By Clare Yates
5 min read
With inflation remaining well above the Bank’s target level of 2%, its Monetary Policy Committee has opted to hold rates for now.
After a year and a half of cuts, economists had been debating whether the Bank would reduce rates further this week. Today’s decision confirms a temporary pause in rate cuts, although more are expected throughout 2026.
A quick timeline of recent rate changes
Since August 2024, the Bank of England has cut rates six times in its continued efforts to bring inflation down from its peak of 10% just over three years ago:
July 2024: The Bank Rate started its easing cycle after a period of tightening, falling from a peak of 5.25% down to 5%.
November 2024: Monetary Committee votes to bring the rate down to 4.75%.
February 2025: Base rate reduced from 4.75% to 4.50%.
May 2025: Another cut brought it down to 4.25%.
August 2025: Rate dropped further to 4%.
December 2025: Base rate fell to 3.75%.
February 2026: The Bank holds the rate at 3.75%.
The Bank of England said in December that it expects the base rate to fall gradually, depending on whether factors such as pay growth and services inflation continue to ease.
However, inflation continues to run above target, with the latest data showing a rate of 3.4% in the year to December.
Speaking about the decision to hold rates, Andrew Bailey, the Bank’s governor, said: “We now think that inflation will fall back to around 2% by the spring. That’s good news. We need to make sure that inflation stays there, so we’ve held interest rates unchanged at 3.75% today. All going well, there should be scope for some further reduction in the bank rate this year.”
What this means for borrowers
With rates staying put for the time being, borrowing costs for variable products remain fairly stable.
Mortgages: If you’re on a tracker or variable mortgage, your payments should stay roughly the same, depending on your lender. Some banks such as NatWest use their own base rate, which they can change at any time.
Fixed-rate deals won’t change until their term ends, but January saw lenders kick off a mortgage price war following December’s cuts, making new deals cheaper. However, some economists say fixed-rate deals already factor in expected cuts this year, so whether we see further reductions remains uncertain.
Loans and credit: Personal loans, overdrafts and other borrowing linked to the Bank Rate should remain predictable for now, giving borrowers some breathing space for budgeting.
Credit cards: Some credit cards have variable rates that follow the base rate, so today’s announcement could mean you’ll see no change. However, most cards aren’t tied directly to the Bank Rate as lenders set rates based on risk, demand and their own costs. That means many cards will stay the same even after a cut, so it’s always worth reviewing options, balance transfer offers, or switching to a card better suited to your needs.
What this means for savers
If you’re relying on cash savings, holding rates at 3.75% means your savings account interest rate is less likely to drop for the moment, but bear in mind that further cuts are expected at some point soon in 2026.
Many top savings deals were quickly reduced after December’s cut, so more adjustments from banks are likely. That said, there are still competitive options available, especially if you’re happy to lock your money away for a bit with a fixed-rate savings account. Grabbing a good fixed-rate deal now could be a smart way to make the most of your money before any further reductions are made.
Thinking about arranging a pension annuity?
If you’re nearing retirement and thinking about securing a guaranteed income for life with an annuity, bear in mind that base rate changes aren’t the main factor that affects annuity rates and income. Gilt yields matter more.
Yields were historically very high at the start of 2025, though they did come down slightly during the last year. Even so, longer-dated gilts - including 15-year gilts that are an important benchmark for pricing pension annuities - have stayed relatively strong. That’s good news for anyone thinking about securing a guaranteed income in retirement with an annuity soon.
Of course, rates can still fluctuate, so if you’re planning to retire soon, it’s worth reviewing your options and considering whether arranging an annuity now fits your plans.
What lower interest rates mean for you
The Bank of England has suggested more interest rate cuts could come in 2026. How these changes affect you will depend on your products and providers, so it’s worth checking your situation and comparing products or seeking advice if needed.
Savers and borrowers alike should keep an eye on interest rates and plan accordingly. There’s never a bad time to revisit your mortgage, loans, credit cards and savings, and think about how to make your money work harder.