Bank of England
Base Rate Projection

The Bank of England base rate is the single most important benchmark for the cost of borrowing in the UK. It influences what lenders charge on mortgages, what they pay on savings, and how the broader economy behaves. The chart above shows where the market expects the base rate to move, derived from SONIA futures — a forward-looking measure based on how traders and institutions are pricing overnight lending rates. This page explains what the base rate is, how it feeds through into the mortgage rates you are offered, how to interpret the chart, and what it all means when you are making mortgage decisions.

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What the Bank of England Base Rate Is

The base rate — formally called Bank Rate — is the interest rate the Bank of England charges commercial banks to borrow money overnight. It is set by the Bank’s Monetary Policy Committee (MPC), a group of nine members who meet approximately every six weeks to review economic conditions and vote on whether to raise, lower or hold the rate.

The MPC’s primary objective is to keep inflation at the government’s target of 2%. When inflation is above target, the MPC may raise the base rate to cool spending and borrowing. When inflation is below target or the economy is weakening, the MPC may cut the rate to encourage activity. The base rate is not set in response to mortgage markets directly, but because it shapes the cost of funding across the financial system, changes to it ripple through into the rates lenders offer to borrowers and savers.

How the Base Rate Affects Mortgage Rates

The base rate influences mortgage pricing, but the relationship is not always direct or immediate. Different mortgage types respond to base rate changes in different ways.

Tracker mortgages are the most directly linked. A tracker rate is typically set at a fixed margin above the base rate — for example, base rate plus 1%. When the base rate moves, the tracker rate moves by the same amount, and your monthly payment changes accordingly. If you are on a tracker, the chart above gives you a market-implied view of where your rate could be heading.

Fixed-rate mortgages are not directly tied to the base rate. Instead, they are priced off swap rates — the rates at which lenders hedge their funding costs over a fixed period. Swap rates reflect market expectations for future base rate movements over the term of the fix. If the market expects the base rate to rise over the next five years, five-year swap rates will price that in, and five-year fixed mortgage rates will typically follow. This is why fixed rates can move even when the base rate itself stays the same.

The standard variable rate (SVR) is each lender’s default rate, applied when a fixed or introductory deal ends. SVRs are influenced by the base rate but are set at the lender’s discretion and tend to be significantly higher than the rates available on new fixed or tracker products. Lenders are not obliged to pass on base rate changes to SVR customers in full or at all.

To discuss how base rate movements could affect your mortgage, call 01202 155992 or contact Mortgage One.

Understanding the SONIA Futures Chart

The chart on this page shows a market consensus forecast for the Bank of England base rate. It is generated using data from publicly traded Sterling Overnight Index Average (SONIA) futures and closely related benchmark interest rates.

SONIA is a measure of the rate at which banks lend to each other overnight using sterling. It is administered by the Bank of England and is widely used as a risk-free reference rate. SONIA futures are contracts that allow market participants to hedge or speculate on where SONIA — and by extension, the base rate — will be at a future date. Because these contracts are traded with real money at stake, the prices they produce represent a genuine consensus view of where rates are heading, rather than a single forecaster’s opinion.

The forward curve shown in the chart is interpolated and smoothed using a three-factor parametrisation model, producing a continuous projection of expected overnight rates over time. The curve can be interpreted as the market’s central expectation for the path of the base rate, though it is important to understand that this is a probability-weighted average — actual outcomes may differ, sometimes significantly, from what the curve implies.

The chart is updated periodically and reflects the market consensus at the time the data was captured. It should not be read as a prediction of what will definitely happen, but as a snapshot of what the market is pricing in at that moment.

What This Means for Your Mortgage Decisions

The base rate outlook is one factor to consider when making mortgage decisions, but it is not the only one. The right mortgage for your circumstances depends on the interplay between your income, deposit, property plans, risk appetite and the products available at the time you apply.

If you are approaching the end of a fixed deal, the chart can help frame the question of whether to fix again or move to a tracker. If the curve suggests rates are likely to fall, a tracker might save money — but at the cost of payment uncertainty. If the curve is flat or rising, fixing may offer better long-term value. Either way, remortgaging before your deal expires is almost always preferable to defaulting onto an SVR.

If you are buying a property, the chart provides context for the rates you are being quoted. Fixed mortgage rates price in market expectations for the base rate over the fixed period. Understanding whether the market expects rates to rise, fall or stay broadly flat helps you assess whether the fixed rates on offer represent reasonable value relative to what might happen with variable alternatives. A broker can run illustrations comparing the total cost of different product types over the deal period based on your mortgage affordability position.

If you are on a tracker mortgage, the chart is directly relevant to your payments. An upward-sloping curve suggests your payments may increase; a downward-sloping curve suggests they may decrease. However, these are expectations, not certainties — unexpected economic events can shift the curve quickly.

No forecast — whether from the market, an economist or a central bank — should be treated as a guarantee of what will happen. Mortgage One can help you interpret the current outlook in the context of your specific situation and advise on how to position your mortgage accordingly.

For the latest analysis of MPC decisions and how they affect the mortgage market, visit the Mortgage One mortgage news page.

For expert advice on timing your mortgage decision, call 01202 155992 or contact Mortgage One.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your specific circumstances.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1. What is the Bank of England base rate?

The base rate is the interest rate the Bank of England charges commercial banks to borrow money overnight. It is set by the Monetary Policy Committee and is the primary tool the Bank uses to manage inflation. Changes to the base rate influence the rates lenders charge borrowers and pay savers.

2. How often does the base rate change?

The MPC meets approximately every six weeks to review the base rate. It can meet more frequently in exceptional circumstances. The base rate does not change at every meeting — the Committee may vote to hold the rate steady if it judges current conditions do not warrant a move.

3. What are SONIA futures?

SONIA futures are financial contracts that allow market participants to trade on where they expect the Sterling Overnight Index Average rate to be at a future date. Because SONIA closely tracks the Bank of England base rate, SONIA futures provide a market-implied forecast of the base rate’s likely path.

4. Does the base rate directly set my mortgage rate?

It depends on your mortgage type. Tracker mortgage rates move directly with the base rate. Fixed-rate mortgages are priced off swap rates, which are influenced by base rate expectations but can move independently. Standard variable rates are set at each lender’s discretion and are influenced by, but not tied to, the base rate.

5. Should I fix my mortgage or choose a tracker?

This depends on your circumstances and appetite for risk. A fixed rate gives certainty on monthly payments for the fixed period. A tracker can be cheaper if the base rate falls, but your payments will increase if the base rate rises. A broker can model both scenarios against your finances to help you decide.

6. What happens to my mortgage if the base rate rises?

If you are on a tracker, your payments will increase by the amount of the rise. If you are on a fixed rate, your payments stay the same until the fixed period ends. If you are on an SVR, your lender may increase your rate, though the timing and extent are at their discretion.

7. How reliable is the SONIA futures chart as a forecast?

The chart reflects the market consensus at the time the data was captured. It is based on real trading positions, so it represents a genuine view of expectations, but it is not a guarantee. Unexpected economic events, geopolitical developments or shifts in inflation data can cause the curve to move significantly in a short period.