How do interest rates affect me and when will they come down?

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The Bank of England held interest rates at 5.25% in May, but cuts are expected later in the year, as inflation continues to fall.

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

What are interest rates and why do they change?

An interest rate tells you how much it costs to borrow money, or the reward for saving it.

The Bank of England's base rate is what it charges other lenders to borrow money.

This influences what other banks charge their customers for loans such as mortgages, and the interest they pay on savings.

The Bank of England moves rates up and down in order to control UK inflation - the increase in the price of something over time.

When inflation is high, the Bank - which has a target to keep inflation at 2% - may decide to raise rates.

The idea is to encourage people to spend less, to help bring inflation down by reducing demand.

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

When will UK interest rates go down?

The Bank rate is currently at its highest level for 16 years.

However, it was higher than this for much of the 1980s and 1990s, and was 17% in November 1979, external.

There have been questions about why interest rates have not been cut, as inflation is now much lower than its peak of 11.1% in October 2022.

It was 2.3% in April, down sharply from the March figure due to a drop in energy prices.

Speaking after May's decision to keep interest rates at 5.25%, the Bank's governor Andrew Bailey said he was "optimistic that things are moving in the right direction".

But he said the Bank needed to "see more evidence" that price rises had slowed further before cutting interest rates.

He left open the possibility of an interest rate cut at its next meeting on 20 June.

However, inflation in the services sector - which includes everything from hospitality to hairdressing - remains higher than expected, so some experts think a cut later in the summer is more likely.

The Bank has to balance the need to slow price rises against the risk of damaging the economy, or having to raise interest rates again very soon in the future.

How much could interest rates fall?

While UK inflation is currently close to the Bank's target of 2%, it is expected to rise a little over the course of the year before settling back down in early 2025.

The International Monetary Fund (IMF) has recommended that UK interest rates should fall to 3.5% by the end of 2025.

But the organisation, which advises its members on how to improve their economies, acknowledged that the Bank had to balance the risk of not cutting too quickly before inflation is under control.

How do interest rates affect me?


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

When interest rates rise or fall, more than 1.2 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their payments.

More than eight in 10 mortgage customers have fixed-rate deals. While their monthly payments aren't immediately affected, any future deals are.

Mortgage rates are much higher than they have been for much of the past decade.

This means homebuyers and those remortgaging have to pay a lot more than if they had borrowed the same amount 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:

Credit cards and loans

Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.

Lenders could decide to put their rates up if they expect higher interest rates from the Bank of England. However, if rates fall, interest payments may get cheaper.

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Low interest rates are good for borrowers, but bad for savers


The Bank of England interest rate also affects how much savers can earn on their money.

Individual banks and building societies have been under pressure to pass on higher interest rates to customers.

There are some good deals on the market and experts say customers should shop around, as money may be in accounts paying little or no interest.

The UK's financial watchdog warned banks will face "robust action" if they offer unjustifiably low savings rates to customers.

Are other countries raising their interest rates?

Interest rates have been increasing across the world over the past few years.

However, in recent months, other central banks - including the US Federal Reserve and the European Central Bank - have also paused their rate rises, with the next moves expected to be downwards.

The UK has had one of the highest interest rates in the G7 - the group representing the world's seven largest so-called "advanced" economies.