Bank of England raises base rate to 5.00%

The Bank of England announced on 22 June 2023 that it was raising the base rate to 5.00%, an increase of 0.50 percentage points from the previous rate of 4.50%¹. The base rate is the benchmark interest rate set by the Bank of England, and it serves as a reference point for determining interest rates on financial products such as savings accounts in the UK¹. The base rate can change regularly, and when it does it affects the interest rates offered across the financial services sector, including savings accounts and mortgages¹.

The Bank of England seeks to control inflation by raising the base rate, the rate at which commercial banks pay to borrow money from it. A higher base rate usually means higher interest rates for borrowers, including mortgages, credit cards and loans, which in turn tends to encourage people to spend and borrow less and slow rising prices by reducing demand². Banks usually pass on higher interest rates to savers, though it is not clear whether that will continue to be the case².

The effect on unsecured borrowing has historically been limited. The base rate has almost no influence on the rates charged by credit card companies, which have stayed at around 18% for several years, and average APRs have been creeping up as the base rate has fallen³. Overdraft rates increased, rather than fell, when the base rate was slashed in 2008, and personal loans also became more expensive in the immediate aftermath of that cut before costs gradually came down again³. Personal loans are normally agreed at a fixed interest rate, so any increase affects new customers only³.

Why it matters for households

A base rate of 5.00% is the reference point lenders use when pricing mortgages, savings accounts and other products¹. Households on tracker or standard variable rate mortgages, and those whose fixed deals end, face the prospect of higher repayments, while savers may see better rates on deposits, though it is not clear whether banks will continue to pass higher rates on². Credit card rates have historically moved independently of the base rate, sitting at around 18% for several years³. Personal loan rates are usually fixed at the point of agreement, so a change affects new borrowers rather than existing ones³.

What happens next

The sources do not set out the Bank of England's next scheduled decision or any further change to the base rate. The Bank of England's Monetary Policy Committee sets interest rates and meets on a published schedule; the dates of forthcoming meetings have not been reported here.