The base rate (officially called Bank Rate) is the interest rate set by the Bank of England’s Monetary Policy Committee (MPC). It is the rate at which the Bank of England lends to commercial banks, and it has a direct influence on the interest rates those banks charge consumers on mortgages, loans, and savings accounts.
The MPC meets eight times a year to decide whether to raise, lower, or hold the base rate. Their decision is driven primarily by inflation targets — if inflation is above the 2% target, rates tend to rise; if the economy is sluggish, rates may be cut to encourage borrowing and spending.
For mortgage borrowers, the base rate matters most if you have a tracker mortgage, which moves in lockstep with it. If the base rate rises by 0.25%, your tracker rate rises by 0.25%. Fixed-rate mortgages are not directly affected during the fixed period, but the base rate influences the pricing of new fixed deals. Lenders also adjust their SVRs in response to base rate changes, though not always by the same amount or at the same time.
If the Bank of England base rate is 4.5% and you have a tracker mortgage at base rate plus 0.75%, your mortgage rate is 5.25%. If the MPC raises the base rate by 0.25% to 4.75%, your mortgage rate automatically increases to 5.5%, adding roughly £30 per month to repayments on a £200,000 mortgage.
Key Points
- Set by the Bank of England’s Monetary Policy Committee, which meets eight times a year
- Directly affects tracker mortgage rates, which move in lockstep with it
- Influences the pricing of new fixed-rate deals and lenders’ SVRs
- Driven primarily by inflation — rates rise when inflation exceeds the 2% target
- Changes are announced at midday on MPC decision days and take effect immediately