Bank of England votes to hold base rate, but another cut could be on the cards
The Bank of England’s Monetary Policy Committee (MPC) has announced its decision to hold the UK's base rate at its current level of 4%. This move was widely anticipated by economists and aligns with the central bank's cautious approach as it navigates sticky inflation with a sluggish economy.
While a stable base rate offers a degree of predictability, it has significant implications for household finances. From mortgages to savings, the decision affects millions. Keep reading as we dive into what this means for homebuyers, those looking to remortgage, and savers.
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Why has the base rate stayed the same?
The MPC faced a difficult balancing act when deciding whether to cut or hold the base rate. On one hand, there are signs of a cooling economy. The UK labour market, for instance, is showing signs of weakening, with a drop in payrolled workers and a steady decline in job vacancies. Regular wage growth has also eased, falling to 4.8% in the three months to July.
Wages are still outpacing inflation - but at a slower pace. When you take inflation into account, real earnings growth has eased back to 1.2%, which is the lowest point since September 2023.
This is concerning because fewer jobs and slower wage growth mean people have less money to spend, which can hurt the overall economy.
On the other hand, inflation remains a persistent challenge. Inflation (Consumer Prices Index, a.k.a CPI) rose to 3.8% in July, still nearly double the Bank's 2% target. This was driven largely by increasing food and drink prices. Governor Andrew Bailey recently noted that inflation risks have "gone up" creating doubt about how quickly further rate cuts can be implemented. The Bank must support economic growth without letting inflation spiral, making a base rate hold the smart choice for now.
What does this mean for home buyers?
For those looking to buy a home, the base rate hold offers a mixed picture. Mortgage rates are not directly tied to the base rate, but they are heavily influenced by it and by market expectations for future rates.
Despite the MPC's cut from 4.25% to 4% in August, over the last few weeks we've seen some high street lenders increase their rates. Across the market, average rates have inched up slightly, with the lowest rate currently available from our panel of over 100 lenders sitting at 3.94%*.
Lenders will likely adopt a wait-and-see approach, keeping rates relatively level until the Bank of England provides a clearer signal on its future direction. Aspiring homeowners may find that while deals are better than they were, the cost of borrowing remains historically high compared to the sub-2% rates available just a few years ago.
The good news is, if you lock in a mortgage deal through Tembo for your upcoming home purchase or remortgage, you can use our ✨free rate-checking service✨ if rates fall. Just contact your dedicated broker, and they'll reapply for you at no extra cost!
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What does this mean for remortgagers?
An estimated 900,000 homeowners will see their fixed-rate mortgage deals expire in the second half of 2025. If you are one of these, the MPC's decision is crucial.
If you're about to come off a two-year fix, you may find some relief. If you secured a deal when rates were at their highest, you could remortgage onto a more favourable rate, potentially lowering your monthly payments. A borrower with a £400,000 mortgage could see their monthly payment drop by hundreds of pounds by moving from the average rate of 6.85% in August 2023 to the current average of 4.97% now.
The story is different for homeowners coming to the end of five-year fixed-rate deals, as many will have locked in rates when the market was at a historic low point. You may face a significant "payment shock" as you transition to a mortgage with a much higher interest rate.
However, avoiding remortgaging and burying your head in the sand is not the answer. Rates are unlikely to lessen significantly anytime soon. Plus, not switching to a new deal may result in your mortgage repayments skyrocketing if you're put onto your lender's Standard Variable Rate (SVR), which is currently averaging 7.42%.
What does this mean for savings rates?
Savers have been one of the few groups to benefit from higher interest rates. But, in response to the base rate cut in August, many banks and building societies have already started reducing the rates on their savings products. Now, fewer than half of all available savings accounts beat inflation. This means the real-terms value of cash held in many accounts is decreasing, as its purchasing power is eroded by rising prices. At Tembo, we're proud that the interest rates on our savings accounts are inflation-beating!
With the base rate now on hold, it is unlikely that savings rates will see any significant increases anytime soon. Savers looking for the best returns need to act quickly to ensure they're on to the most competitive rates. If you want to lock in the rate you'll get, consider fixed-rate deals like our market-leading 1 Year Fixed Rate Cash ISA.
When will the base rate be cut?
Economists are divided on the Bank of England's next move. Some predict that the base rate could remain at 4% until early 2026 because of the Bank's cautious stance and stubbornly high inflation. Others believe another cut could still happen this year, particularly if the labour market weakens further or the upcoming Autumn Budget introduces tax hikes that could slow the economy.
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*Based on Tembo's lender panel, the lowest 2-year fixed-rate mortgage deal is 3.73%, based on a 60% LTV or lower. Rates accurate 18th September 2025.
Full terms and conditions of our rate checking service can be found here.
