The Bank of England raised its benchmark Bank Rate by 0.25 percentage point to 4% on Thursday, Nov. 5, its first increase since August 2023, and UK savers are now waiting to see how quickly banks pass the move on to easy-access accounts and cash individual savings accounts (ISAs).

The decision matters beyond Britain. Hong Kong, Singapore and other Asian households that keep sterling deposits for school fees, property in the UK or a planned move are exposed to the same bank pricing decisions, and a higher Bank Rate changes the trade-off between locking in a fixed bond and staying flexible. The pattern also echoes the one Australian savers saw this week, when banks lifted savings rates after the Reserve Bank of Australia's hike.

Bank of England raises rates on energy-driven inflation

The Monetary Policy Committee voted 8-1 for the quarter-point rise, with the remaining member backing a half-point increase to 4.25%, according to MoneyWeek's coverage of the decision. Bank Rate had stood at 3.75% before the meeting. The previous increase, in August 2023, took it from 5% to 5.25%.

Inflation is the reason. Consumer prices rose 3.5% in the 12 months to September, up from 3.1% in August, and the committee forecasts inflation will reach 5% by mid-2027, MoneyWeek reported. The main pressure comes from energy: crude oil was trading around $96 a barrel, up from about $70 before the conflict in the Middle East began, the publication said.

Governor Andrew Bailey tried to cool talk of a long tightening cycle. He said the hike "shouldn't be seen as the first in an inevitable long sequence of hikes," according to MoneyWeek, but added that without a resolution in the Middle East it did not look likely to be the last.

Economists expect a little more. Deutsche Bank forecasts one further rise to 4.25% in December or February, and Oxford Economics expects 4.25% in February 2027, MoneyWeek said.

What the rate rise means for UK savings rates

For savers, the effect is likely to be uneven. Variable-rate accounts tend to move first, while fixed-rate pricing follows market expectations rather than the current Bank Rate.

Moneyfacts' weekly roundup, updated on the day of the decision, showed the leading fixed-rate bonds already paying well above Bank Rate. Afin Bank's five-year fixed term account paid 5.40% AER, RCI Bank UK's two-year account 5.30%, and Afin Bank's three-year account and GB Bank's three-year bond 5.28% each. The best one-year deal in the table, from Isbank via Meteor Savings, paid 5.20%.

At the easy-access end, the top rates rely heavily on introductory bonuses. LemFi's instant access account paid 5.00% AER including a 1.89% bonus for six months, after which it falls to 3.04%, according to Moneyfacts. Zopa's limited access pot paid 4.56% including a 12-month bonus, matched by Family Building Society's Premium Saver with no bonus. Tembo Money's HomeSaver paid 4.55% including a 1.55% bonus.

The gap with the big banks is wide. The most flexible accounts from large banks pay an average of just 1.16%, Moneyfacts said, and savers left in closed easy access accounts earned £139 less over three years on a £20,000 balance than those in open accounts.

MoneyWeek's writers were cautious about how much more savers will gain. Deputy digital editor Jessica Sheldon said higher savings rates should follow, though with a lag. Digital editor-in-chief Kalpana Fitzpatrick noted that most banks had already priced in the increase, so savers may see little extra.

ISA allowance and the tax on savings interest

The tax treatment of savings is becoming a bigger part of the calculation. The annual ISA allowance remains £20,000, and interest earned inside an ISA is tax-free, MoneyWeek noted. Cash ISAs can pay slightly less than taxable accounts but may still leave savers ahead once tax is taken into account.

That gap is set to widen. MoneyWeek reported that the tax rate on savings interest is due to rise by four percentage points from April 2027. For savers paying tax on their interest, a higher Bank Rate combined with a higher tax rate increases the value of holding cash inside an ISA.

Borrowers face the other side of the move. The average new mortgage rate was 5.89%, up from 5.83% at the start of October and the highest since November 2023, according to Moneyfacts figures cited by MoneyWeek. On a £250,000 tracker mortgage over 25 years, a 0.25-point rise adds about £37 a month, Moneyfacts calculated. Borrowers on fixed deals are unaffected until their terms end.

The next data point for savers is UK inflation for October, due on Nov. 18. The Monetary Policy Committee announces its next decision on Dec. 17.