Kevin PeacheyCost of living correspondent
BBC
The Bank of England has held interest rates at 4%, as it seeks to tackle inflation, which remains well above its 2% target.
The cost of borrowing remains at its lowest level for more than two years, but many analysts believe policymakers may not make any further changes for the rest of the year.
Interest rates affect mortgage, credit card and savings rates for millions of people.
What are interest rates and why do they change?
An interest rate tells you how much it costs to borrow money, or the reward for saving it.
The Bank of England’s base rate is what it charges other banks and building societies to borrow money.
That influences what they charge their own customers for loans such as mortgages as well as the interest rate they pay on savings.
The Bank moves rates up and down in order to keep UK inflation – the rate at which prices are increasing – at or near 2%.
When inflation is above that target, the Bank can decide to put rates up. The idea is that this encourages people to spend less, reducing demand for goods and services and limiting price rises.
However, in recent months inflation has remained above the Bank’s target at the same time as the economy has remained relatively flat and the jobs market has softened, which makes its decision harder.
What has happened to UK interest rates and inflation?
The Bank of England’s base rate reached a recent high of 5.25% in 2023, but five cuts since August 2024 have brought it down to 4%.
After the latest decision to hold, Bank of England governor Andrew Bailey said “we are not out of the woods yet” on inflation.
Will UK interest rates fall further?
Some analysts believe there could be one more cut before the end of the year, but that depends on economic data in the coming weeks.
In September, only two members of the Bank’s nine-member monetary policy committee (MPC) voted for a cut, but in August it was a 5-4 vote to cut rates by a quarter percentage point.
It followed a never-before-seen second vote, after one economist had argued for a larger cut of half a percentage point.
This suggests future interest rate decisions are likely to be finely balanced.
After September’s meeting, Mr Bailey said “any future cuts will need to be made gradually and carefully”.
In July, he had said the Bank was prepared to make larger cuts if the job market showed signs of slowing down.
Since then, annual growth in average regular earnings, excluding bonuses, dropped to 4.8% in the three months to July, down from 5% in the previous three months and the lowest since May 2022.
However, the Bank also has to consider the wider global economy.
Mr Bailey has repeatedly warned about the unpredictable impact of US tariffs, and conflict in Israel and Ukraine has also created uncertainty.
Announcements in the Budget on 26 November could also influence the Bank’s decision.
How do interest rates affect mortgages, loans and savings rates?
Mortgages
Just under a third of households have a mortgage, according to the government’s English Housing Survey.
About 600,000 homeowners have a mortgage that “tracks” the Bank of England’s rate.
But the vast majority of mortgage customers have fixed-rate deals. While their monthly payments aren’t immediately affected by a rate change, future deals are.
Mortgage rates are still much higher than they have been for much of the past decade.
As of 18 September, the average two-year fixed residential mortgage rate was 4.98%, according to financial information company Moneyfacts. A five-year rate was 5.02%.
The average two-year tracker rate was 4.67%.
This means many homebuyers and those remortgaging are having to pay a lot more than if they had borrowed the same amount a few years ago.
About 800,000 fixed-rate mortgages with an interest rate of 3% or below are expected to expire every year, on average, until the end of 2027. Borrowing costs for customers coming off those deals are expected to rise sharply.
You can see how your mortgage may be affected by future interest rate changes by using our calculator:
Credit cards and loans
Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
Lenders can decide to reduce their own interest rates if Bank cuts make borrowing costs cheaper.
However, this tends to happen very slowly.
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Savings
The Bank base rate also affects how much savers earn on their money.
A falling base rate is likely to mean a reduction in the returns offered to savers by banks and building societies.
The current average rate for an easy access savings account is 2.55%, according to Moneyfacts.
Any further cut in rates could particularly affect those who rely on the interest from their savings to top up their income.
What is happening to interest rates in other countries?
In recent years, the UK has had one of the highest interest rates in the G7 – the group representing the world’s seven largest so-called “advanced” economies.
In June 2024, the European Central Bank (ECB) started to cut its main interest rate for the eurozone from an all-time high of 4%.
At its meeting in June 2025 the ECB cut rates by 0.25 percentage points to 2% where they have remained.
In the US, the central bank – the Federal Reserve – cut interest rates in September to a range of 4% to 4.25%. That was the first cut this year, and brings the rate down to the lowest level since late 2022.
President Trump has repeatedly attacked the Fed in recent times, calling for more cuts.