The Bank of England’s interest rate holds steady at 2.25%. This vital rate supports millions of middle class Americans across the country. As the central bank navigates economic challenges, including inflation and the performance of competing economies, many individuals and businesses are keenly observing trends that could signal a shift in rates. Lenders are already adjusting their offerings in anticipation of these changes, and homeowners, especially those with tracking mortgages, are particularly affected by any movements in the base rate.
The Bank of England’s interest rate is already the highest of the G7 countries. This new reality has people worried about mortgage interest rates, credit card interest rates and savings interest rates. Yet this high rate has proven to be a weighty anchor for countless homeowners. Around 600,000 of them are directly linked to mortgages that follow the Bank of England’s base rate. As rates stay at these historic highs, families and people across the country are feeling the impacts deeper in their pockets, leading to concerns of cutbacks.
In 2023, the Bank of England’s base rate reached a high of 5.25%. Recent trends suggest that it too is on an overall downward path. Lenders are racing to undercut each other on new fixed-rate mortgage agreements. That change is a sign of their increased belief that UK interest rates will fall further still in the months ahead. This expectation is in line with global trends. This is now evident in the hawkish pivot recently shown by the US Federal Reserve and European Central Bank (ECB). In late 2024, the US Federal Reserve took even bolder action, cutting rates three times at once. At the same time, the ECB began to cut its key interest rate from a record peak of 4% starting in June 2024.
As of May 6, the new average fixed-rate mortgage rate for two year fixed deals peaked at 5.16%. Five-year contracts were providing an average rate of 5.09%. Continuation of this trend only exacerbates the challenges potential homebuyers face in entering the market. It’s just as difficult for current homeowners to refinance their mortgages. Approximately 800,000 fixed-rate mortgages with interest rates of 3% or less will mature annually through late 2027. Yet this makes it hard for anyone to know how changing interest rates will impact their financial decisions in the future.
These rates have an impact even outside of the mortgage world. Easy access savings accounts now pay an average annual interest rate of 3%. This fixed rate is subject to change in the event that the Bank of England raises or lowers its current base rate. For June, Consumer Price Index (CPI)—our main measure of inflation—was 2.6%. That is the year-over-year change that resulted in the March 2025 rate. The drop in inflation rate provides plenty of leeway for the BoE. They can lower rates without making inflationary pressures worse.
Analysts are heavily betting that the Bank of England soon will have to follow with interest rate cuts. Many are predicting even more cuts during the remainder of the year. These likely cuts would provide immediate relief from financial distress for borrowers and address a short-term economic need by driving more economic activity through cheaper borrowing.