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BoE Interest Rate Decision: How it Affects Your Savings, Mortgage, Pension and More
By Boring Money
18 Sep, 2025
The Bank of England (BoE) has held the base rate at 4.0% as it fights to keep a lid on sticky inflation at nearly double the target level. We explain what it all means for your money, whether you're hunting for the best savings rate, due for a remortgage, or weighing up your retirement options.
📉 What's happening with interest rates?
In September, members of the Bank's Monetary Policy Committee (MPC) voted to keep the base rate at 4.0%. This follows from the 0.25bps cut in August which took rates back to the level they were last at in March 2023.
Bank of England base rate, 2022 - present
The Bank's base rate is the interest rate it charges banks and lenders when they borrow money. It’s essentially the UK’s benchmark borrowing cost, and it influences everything from mortgage rates to savings accounts.
It's also the Bank’s main tool for controlling inflation, which it aims to keep at a target of 2%.
When inflation is high - meaning prices are rising too quickly - the Bank usually raises the base rate to encourage saving and reduce spending, which helps cool things down. When inflation is low or the economy is weak, the Bank may cut the base rate to stimulate borrowing and spending, giving growth a boost.
⬇️ What's happening with inflation?
The rampant inflation that dominated the UK economy after the pandemic and prompted the bank to raise rates in 2022 has already fallen significantly from its peak of 11.1%.[1]
However, the latest data shows UK inflation is still tracking at almost double the BoE target at 3.8%, driven primarily by a sustained surge in food costs. This is despite the fact that other costs, such as air fares and transport, have in fact come down.[2]
The current rate is of course well above target, so the decision to hold the base rate in September came as no surprise to the majority of analysts. Questions remain, however, on the Bank's strategy for the months ahead.
Deutsche Bank economist Sanjay Raja suggests there is a risk that the MPC will stray from its narrative of “gradual and careful” reductions to the base rate. He also points out the Chancellor's decision to delay the Autumn Budget to the last week of November could prompt the MPC to opt for a "wait and see" approach to further cuts.[3]
With the Autumn Budget pushing later into November, the Monetary Policy Committee may wish to wait to see the finer details of the fiscal policy outlook as well as how pay settlements are tracking into the final meeting of the year before pulling Bank rate lower.
The consensus is that the Bank will put the brakes on any imminent rate cuts before the end of the year. Professor Joe Nellis, economic adviser at the advisory firm MHA, agrees the latest figures confirm "the battle against inflation is far from over and there is no return to normality yet".[4]
Nevertheless, previous BoE estimates projected a spike in inflation to "around 4%" in September 2025. The Bank emphasised it expects this peak to be "temporary" and "should fall back to 2% after that".[5]
Inflation has slowed substantially over the past two years – the events that led to price rises have settled down and raising interest rates has had the desired effect. However, we predicted that inflation would follow a bumpy path and we expect it to rise to around 4% in September. This is because of food and energy prices, as well as the prices other services. But this increase should be only temporary, and inflation should fall back to 2%.
💰 Savings: Clock is ticking on competitive rates
Savings rates have eased back over the past year and while a flat rate may slow the pace at which those top deals disappear – assuming further interest rate cuts get delayed – the downside is that high inflation erodes the real value of returns.
It's been good news for savers in recent years, having enjoyed competitive returns with easy-access and fixed-term savings products paying as much as 5%+. But this could all change as and when further rate cuts come to fruition.
Banks and building societies tend to align their cash savings products with the base rate, although they’re often a bit slower to react when there are changes (especially when it suits them).
With the base rate steady, many current accounts are still offering competitive rates, such as Santander Edge at 6% and Nationwide's 5% FlexDirect account. The top easy-access Cash ISAs are hovering above the 4% mark and fixed-term accounts are at a similar level.
Evidently, the usual advice is to shop around and make sure you're getting the best rate you can. And with the Autumn Budget fast approaching and rumours swirl of a tax and savings allowance raid, switching to a more competitive savings account could provide a much-needed silver lining.
Brits may be concerned that more bad news is coming at Reeves’ autumn budget amid reports of record-high borrowing costs. Small changes such as moving your savings into a higher paying account can offer a much-needed boost, and could help bear some of the financial burden of any budget announcements.
🏡 Mortgages: Relief for many with reduced rates
For many homeowners and buyers, the Bank's decision to hold the base rate at 4.0% - though expected - will nevertheless be a disappointment and a sore reminder that the cost of living crisis is still very much alive.
Mortgage rates have edged up in recent weeks, as the rate outlook of ‘higher for longer’ has taken its toll on lender’s funding. Although that hasn’t sent rates sky high, it’s certainly forcing borrowers to make quicker decisions and act quickly to secure a deal.
📉 Tracker mortgages
Trackers rise and fall directly in line with the base rate - so if you're on this deal then your repayments will stay the same for the timebeing. It's not necessarily awful news, but does mean that many households will continue to feel the squeeze for longer.
🌀 Variable rate mortgages
Standard variable rate (SVR) mortgages aren’t directly tied to the base rate, but most lenders follow the Bank’s lead. Around 600,000 homeowners in the UK have an SVR deal, and the current average rate is 7.5%.[6] If the base rate is cut later in the year, this should be reflected - just bear in mind that SVRs are typically higher than most fixed deals, and lenders can be notoriously sluggish about passing on cuts.
🔒 Fixed rate mortgages
Fixed deals nudged higher ahead of the MPC meeting in anticipation of a "no change" outcome. HSBC, Halifax, Nationwide and Santander are among the major lenders which have upped their rates recently, with the average 2-year fix now at 4.75% and the average 5-year fix at 4.95%.[7] With hopes of further cuts before the end of the year in jeopardy, this is undoubtedly bad news for homebuyers or those rolling off a pandemic-era fix.
Shifting interest rate expectations mean that rates may not fall as fast as hoped. For existing borrowers looking to refinance, outcomes will vary. Those coming off short-term fixes, secured during the peak post-pandemic rate period, may find better deals now. But borrowers nearing the end of ultra-low, long-term fixes taken before rates began their rapid ascent in December 2021 could face a sharp rise in monthly repayments, unless they’ve significantly reduced their outstanding balance.
👵 Pensions & annuities: Rates still at record highs
After a period in the doldrums, the annuity market has roared back to life off the back of base interest rate increases and soaring gilt yields. And today’s rate hold from the Bank of England will only continue to contribute to a sustained period of success.
Higher interest rates over the past few years have helped push annuity rates to their highest levels in over a decade. That’s been a rare slice of good news for retirees looking to lock in a guaranteed income for life, but if further cuts are on the horizon, we could see rates start to decline.
That being said, experts maintain it's unlikely that annuities will plummet overnight, even if the BoE manages to squeeze in two rate cuts from the final meetings before the end of the year.
While the recent upward trend has been steady, it feels unlikely annuity rates will fall back to historic lows. Interest in annuities is likely to remain strong, particularly given the anticipated changes to [Inheritance Tax] in 2027, which may prompt more people to consider annuities as part of their retirement planning.
Best annuity rates, September 2025
Age | Single Life, Level | Joint Life, 50% | RPI-linked |
60 | £7,000 (7.0%) | £6,700 (6.7%) | £4,600 (4.6%) |
65 | £7,800 (7.8%) | £7,300 (7.3%) | £5,400 (5.4%) |
70 | £8,700 (8.7%) | £7,900 (7.9%) | £6,300 (6.3%) |
Source: Retirement Line, Hargreaves Lansdown.
If you're approaching retirement and considering an annuity, it would be wise to shop around and start getting quotes well in advance. This will give you the best chance of securing the best possible rate on your retirement savings.
It's also worth remembering that annuities aren't your only option and that you can even opt to blend one with a drawdown strategy to maximise your income:
For those who want to lock in an income for retirement and ensure essential needs are covered, but still want an element of flexibility, it is helpful to remember that annuities can be used alongside other decumulation strategies. One way is by keeping some savings in drawdown or by staggering the purchase of annuities to benefit from higher rates as you age. This offers the best of both worlds: the certainty and security of a guaranteed income, with the flexibility to respond to changing needs throughout retirement.
If you're considering purchasing an annuity, contact a professional annuity broker or financial adviser before committing yourself to anything. They can help you filter options best suited to your individual circumstances.
🎯 The bottom line
Here are the key takeaways of what you need to know about your mortgage, savings, and pension pot in light of the Bank's decision:
🤔 So what should you do?
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[1] House of Commons, July 2024
[2] Office for National Statistics, September 2025
[3] Deutsche Bank UK, September 2025
[4] MHA, August 2025
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