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The Bank of England is expected to hold interest rates for a third time in a row following a run of 14 consecutive increases.
The Bank rate, set by the Monetary Policy Committee, is currently at 5.25%. The next decision will be published at 12:00 GMT on Thursday.
Another hold may bring some relief to homeowners who have seen mortgage rates rise but savers are unlikely to see a boost.
When might interest rates go down?
The Bank rate is currently at its highest level for 15 years.
The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and inflation.
Rates have risen 14 times in a row since December 2021 as the Bank tries to bring inflation closer to its target of 2%.
Prices rose by 4.6% in the year to October, according to the Office for National Statistics (ONS). This was slower than the increase a month earlier and also down from the peak of 11.1% in October 2022.
Although that is still more than twice the Bank’s target, falls have influenced the decision to pause the run of Bank rate rises. The previous decision was split, with six of the nine-member committee voting for no change.
Policymakers will be keeping a close eye on the “core inflation” rate – a measure which strips out volatile factors such as food and energy.
The chances of rates actually starting to fall again look slim before next summer.
At one point, UK rates were expected to rise above 6%, but that peak is now expected to be lower, even if there is a rise at a later date.
The Bank has to balance the risk of damaging the economy, which has shown little sign of growth, with the need to slow price rises.
Its Monetary Policy Committee meets eight times a year to decide rates.
How do interest rates affect me?
Mortgages
Just under a third of households have a mortgage, according to the government’s English Housing Survey.
When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.
Despite the pause in rises, compared with December 2021, those on a tracker mortgage are still paying £540 more a month, and those on an SVR are paying £299 more a month.
Around three-quarters of mortgage customers hold fixed-rate deals. Lenders may now have some confidence to lower mortgage rates, although they are still much higher than much of the last 10 years.
Comparatively high interest rates mean house buyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a year or more ago.
As people roll off cheap fixed-rate deals on to products with much higher rates, monthly repayments can soar by hundreds of pounds. Banking trade body UK Finance says there are about 1.6 million deals expiring next year.
The Institute for Fiscal Studies, a politically independent think tank, has warned that rising interest rates could mean 1.4 million mortgage holders see their disposable income fall by more than 20%.
You can see how your mortgage may be affected by using our calculator:
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This calculator does not constitute financial advice. It is based on a standard mortgage repayment formula based on the mortgage size and length and a fixed interest rate. It should be used as a guide only and does not represent the suitability, eligibility or availability of mortgage offers for users. For exact figures, users will need to approach an official mortgage lender.
Interest rates fluctuate based on the Bank of England’s base rate and market conditions.
Credit cards and loans
Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
Bank statistics show that in October, the average annual interest rate was 22.52% on bank overdrafts and 21.05% on credit cards. The average rate for personal loans was 8.71%, down very slightly on the previous month.
Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England in the future.
Savings
Individual banks and building societies have been under pressure to pass on higher interest rate rises to customers.
There are some good deals on the market already, so analysts say that customers should shop around, as many will be on accounts paying little or nothing.
The UK’s financial watchdog has warned that banks will face “robust action” if they offer unjustifiably low savings rates to their customers.
Why have prices been going up?
Inflation has been relatively high worldwide, after Covid restrictions eased and consumers spent more.
Many firms experienced problems getting enough goods to sell. Oil and gas costs were also higher than they had been – a problem made worse by Russia’s invasion of Ukraine.
Although many elements of inflation are global, there are also domestic factors at play in the UK, including rising wages.
Are other countries raising their interest rates?
Interest rates have been increasing across the world in recent months.
The UK has had one of the highest rates in the G7 – a group of the world’s seven largest so-called “advanced” economies.
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