The Bank of England is widely expected to raise its benchmark interest rate on Thursday, marking the first such increase in more than three years. Most analysts predict the rate will move from 3.75% to 4%, a decision that would increase borrowing costs for individuals and businesses while potentially benefiting savers.
The Bank rate has seen fluctuations, previously falling from a 2023-24 peak of 5.25%. However, the Monetary Policy Committee (MPC) has maintained the current rate for its last six meetings. Analysts suggest that rising inflation, significantly influenced by fuel costs, is prompting this anticipated hike.
The official announcement is scheduled for 12:00 GMT on Thursday. Beyond the immediate rate decision, market participants will be scrutinizing the MPC's statements for any indications regarding the future trajectory of interest rates.
"The decision is increasingly less about whether rates reach 4% and more about what follows after that," stated Chris Cheverall, head of UK at trading platform CMC Markets. "A quarter-point rise is already widely expected, but the Bank now has to balance inflation that is still too high against an economy where the growth outlook has weakened sharply."
The Consumer Prices Index (CPI) measure of inflation, though down from its recent highs, has shown an upward trend and is expected to continue rising. In the year to September 2026, inflation stood at 3.5%, exceeding the central bank's 2% target and up from 3.1% the previous month. The ongoing geopolitical situation, particularly its impact on energy and fuel prices, is a key factor contributing to this inflationary pressure.
Impact on Borrowers and Savers
The Bank of England last increased interest rates in August 2023. The base rate influences the cost of borrowing from other banks and building societies, which in turn affects mortgage rates and the interest paid on savings accounts.
A potential rise could immediately affect the approximately 510,000 individuals with tracker mortgages. According to UK Finance, a 0.25 percentage point increase would translate to an estimated £31 rise in monthly payments for those with typical tracker home loans. Borrowers with variable rate deals might see an increase of around £14 per month, depending on their lender's response.
For those on fixed-rate mortgages, monthly payments remain unaffected by immediate rate changes, but future refinancing deals will likely reflect the new rate environment. Lenders have reportedly already factored the expected increase into their current offerings. As of November 4, the average two-year fixed residential mortgage rate was 5.96%, and the average five-year rate was 5.99%, according to Moneyfacts.
This situation presents a significantly higher cost for borrowers remortgaging. Data from L&C indicates that borrowers rolling off a five-year deal secured in 2021 could face nearly £5,000 more in annual repayments on a £200,000 mortgage over 25 years, compared to the rates available then. The average five-year fixed remortgage rate among major lenders five years ago was 1.30%.
Some borrowers, seeking to mitigate potential future increases, are reportedly considering tracker mortgages over fixed deals, hoping for a lower overall cost even with rate hikes. Rachel Springall from Moneyfacts advised, "The right choice ultimately depends on borrowers being confident they can stomach future rises. The devil is in the detail."
Savers, conversely, may experience improved interest rates on their deposits following a Bank rate increase. Ultimately, both lenders and the Bank of England face the challenge of navigating the UK's economic outlook, which is closely tied to international developments.