The Bank of England’s Monetary Policy Committee has voted to hold the base rate at 4.75% in December.
Rates have only been cut twice this year, with the first reduction having been made in August and the second in November. The Committee voted by 6-3 to leave rates on hold. The news is disappointing for homeowners on tracker and other variable mortgage rates, as they won’t see any reduction in their monthly costs. It is more positive for savers who currently have a wide choice of accounts offering inflation-beating returns.
The past couple of years have seen rates rise 14 times in a bid to curb rampant inflation, but with inflation at 2.6% in the 12 months to November, the Committee decided to pause on rate cuts for now.
Markets are now only pricing in a couple of rate cuts next year. Ed Monk, Associate Director at Fidelity International, said: “The decision to hold rates today underlines that the battle to bring inflation under control is still not won. The outlook for rates has changed meaningfully over the past few weeks with markets pricing in roughly one fewer rate cuts over the next 12 months than had been the case a month ago. Inflation has proved more difficult to shift, with the official rate creeping back to 2.6% and ending the year higher than the Bank had been forecasting. Further increases are expected in the first half of 2025.
“Meanwhile, growth is running out of steam with the economy unexpectedly shrinking in October. That’s a horrible mix for policymakers – both at the Bank and in Downing Street, where Rachel Reeves has pinned her plans on a recovery to widen the tax base next year and help pay for the Government’s huge spending injection. Interest rates staying higher for longer will make that harder, as well as increasing the cost for the Treasury to borrow money.”
Here, we explain what rates being held at 4.75% in December might mean for you, and how it’s likely to impact your finances.
Your savings
Savings rates remain competitive for now, and December’s rate hold makes it more important than ever for savers to take advantage of high returns whilst they’re still available.
Adam Thrower, head of savings at Shawbrook, said: “After the recent base rate cut, savers will be relieved to see a brief pause in the rate-slashing agenda. But time’s ticking to lock in high-paying accounts before the next cut, which could see savings rates tumble.
“There’s a lot going on this month but if you have a few spare minutes, it’s worth adding ‘open a new savings account’ to your to-do list and look at the possible tax implications of where your money is sitting. A whopping 4.2 million UK savings accounts could be tax liable now so reviewing your savings options—including ISAs—could be a great present to give yourself this year.”
You can find the current best fixed savings rates in our article Fixed rate savings bonds explained and the best cash ISA rates in our guide Best cash ISA rates – which cash ISAs pay the most interest?
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Those with longer-term savings goals – more than five years and preferably at least 10 – and who are comfortable accepting a level of risk, may want to consider investing some of their money in the hope of generating inflation-beating returns. However, remember that there’s a chance you could get back less than you put in, so investing isn’t for the faint-hearted.
Find out more about whether investing some of your savings could be right for you in our guide Investing – the basics.
What you can do
As mentioned, it’s essential to make sure your savings are working as hard as they possibly can for you, as often banks lure savers in with tempting rates only to reduce them a few months later.
Check savings websites such as SavingsChampion or Raisin, or price comparison sites such as Moneyfactscompare.co.uk, uSwitch or GoCompare to see if you can find a higher interest paying account to move to.
If you have money in a fixed rate savings account and you think you could do better elsewhere, check what the penalties are for closing your account. In some cases it may just be a few months’ interest and you may be better off moving your money to an account paying higher returns.
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Your pension
If you’re approaching retirement and considering using some or all of your pension savings to buy an annuity to provide you with an income, today’s announcement is positive news.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown said: “There were no surprises from the Bank of England today, who opted to hold rates, with the expectation being that further cuts will come very gradually. This signals good news for the annuity market as this will help incomes remain steady.
“The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,281 per year from a single life level annuity with a five-year guarantee. This is not much lower than the £7,586 top rate available in the aftermath of the mini-Budget, so annuities are still offering great value for money and will prove a tempting prospect for people on the hunt for a guaranteed income in retirement.
“If you are in the market for an annuity, then it’s hugely important to search the market to get the best product for your needs. Quotes can differ between providers and opting for the first one could leave you thousands of pounds worse off in retirement. Adding in extra information around health and lifestyle can also mean you get an increased income. It’s well worth taking the time to use an annuity search tool to see what’s out there.”
With the path for future cuts expected to be slower than previously anticipated, many believe annuities may remain attractive for some time yet.
Learn more in our guides Annuities explained and Why it pays to shop around for your annuity.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Your mortgage
The Bank’s decision to hold the base rate at 4.75% will come as a blow to homeowners, many of whom are facing a sharp jump in their monthly payments when their fixed rate deals come to an end.
Rachel Springall, finance expert at Moneyfactscompare.co.uk said: “Although another reduction would have been welcome news for mortgage borrowers on a variable rate, it was unlikely to have had any significant impact on fixed prices, which are often more susceptible to wider factors.
“Following last month’s cut, for instance, the average rate charged by a two-year fixed mortgage rose from 5.39% to 5.52% between November and December in the wake of the Autumn Budget and amid a volatile swap market. Meanwhile, the average five-year fixed rate saw a steeper incline from 5.09% to 5.28% over the same period.
“Yet, despite month-on-month increases, both average rates have eased since the beginning of this year, when a typical two- and five-year fixed deal charged 5.93% and 5.55% respectively.”
You can find out more about remortgaging in our article Should I remortgage now? and why mortgage rates move even when the base rate has stayed the same in our guide What are swap rates and how do they affect my mortgage?
What you can do
Even though the base rate hasn’t changed, if you’re on a standard variable rate, you may want to remortgage to a cheaper deal if you can find one. You might also want to start looking round for a new deal now if your current mortgage deal is due to end in the next few months, as you can usually secure your next mortgage three to six months before you want it to begin.
If you’re planning to remortgage and are looking for a place to start, we have a mortgage affordability calculator, which will give you a rough estimate of what you might be able to afford, based on current market conditions.
Once you have a rough estimate, it can be helpful to compare different mortgage options to understand what your monthly repayments are likely to be.
Unless your situation is very straightforward, you may want to seek professional advice from a broker to find the best mortgage option for you. The advantage is that they will know which banks and building societies are more likely to accept your application. It’s definitely worthwhile if you are self-employed (unless you have been so for years) or your credit rating isn’t excellent.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher costs.
Your credit card and loans
Borrowing costs are likely to remain high for now so it’s important not to take on more debt if you can possibly avoid it.
Myron Jobson, Senior Personal Finance Analyst, interactive investor, said: “The latest decision to hold interest rates means mortgage rates, credit card rates, and loan rates could remain elevated for longer. However, inflation is also a significant burden on households, and the Bank of England argues that cutting rates too soon risks undoing the progress made in crushing rapid price rises.”
What you can do
If you’re paying a high rate of interest on your credit card borrowing, try and get a 0% balance transfer credit card deal, so that you can pay off what you owe without being hit by hefty interest charges. Remember though that you must try and clear your balance in full before the introductory 0% period ends, or you’ll start being charged interest.
If you can’t get one, you have the right to reject the interest rate rise within 60 days and close your credit card account. The credit card company must then give you a reasonable time to pay off the money you owe.
If you’re worried that you won’t qualify for a 0% credit card deal, there are several credit checker and credit matcher tools available – and some credit card companies will also give you an indication of whether you’d be successful before you apply.
You can find the current best balance transfer credit card and personal loan rates in our guide Balance transfer credit cards and personal loans compared.
If you have a loan which you want to pay off quickly, lenders must allow you to do this, although you may be charged an early repayment penalty to do so. Lenders can charge you up to two months extra interest if you choose to pay back your loan off sooner than planned. If your loan has less than 12 months left to run, they can only charge you a penalty of up to one month’s interest if you pay it off early.
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