What are UK interest rates and when will they fall?

The Bank of England is expected to hold interest rates for the fourth time in a row on Thursday, with some analysts expecting possible cuts later in the year.

The UK inflation rate has come down sharply in recent months, easing cost-of-living pressures.

However, the UK economy has been stagnating amid increased borrowing costs and other pressures.

Borrowers have seen costs go up to the highest rate for 15 years.

Allan Monks, an economist for JP Morgan, said it was widely expected that rates will be kept the same on Thursday.

He added the Bank will “almost certainly” hint that rate cuts are moving up the agenda – but policymakers will remain cautious about cuts.

Sanjay Raja, a senior economist for Deutsche Bank, said he expected the Bank to unanimously vote to hold rates at 5.25%.

But he also expected caution about when future cuts may happen.

Interest rates set by the Bank of England affect mortgage, credit card and savings rates for millions of people across the UK.

In recent months, the Bank has held interest rates steady at 5.25% three times, after 14 increases to tackle rising prices.

What are interest rates and why do they change?

The Bank of England’s base rate, currently 5.25%, is what it charges other lenders to borrow money.

This has a knock-on effect on what other banks charge their customers for loans such as mortgages, as well as the interest they pay on savings.

The Bank’s Monetary Policy Committee meets eight times a year to decide what the base rate should be.

It has a target to keep UK inflation at 2%. Inflation is the rate at which prices are rising across the economy as a whole.

When inflation is going up, the Bank may decide to raise rates to encourage people to spend less. The idea is that this helps bring inflation down by dampening demand.

Once this starts to happen, the Bank may hold rates, or cut them.

How do interest rates affect me?

Mortgages

Just under a third of households have a mortgage, according to the government’s English Housing Survey.

When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.

About three-quarters of mortgage customers have fixed-rate deals. Their monthly payments aren’t immediately affected when the Bank changes rates, but future deals are.

Although mortgage rates have been lower recently, they are still much higher than they have been for much of the last decade.

This means homebuyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a few years ago.

About 1.6 million deals will expire in 2024, according to banking trade body UK Finance.

You can see how your mortgage may be affected by interest rate changes by using our calculator: