Interest rates have been held by the Bank of England at 4.75% after inflation rose for the second month in a row.

The base rate has come down in recent months from its high of 5.25% - but news of no further cuts this year will be a blow to millions of mortgage borrowers who have seen their costs rocket over the last two years, as well as those who need to remortgage next year. Six members of the Monetary Policy Committee (MPC) - who are responsible for making decisions about interest rates - voted to keep the base rate at 4.75%, while three wanted to cut it to 4.5%.

It comes after the Bank of England cut interest rates twice this year - the first reduction happened in August, then the second cut was in November. Governor Andrew Bailey warned the central bank needs to make sure inflation returns to its 2% target on a "sustained basis" and said further cuts will be gradual.

He said: "We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year." The base rate is what the Bank of England charges other banks and lenders to borrow money - this then influences how much you're charged on mortgages, loans and other types of credit.

The base rate is also used by the Bank of England as its main tool to lower inflation - as when the cost of borrowing is higher, people have less money to spend, and this brings down demand and prices. Interest rates stood at an historic low of 0.1% in December 2021 but were steadily increased to combat inflation, which hit a high of 11.1% in October 2022.

Inflation is a measure of how prices have changed over time, with monthly data released every month by the Office for National Statistics (ONS). It was revealed yesterday that inflation had risen from 2.3% to 2.6% in November. On top of this, wage growth was confirmed to have jumped this week.

Annual growth in employees' average earning for both regular, excluding bonuses, and total earnings, including bonuses, hit 5.2% in August to October 2024. If pay rises too sharply, then it sparks worries that businesses may put up prices to offset higher wages for staff.

How it affects your mortgage

If you have a tracker mortgage, there will be no immediate change in your repayments today. This is because these types of mortgages move in line with the base rate, which has stayed the same today. But these homeowners have seen their costs go up considerably over the past couple of years following the previous rate hikes.

If you have a standard variable rate (SVR) deal, then your lender typically decides when to change your rate - and more often than not, this will be when the base rate is updated. These types of mortgages are generally the most expensive. You're normally moved to the SVR of your existing lender once your current mortgage deal ends. More than 1.3million people are on a tracker or SVR mortgage, according to UK Finance.

If you have a fixed rate mortgage, you're not affected by any change in the base rate until your current deal ends. This is because you've already agreed to pay a fixed amount each month for a set period of time. However, millions of homeowners will pay more when they come to remortgage. UK Finance analysis shows around 1.8million fixed rate mortgage deals will end next year.

Many landlords have chosen to pass on mortgage increases to their tenants, so those who rent are also impacted by interest rates. It means some renters have also seen their monthly costs rise by hundreds of pounds each month, with some being priced out of their home as a result.

Matt Smith, Rightmove mortgage expert, said: "While not the early Christmas present that many would have wanted, it was widely anticipated, and must be considered against a backdrop of inflation being at the top end of forecasts, and wages have increased at a higher rate than expected.

“We don't expect any reductions in mortgage rates over the next few weeks, but as we progress into 2025, lenders are likely to look at ways to take advantage of increased demand as the busier home-buying season starts. As we move towards the end of the stamp duty reduction, lenders are also likely to look at reducing rates wherever possible."

How it affects credit cards and loans

Most credit cards have a variable interest rate attached to them, so they generally do change over time anyway. If your credit card is specifically linked to the base rate, then how much you pay back in interest can change when it rises or falls. If your credit card rate is changing, you should get 30 days’ notice.

Interest rates on personal loans and car financing are normally fixed - but again, do check with your lender to be sure. The average credit card purchase APR is currently 35.3%. It is also worth noting that rates on new credit cards and loans are generally more expensive now, compared to before interest rates started going up. This means you'll pay more to borrow now compared to when interest rates were low.

Holly Tomlinson, financial planner at Quilter, said: "Higher interest rates mean borrowing remains expensive, whether you’re using a credit card, personal loan, or car finance. With today’s decision to hold rates, credit costs won’t rise further for now, but they are unlikely to fall significantly in the short term. For those planning to borrow, it’s important to shop around and avoid taking on unnecessary debt, as rates will remain higher than they were just a couple of years ago."

How it affects your savings

Savings rates will likely continue to decrease, as it is anticipated that we'll see more interest rate cuts next year - but there are still places that pay above the rate of inflation. Cash ISAs currently pay the best rates, with Plum offering 4.93%. You can only deposit £20,000 each tax year into an ISA but any interest you make is tax-free.

Atom Bank currently tops the standard easy-access table with a rate of 4.83% – but be aware the rate drops to 3.25% in each month you withdraw from your account. The top rate with unlimited withdrawals is Chetwood Bank which pays 4.71%. Regular saving accounts pay more than all of the above - but you're limited to how much money you can save each month.

Principality Building Society lets you save up to £200 each month with a 8% fixed for six months. For an account with a longer term, First Direct lets you save £300 each month at a rate of 7% fixed for one year. Always check if you're allowed to make withdrawals if you're worried about needing access to your cash.

Adam Thrower, head of savings at Shawbrook, said: "Time’s ticking to lock in high-paying accounts before the next cut, which could see savings rates tumble. There’s a lot going on this month but if you have a few spare minutes, it’s worth adding ‘open a new savings account’ to your to-do list and look at the possible tax implications of where your money is sitting."