments year-on-year.

Put these factors together, and the domestic-focused UK banks, including all publicly traded banks excluding HSBC and Standard Chartered, seem set for a very uneventful third-quarter earnings season. 

Bank capital return plans are likely to move the needle for investors and traders. 

Watch capital return plans  

NatWest has been leading the pack with capital returns this year. Alongside its half-year results, it announced an additional £500m share buyback in addition to the £1.3bn share buyback it completed in the second quarter of 2023, on top of an interim dividend of 5.5p. The stock trading at a price-to-book (p/b) value of 0.7 is a prime candidate for further buybacks. 

Lloyds is a prime candidate to announce further cash returns to boost its stock, trading at a p/b value of 0.6. It reported a Tier One Capital ratio of 14.2% at the end of June, far above its target of 12.5%. That gives plenty of scope for the lender to announce buybacks or special dividends. 

HSBC is the one outlier of the group. Most of its profits come from the Asia Pacific region, and it’s benefitting from this international diversification, reporting a 50% year-on-year increase in revenue for the first half, mainly thanks to higher interest rates, suggesting the bank is likely to report a similar trend for the rest of the year. It's also worth keeping an eye on potential cash returns. The lender is expected to return to its pre-pandemic level of dividend distributions in the next six months and additional share repurchases. Both are likely to be received favourably by investors. 

Barclays is also one to watch for additional cash returns. Barclays is the only remaining high street bank to maintain a large investment bank and its US peers, such as Bank of America, have reported double-digit jumps in trading income for the third quarter. If Barlcays has seen the same favourable trading environment, it could return more cash to investors to ignite its sluggish share price. The stock is the cheapest of the bunch, trading at a p/b of 0.4

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House prices in 2023 have been sliding, and in September, the average house price fell by -0.4%, the sixth consecutive fall this year. But the pace of the monthly decline has slowed; in August, the slide was -1.8%, which was the biggest drop seen in house prices since 2009. On an annual basis, property prices dropped by -4.7%, versus -4.5% last month.

The latest Halifax house price index data means a typical home now costs £278,601 - a drop of around £1,200 from August. And while this takes us back to similar prices seen in early 2022, property prices still remain high and are in fact up 1% since December 2021, which is also when we first saw the Bank of England starting to push up interest rates. Average house prices are still more than £39,000 above pre-pandemic levels, when we saw extraordinary growth with prices going up. 

Where are house prices falling the furthest?

While all UK nations and the nine English regions registered a decline in house prices on an annual basis, the South of England saw the most downward pressure on property prices, falling by -5.7% over the last year. The average house price there is now £376,450.

Northern Ireland seems to be the most resilient, with house prices falling just -0.2% compared to this time last year; the average house price is £184,108, representing a fall of less than £400. 

Scotland also saw a modest annual decline of -0.8%, taking the average house price to £201,594. 

And in Wales, property prices fell by -3.6% over the last year, taking the average house price to £214,585.

What is happening to house prices in London?

London house prices have seen the biggest fall of any region, where house prices have slumped by -4.8% over the last year. In cash terms, house prices have fallen by -£25,524.

Yet London continues to be the most expensive place in the UK to purchase a home where the average property costs £525,678.

Will house prices go down further? 

Higher interest rates leading to higher browning costs will continue to impact the market, but experts say it is starting to become a buyers market.

Kim Kinnaird, director, Halifax Mortgages, comments: “Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales. Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

“However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgage deals ease back from recent highs. Wage growth also remains strong, which has helped with affordability, with the house price to income ratio now at its lowest level since June 2020 (6.2 in September vs 6.3 in August).”

But, with some experts predicting the Base Rate will remain higher for longer as the Bank of England continues to tackle high inflation, mortgage rates are likely to remain high dampening buyer demand and putting pressure on property prices in the UK.

A new retail bond paying an 8.25% coupon has launched, beating the interest rates on top savings accounts.

The best savings account currently pays 4.7%, while customers can get up to 7.5% with a regular savings account.

Alternative property lender LendInvest’s 8.25% bond will likely appeal to savers fed up with falling interest rates, and investors looking for regular income.

Retail bonds pay a fixed rate of interest – known as the “coupon” – for a set period. They are issued by companies and charities looking to raise extra capital by borrowing from investors.

However, retail bonds are not the same as savings accounts; there are risks involved. We look at how the LendInvest bond will work, and the risks of retail bonds.

How will the LendInvest retail bond work?

The LendInvest bond will pay investors a fixed 8.25% rate bi-annually until its maturity in 2030. The offer period is expected to close on 11 November.

The bonds – which represent LendInvest’s fifth issue – will be listed on the London Stock Exchange’s Order Book for Retail Bonds and are available via AJ Bell, Hargreaves Lansdown, Interactive Investor and other major platforms.

The minimum initial subscription is £1,000, with increments of £100 thereafter. Interest payments are expected to be made on 18 May and 18 November in each year, with the first due on 18 May 2026.

The new bonds are expected to be admitted to trading on the London Stock Exchange's regulated market and through the electronic Order Book for Retail Bonds (ORB) on 18 November 2025.

So, what is LendInvest exactly? A UK-based alternative property finance platform, it provides short-term, development and buy-to-let mortgages to professional property investors and developers.

The company is listed on AIM. As at 31 March 2025, it reported funds under management of £5.13 billion and platform assets under management of £3.23 billion.

LendInvest says it has a strong track record, having repaid its previous two matured bonds in full without loss to its holders.

It says that investors buying the new bond “can gain exposure to a diversified and fast-growing portfolio of asset-backed UK property loans. This ranges from buy-to-let and bridging finance to residential and commercial development, aimed at experienced and professional borrower clients”.

Rod Lockhart, CEO of LendInvest, said of the new bond: “This issuance represents the continued development of our secured-income programme and provides investors with access to bonds backed by UK property-finance assets within a clearly defined structure.”

If you already hold a LendInvest bond, you may be able to swap it for the new issue under a proposed “exchange offer”. This would allow holders of the outstanding 11.5% notes due 2026 and 6.5% notes due 2027, each issued by LendInvest Secured Income II plc, to exchange their holdings for the new bonds.

What are the risks of retail bonds?

First, let’s look at the differences between savings accounts and retail bonds. Cash held in UK savings accounts is protected by the Financial Services Compensation Scheme (FSCS), with up to £85,000 per person, per banking licence, covered in the event of a collapse.

Retail bonds, however, are not covered by the scheme. So if the issuer were to go bust, there would be no guarantee that investors would receive their money back.

Laith Khalaf, head of investment analysis at AJ Bell, tells MoneyWeek: “While the headline rates on retail bonds might be extremely attractive, there’s no such thing as a free lunch when it comes to investing, and higher levels of interest generally reflect more risk.

“Investors need to consider the return of their money, as well as the return on their money. If a company you loan money to goes bust, then you may lose some or all of your capital, as well as outstanding interest payments.”

He says it’s crucial that investors have a handle on the finances of the company (or charity) issuing the bonds before buying them, which can be found in their accounts, and most specifically the balance sheet.

Khalaf adds: “If your retail bond doesn’t repay your capital in full, then you have no recourse to the FSCS. Consumers need to treat retail bonds as an investment, which carries capital risk, rather than as a high-interest savings account, which largely doesn’t.”

Having said that, it’s worth pointing out that while retail bonds like the LendInvest one have risks, they are not “mini-bonds”, the advertising of which has been banned by the Financial Conduct Authority.

LendInvest’s retail bonds will be traded publicly on the London Stock Exchange (LSE), so investors have the reassurance that the stock exchange’s requirements have been met.

What is the Order Book for Retail Bonds (ORB)?

The LSE introduced the Order Book for Retail Bonds (ORB), a dedicated platform for bonds aimed at retail investors, in February 2010.

Traditionally, bonds are traded in lots of £100,000, making it all but impossible for the average investor to buy a portfolio of their choosing. However, on the ORB, the majority of issues can be traded in lots as low as £100.

The ORB hasn’t really taken the market by storm. After an initial flurry of trading, new issues dried up, although a few firms continue to use the platform.

Companies using the ORB over the past few years include International Personal Finance (bond maturing on 12 December 2027 and paying 12% per annum), and Belong (paying 7.5% through to July 2030).