Bank of England interest rates decision due on Thursday - will base rate be cut again?

The Bank of England will announce its latest interest rates decision this week. The base rate is currently at 4.75% after it was held at the previous Bank of England meeting in December 2024. This is down from a high of 5.25% after policymakers cut the base rate twice in 2024. The base rate is important as it affects how much interest you pay on your mortgage, credit card and other borrowing costs. It also impacts how much money you make on your savings. The Bank of England meets every six weeks to decide whether to change the base rate, and its next meeting is scheduled for this Thursday. There is good news expected, as at the time of writing, markets are expecting a cut to 4.5% to be confirmed.

It comes after inflation - which is a measure of how prices have changed over time - unexpectedly fell to 2.5%. While this is good news for the economy, inflation is still hovering above the 2% Bank of England target. The Bank of England has been raising interest rates to try and bring inflation down, as when borrowing becomes more expensive, people typically spend less, which can help to slow down price increases.

Inflation fell to 1.7% last September, its lowest level in three years, and the next inflation update will be released on February 19. Editor-in-Chief of TopMoneyCompare, Russell Gous said: "With a cut to 4.5% widely expected, a surprise decision to hold rates at 4.75% would likely rattle markets. "Experts estimate the chances of a cut at around 90%, expecting an 8-1 decision in favour. So a decision to stick at 4.75% would come as a real shock - but it’s not impossible. Inflation did fall in December, but it’s still stubbornly above the 2% target, and concerns of exacerbating inflationary pressures could influence a hawkish response.

"Major mortgage lenders have already started reducing rates in anticipation of a cut, and an unexpected hold could force them to reassess their pricing. This could create uncertainty for borrowers, particularly those looking to secure new deals in the coming weeks.". But inflation isn't the only thing the Bank of England looks at when deciding what to do next with interest rates. Wage growth is another major factor that is taken into account. If pay rises too sharply, then it sparks worries that businesses may put up prices to offset higher wages for staff. Pay growth rose to 5.6% in the three months to November 2024.

The Bank of England also considers core inflation when making a decision on interest rates. Core inflation - which doesn't include more volatile factors such as food or energy prices - is now at 3.2%, down from 3.5%. The annual rate of inflation for services in the UK - which includes businesses such as restaurants and hairdressers - is also lower at 4.4%, down from 5%. Jasmin Ehlert, Head of Bank Analytics at Raisin, said: "We expect the Bank of England to cut rates by 25bps, bringing the base rate to 4.5%. This would mark the third cut in this cycle, following a steady rate in December. While cutting rates too quickly presents risks due to inflationary pressures and strong wage growth, the unexpectedly low inflation data for December should provide enough justification for this move.

"Additionally, concerns about economic stagnation and growing trade tensions, especially with the US, could further weaken growth, making the case for a rate cut even stronger. We anticipate the Bank will continue to lower rates, with the possibility of the base rate dropping below 4% by the end of the year.". Get our money-saving tips and top offers direct to your inbox with the Mirror Money newsletter.