The Bank of England base rate is the single most important interest rate in the UK economy. It influences everything from your mortgage payments and savings returns to business lending costs and the value of the pound. After peaking at 5.25% in 2023–2024, the rate entered a cutting cycle and stands at approximately 4.50% as of February 2025.
The base rate — officially the Bank Rate — is the interest rate at which the Bank of England lends money to commercial banks overnight. When banks borrow money more cheaply (low base rate), they can pass on lower rates to customers. When the base rate rises, borrowing becomes more expensive across the economy.
The base rate is the primary monetary policy tool used by the Bank of England to meet its 2% CPI inflation target, as set by the UK government. A higher rate chokes demand and brings inflation down; a lower rate stimulates spending and economic growth.
The MPC consists of nine members: the Governor of the Bank of England, three Deputy Governors, the Chief Economist, and four external members appointed by the Chancellor of the Exchequer. Decisions are made by majority vote, with the Governor having a casting vote in a tie.
The MPC analyses a vast range of economic data including GDP growth, unemployment, wage growth, global commodity prices, and survey data before each decision. Forward guidance — signals about future rate direction — is an important communication tool.
| Period | Rate | Context |
|---|---|---|
| 1979–1981 | Up to 17% | Combating high inflation under Thatcher |
| 1988–1990 | Up to 15% | Overheating economy, housing boom |
| 1992 | Briefly 15% | Black Wednesday / ERM crisis |
| 1997–2007 | 4.5%–7.5% | Stable growth era |
| 2008–2009 | Cut to 0.5% | Global financial crisis |
| 2009–2016 | 0.5% | Post-crisis low |
| 2016–2017 | 0.25% | Post-Brexit vote cut |
| March 2020 | 0.1% (record low) | Covid-19 pandemic |
| Dec 2021–Aug 2023 | 0.1% → 5.25% | Fastest hiking cycle in 30 years |
| Aug 2023–Jun 2024 | 5.25% | Peak rate, inflation battle |
| Aug 2024 onwards | Cutting cycle begins | Inflation returning to target |
| Feb 2025 | ~4.50% | Gradual easing continues |
The base rate directly impacts different mortgage types in different ways:
Standard variable rate mortgages can be changed by lenders at any time, but broadly follow the base rate. SVRs are typically 2–5% above the base rate. A base rate cut usually — but not always — leads to an SVR cut.
Tracker mortgages are directly linked to the base rate, usually at a fixed margin above it (e.g. base rate + 1.5%). When the base rate falls by 0.25%, your tracker rate falls by exactly 0.25% within one or two months.
Fixed rate mortgages are unaffected during the fixed term. However, when your fixed deal ends, you remortgage at prevailing rates. New fixed rate deals are priced based on swap rates, which reflect expected future base rates.
A discount mortgage tracks the lender's SVR at a set discount (e.g. SVR minus 1.2%). These broadly follow the base rate but are subject to the lender's discretion on SVR moves.
Current monthly payment: —
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When the base rate rises, savings rates generally improve — though not always immediately or by the full amount. The sequence typically works as follows:
During the 2022–2023 hiking cycle, competition between banks drove easy access savings rates from near 0% to over 5%. However, with cuts underway in 2024–2025, rates have been easing back. Cash ISA rates closely track the base rate with a typical lag of 1–4 weeks.
Credit card APRs are generally set independently of the base rate but do reflect the cost of funds. With a high base rate environment, credit card rates in the UK often range from 20–40% APR — the base rate impact is muted because card rates already carry a significant risk premium. Personal loan rates are more sensitive, with best-buy rates falling meaningfully when the base rate drops. Business lending — particularly revolving credit facilities and commercial mortgages — closely tracks SONIA or the base rate.
SONIA (Sterling Overnight Index Average) is administered by the Bank of England and reflects the rate of interest paid on sterling overnight unsecured transactions in the UK money market. It replaced LIBOR as the preferred benchmark rate in 2021.
The Bank of England has a statutory objective to deliver price stability, defined by the government as 2% CPI inflation. When inflation is above 2%, the MPC faces pressure to raise or hold rates. When inflation falls below 2% and economic growth is weak, rate cuts become appropriate.
Following the 2021–2023 inflation spike (peaking above 11% in October 2022, driven by energy prices and supply chain disruption), the MPC hiked rates rapidly. By 2024, inflation had returned closer to target, enabling the cutting cycle to begin. The MPC aims for a gradual, data-dependent approach to avoid over-stimulating inflation or tipping the economy into recession.
The Bank of England uses forward guidance to communicate future rate intentions to markets and the public. This reduces uncertainty and helps businesses and households plan. Guidance has shifted over the years from time-based (holding rates until a date) to state-based (holding rates until economic conditions change). In 2025, the MPC is providing conditional guidance that further cuts will be gradual and data-dependent.
Lower interest rates reduce mortgage costs, increasing borrowing power and supporting house prices. Conversely, rapid rate rises (as in 2022–2023) can reduce affordability and cool the housing market. Research suggests that a 1 percentage point rise in mortgage rates reduces UK house price growth by roughly 3–5 percentage points over a 12–18 month period, all else being equal.
The Bank of England base rate in 2025 is approximately 4.5%, following a series of cuts from the 5.25% peak seen in 2023–2024. The rate is reviewed eight times per year by the Monetary Policy Committee (MPC), with decisions announced at noon following each two-day meeting.
The Monetary Policy Committee meets eight times per year to review and set the base rate. Each meeting lasts two days and concludes with a decision announced at noon on the final day. Meeting dates are published well in advance. The MPC can also hold emergency meetings during crises — as seen in March 2020 during the Covid-19 pandemic.
If you have a variable rate or tracker mortgage, your monthly payments move directly with the base rate. A 0.25% cut on a £200,000 repayment mortgage with 20 years remaining saves approximately £25–£30 per month, or around £300–£360 per year. Fixed-rate mortgage holders are unaffected until their fixed term ends and they remortgage.
The base rate is set by the Bank of England's MPC as a monetary policy decision. SONIA (Sterling Overnight Index Average) reflects actual overnight lending rates between banks. SONIA is a market rate; the base rate is a policy rate. They are usually very close but can diverge. Many financial products now reference SONIA rather than the old LIBOR benchmark.
The lowest ever UK base rate was 0.1%, set in March 2020 in response to the Covid-19 pandemic. This record-low rate remained in place until December 2021, when the Bank of England began a rapid hiking cycle in response to surging inflation. The rate reached 5.25% by August 2023, the highest since 2008.
When the base rate rises, high street banks typically increase savings rates, though not always by the full amount and not always immediately. Easy access savings accounts tend to adjust within a few weeks. During the 2022–2023 hiking cycle, the best easy access rates rose from near 0% to over 5%. As the base rate is cut, savings rates ease accordingly. Fixed-term savings bonds lock in a rate regardless of subsequent base rate changes.
The base rate is a fundamental lever of monetary policy. A higher rate reduces inflation by slowing consumer spending and business investment, but risks higher unemployment and slower growth. A lower rate stimulates borrowing and spending, supporting growth and employment, but risks reigniting inflation. The MPC seeks to balance these objectives to achieve sustainable growth with 2% inflation over the medium term.