What is the Bank of England base rate?

The Bank of England base rate is currently 4.25 percent. It is set by the Monetary Policy Committee (MPC), which meets eight times a year to decide whether to raise it, cut it, or hold it unchanged. The base rate is the interest rate at which the Bank of England lends money to commercial banks overnight. Everything else flows from it: savings rates, mortgage rates, business loan rates, and the broader cost of credit across the economy.

What the base rate actually does

Commercial banks borrow from the Bank of England at the base rate when they need short-term liquidity. The base rate therefore sets a floor for the cost of money in the UK financial system. Banks pass this cost on to their customers: when the base rate rises, savings rates and loan rates tend to rise with it; when it falls, they tend to fall too, though not always by the same amount or at the same speed.

The MPC uses the base rate as its primary tool for managing inflation. When inflation is above the 2 percent target, the Bank raises rates to reduce borrowing, cool spending, and bring price growth down. When inflation is below target or the economy is slowing, it cuts rates to encourage borrowing and stimulate activity. The 2021-2023 rate cycle was the sharpest tightening in a generation, taking the base rate from 0.1 percent to 5.25 percent in under two years to combat inflation that peaked at 11.1 percent in October 2022.

The base rate history: from 0.1 percent to 5.25 percent and back down

For most of the decade between 2009 and 2021, the base rate was held at historically low levels: below 1 percent for over a decade, and at just 0.1 percent through the pandemic years of 2020 and 2021. This era of near-zero rates shaped the mortgage market, business borrowing, and household saving behaviour in ways that made the subsequent tightening cycle particularly disruptive.

The Bank began raising rates in December 2021 and continued through August 2023, when the base rate reached 5.25 percent. It held there for a year before beginning to cut in August 2024. As of May 2026, it stands at 4.25 percent, having been reduced through a series of quarter-point cuts. The pace of cutting has been deliberately cautious, constrained by services inflation that remained stickier than the Bank's initial projections anticipated.

How the base rate affects mortgages

The relationship between the base rate and mortgage rates depends on the product type. Tracker mortgages move in near-lockstep with the base rate: a 0.25 percentage point cut reduces a tracker mortgage holder's rate by 0.25 percentage points, usually within days. Variable-rate and standard variable rate mortgages follow with a short lag and at the discretion of the lender.

Fixed-rate mortgages are more complicated. They are priced off swap rates rather than the current base rate, and swap rates reflect market expectations of where the base rate will be over the term of the fix. This means fixed rates can move before the base rate does, if the market anticipates a cut, and can stay elevated even after cuts, if the market doubts the cutting cycle will continue. For a detailed breakdown of how this is feeding through to current fixed-rate products, see our note on whether UK mortgage rates are going down.

How the base rate affects savings

When the base rate rose from 0.1 percent to 5.25 percent between 2021 and 2023, easy-access savings rates and cash ISA rates rose with it, reaching 5 percent or above at the peak. Those rates are now falling as the base rate is cut. The best easy-access rates have dropped from above 5 percent to around 4 to 4.5 percent. Fixed-term savings bonds and longer-dated ISAs have followed a similar path. Savers who locked in at the peak are benefiting from above-market rates until their terms expire; those looking for new deals are entering a declining-rate environment.

How the base rate affects businesses

Business borrowing rates are typically set at a margin above the base rate, with the exact margin depending on the lender's assessment of the borrower's creditworthiness and the type of facility. Revolving credit facilities, overdrafts, and floating-rate term loans all move with the base rate. The sharp rate increases of 2022 and 2023 raised the cost of servicing variable-rate business debt significantly. As the base rate falls, those costs are gradually reducing.

The effect is uneven across sectors. Capital-intensive businesses with significant debt loads, including housebuilders, commercial property companies, and leveraged buyouts, are the most sensitive to the rate cycle. Service businesses with low fixed assets and strong cash generation are much less affected. For businesses that deferred investment decisions during the high-rate period, the gradual return to lower rates creates a more favourable environment for capex, though the current 4.25 percent base rate is still well above the post-2010 average.

What happens next with the base rate

The MPC's published projections and the market's implied rate path both point to further cuts through 2026 and 2027, with the base rate expected to reach approximately 3.5 to 3.75 percent by end-2027. The pace depends on services inflation continuing to fall towards the 2 percent target and wage growth moderating from recent highs. If either condition fails to materialise, the cutting cycle will slow. The next MPC decision dates are published on the Bank of England MPC meeting dates page.

The base rate and every MPC decision is covered in the Briefed daily briefing, every weekday at 6:45am. CPIx, Briefed's composite consumer pressure index, tracks how the rate cycle is feeding through to household financial conditions in real time. Free to read.