Interest rates held at 4.5%: what could happen to your finances? 

The BoE has held the base rate at 4.5% today, Thursday 20 March.  

Eight members of the BoE's Monetary Policy Committee voted for no change to the base rate, while one member voted to reduce it further by 0.25 percentage points to 4.25%.  

In February, the BoE voted to reduce the base rate to 4.5% due to the stagnating UK economy as the fallout from the Autumn Budget continued.  

The BoE’s decision to leave the base rate unchanged is driven by uncertainty over the UK jobs market, the direction of inflation, US trade tariffs, and the potential impact of higher employers’ national insurance contributions from April. 

In January, UK inflation rose from 2.5% to 3%, driven by transport, food, and drink costs. The BoE forecasts inflation will hit 3.7% by the third quarter of 2025 due to higher energy prices.  

While this may be troubling for millions of households, the market is expecting interest rates to fall further to 4% by the end of this year.  

How will mortgage rates be affected?  

No change in the base rate means there’s no expected impact for variable-rate mortgage holders, whose rates tend to be linked to the interest rate.  

Following February’s base rate cut, many lenders reduced their fixed-rate mortgage deals to under 4%, but whether this continues depends on various factors such as swap rates.  

The average five-year fixed-rate mortgage rate is currently 4.74%, according to Rightmove.  

A survey by Butterfield Mortgages has found a quarter of mortgage brokers (of 300 surveyed) believe the base rate will rise again to 5.2% next year. However, this view isn’t shared by the market, which thinks interest rates will fall to 4% by the end of 2025.  

If you’re hoping to buy a home, it’s more expensive than ever, even with an unexpected dip in February. Demand has recently risen due to upcoming stamp duty changes, which will come into effect next month.  

If you’re considering applying for a mortgage, make sure you can afford it, have a good credit score, and clear outstanding debt.  

A qualified mortgage broker can boost your chances of a successful application, whether it’s your first home or next property. Click below to find a regulated broker via Unbiased.  

How will savings rates be affected?  

Savings rates have been slowly falling from a recent peak after several base rate reductions over the last year, although they are still beating inflation, which is good news for savers.  

Even though the base rate is unchanged, now’s a good time to open a savings account prior to any further interest rate reductions, whether you opt for an easy-access account or a fixed-term account.   

You can get around 5% with a top easy-access account or around 4.5% with a fixed one.  

If you’re seeking even higher rates, have long-term financial goals, and don’t need easy access to your cash, you could consider investing. However, this comes with extra risk, so seeking financial advice is recommended.  

Your investments can rise and fall in value, but you may be able to ride out volatility by investing for at least a few years.  

You can quickly match with a regulated adviser via Unbiased, who can help you with an investment strategy or review your existing portfolio, as well as advise on how to reduce your tax bill legally.  

What about annuities?  

Annuities offer a fixed income for your retirement or a fixed period.  

Annuity rates increased throughout 2024 and at the start of 2025, with the latter linked to gilt yields surging to their highest level since 2008.  

While there’s been no change to interest rates, the expectation that they may fall further could impact annuity rates, which have held up so far. 

However, this cannot be guaranteed this year, especially after any future reductions to the base rate, so it’s worth considering an annuity now.  

Unbiased can match you with a qualified financial adviser who can help you find the best annuity for your circumstances.