The BoE raises rates to 4%. What could it mean for your savings?

The Monetary Policy Committee voted by a majority of eight to one in favour of the 0.25 percentage point increase. The move was widely anticipated by financial markets, which had already priced in a hike ahead of the 5 November meeting.

The decision to increase interest rates was largely fuelled by stubborn inflation. Headline CPI inflation currently sits at 3.5%, well above the central bank’s 2.0% target. Rising energy prices, largely attributed to the ongoing conflict in the Middle East, are expected to keep inflation elevated into 2027. This persistence has dampened previous expectations of future rate cuts, which mounted earlier this year as inflation appeared to be edging closer to the 2% target. 

“There is now enough inflationary pressure in the pipeline caused by the rise in energy prices that an increase in Bank Rate is warranted,” said Andrew Bailey, Governor of the Bank of England. He added that while a long sequence of hikes is not inevitable, today’s increase is unlikely to be the last “unless the conflict in the Middle East is resolved”.

An increase in the bank rate pushes up the price of borrowing and can lead to higher mortgage costs if an increase has not already been priced in. For UK savers, the headline increase provides a boost to potential cash returns after a prolonged period of rate reductions that saw the base rate trimmed from its 2023 peak of 5.25%.

However, cash held in high-street accounts may not see an immediate uplift. Major lenders typically take some time to adjust savings rates on standard accounts, and they may not pass on the full benefit of a central bank hike to customers.

Locking in an interest rate with fixed rate bonds can offer savers predictability in a changeable economic climate. However, higher bank rates also risk pushing more savers beyond their Personal Savings Allowance. Basic-rate taxpayers can earn up to £1,000 in savings interest each year without paying tax, while higher-rate taxpayers have an allowance of £500. An ISA can help maximise tax-free savings, with a £20,000 annual allowance on deposits.