Bank of England base rate remains at 4.75% in final vote of 2024

Disappointment for borrowers eagerly awaiting another cut as mortgage rates fall less than many hoped this year.

The Bank of England’s Monetary Policy Committee (MPC) today forwent the opportunity to give borrowers an early Christmas gift as it voted 6 to 3 in favour of holding the base rate at 4.75% in its final vote of this year.

After it was last week revealed the economy shrank by 0.1% in October, many might have hoped the committee would be spurred into reducing the UK’s central interest rate. However, with the Office for National Statistics (ONS) yesterday finding inflation accelerated for a second consecutive month to 2.6%, this seems to have stifled any rate-cutting appetite.

Fixed mortgage rates on the rise

Although another reduction would have been welcome news for mortgage borrowers on a variable rate, it was unlikely to have had any significant impact on fixed prices, which are often more susceptible to wider factors. Following last month’s cut, for instance, the average rate charged by a two-year fixed mortgage rose from 5.39% to 5.52% between November and December in the wake of the Autumn Budget and amid a volatile swap market. Meanwhile, the average five-year fixed rate saw a steeper incline from 5.09% to 5.28% over the same period.

Yet, despite month-on-month increases, both average rates have eased since the beginning of this year, when a typical two- and five-year fixed deal charged 5.93% and 5.55% respectively. Nevertheless, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, recognised “borrowers may feel frustrated that mortgage rates have not fallen by bigger margins during 2024”.

With estimates suggesting millions of borrowers are set to refinance in 2025, she added many “mortgage holders will be hoping that the Bank of England base rate will fall further next year” as this, combined with more favourable swap rates, could see interest rates drop.

But Oliver Dack, spokesperson for Mortgage Advice Bureau, reminded those coming to the end of a fixed term that it could still “prove more cost-effective to lock in a new fixed deal” rather than await a cut while sitting on a lender’s Standard Variable Rate (which charged 7.85% on average at the start of this month).

“While we expect interest rates to come down in 2025, there are no guarantees,” he explained. “The MPC’s hands are often tied by geo-political factors outside of their control and, as has been seen in the past, the mortgage market can easily be spooked.” He also added the “fast-approaching deadline to take advantage of temporarily heightened nil-rate Stamp Duty thresholds may prompt some borrowers into taking action sooner rather than later”.

Savers equally disappointed

The two cuts to the Bank of England base rate this year also saw savings rates tumble - much to the dismay of cash-strapped consumers. Average returns on an easy access account dropped by the biggest monthly margin in over four years and now sit at 2.96% on a first-of-month basis (compared to 3.15% at the start of the year). The typical rate paid by an easy access ISA, meanwhile, saw a more modest decline from 3.25% in January to 3.16% by December.

With further reductions on the cards for next year, Springall empathised with disheartened savers but said it’s “imperative” consumers continue to save little and often, build an emergency fund and consider switching to get the best returns.

“Loyalty does not always pay,” she stressed, highlighting easy access accounts from some of the UK’s biggest high street banks pay just 1.79%^* on average. Other brands are therefore not to be overlooked, including challenger banks that have been “working hard throughout 2024 to entice savers’ deposits” and building societies which offer “competitive returns … to reward their members”, Springall concluded.

^{* High street banks include Bank of Scotland, Barclays Bank, Halifax, HSBC, Lloyds Bank, NatWest, Royal Bank of Scotland and Santander. Averages collected from gross interest rates paid across all live easy access accounts with these brands based on a £10,000 deposit, latest rates as at 17 December 2024.}