Bank of England Base Rate increases for the first time since 2023

It was a landslide vote! At the latest Monetary Policy Committee (MPC) Meeting on 5th November eight of the nine members of the committee voted to raise the Base Rate by 0.25% - the remaining member voted for an increase of 0.50%.  

So, the Base Rate has now increased from 3.75% to 4%, taking it back to the level it was until August 2025. The last base rate increase was in June 2023 when it reached a peak of 5.25% before falling steadily, until now!  

The reason the Bank of England has given for this rate increase is the ongoing conflict in the Middle East. They say “Global energy prices have continued to rise from an already elevated level. UK CPI inflation increased to 3.5% in September. It is now expected to rise to around 5% by the middle of next year.”

It added that “the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate.”

To be fair, we’ve been expecting this and certainly the banks and building societies have been increasing their rates for quite some time.

Savings rates have been rising ahead of the Base Rate

When the Base Rate was cut on 18th December 2025 from 4% to 3.75%, at that time, the top 1-year fixed rate bond was paying 4.46%. Today the top 1-year fixed rate bond is paying a whopping 5.21%, some 0.75% more and the highest rate we’ve seen for over two years, even though Base Rate has only just increased.

It’s the same across all terms and on the top fixed term cash ISAs, as the table below indicates. 

Fixed Rate Bond

Fixed Rate ISA

The fact that rates have risen by so much could mean that increases to the top savings rate will not continue for much longer. In fact, we have definitely seen a slowdown in recent weeks, suggesting that this expected Base Rate hike has already mostly been priced into what is now on offer.  

That said, the market expectation is that there will be three further hikes to the Base Rate within the next few months, bringing it to 4.75% before the end of next year, according to Sky News. So, keep an eye on our Best Buy tables to see if rates have peaked, or if there is more to come.  

Of course, the danger with waiting to see if something even better comes along is that you miss out on earning better interest while you wait, and you might even miss the top. You could therefore fix some of your cash now, to take advantage of the rates currently available, and keep some available to deposit if things do continue to improve.  

Don't forget about the tax on your savings interest

Another thing to be aware of is that higher interest rates could also mean that you are paying more tax on any interest earned in taxable savings accounts. This makes it even more important to ensure your savings are as tax-efficient as possible.

The good news is that the proposed cut to the cash ISA allowance to £12,000 for those aged under 65 - which would have taken place from 6th April 2027 - has been cancelled  much to the relief of many savers as this means the annual cash ISA allowance will remain at £20,000. 

However, the amount of tax you pay on interest outside a tax-free savings account and above your Personal Savings Allowance (PSA) will be higher from 6th April 2027.

In the 2025 Budget, it was announced that tax on savings interest would increase by 2% from April 2027, but Chancellor John Healey increased this to 4% in his latest Budget on 28th October 2026.

So, from then, basic-rate taxpayers will pay 24% tax on their savings interest, higher-rate taxpayers 44% and additional-rate taxpayers 49%. The latter also don't benefit from a Personal Savings Allowance (PSA), which means they pay tax on all their taxable savings interest.

As a result, savers need to shelter as much of their cash as possible from tax. There are a number of savings allowances that are available, so make sure you are making the most of them.  

And if you are holding too much of your money in cash, could now be the time to consider investing some of it? While cash has an important role to play, particularly for emergency funds and money you may need in the shorter term, investing could be worth considering for money you don't need to access for several years.

If you want to find out what else you could be doing with your hard-earned cash, why not get in touch. We’re offering everyone with £250,000 or more in savings, investments or pensions a free financial review worth up to £500.

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Rates correct 05/11/2026

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice and cashflow planning.