The Bank of England is expected to hold interest rates at 5.25% for the sixth time in a row on Thursday, but cuts are expected later in the year.

Interest rates affect mortgage, credit card and savings rates for millions of people across the UK.

An interest rate tells you how much it costs to borrow money, or the reward for saving it.

The Bank of England’s base rate, currently 5.25%, is what it charges other lenders to borrow money.

This influences what other banks charge their customers for loans such as mortgages, and the interest they pay on savings.

The Bank of England moves rates up and down in order to control UK inflation – the increase in the price of something over time.

When inflation is going up, the Bank – which has a target to keep inflation at 2% – may decide to raise rates.

The idea is to encourage people to spend less, to help bring inflation down by reducing demand.

Once this starts to happen, the Bank may hold rates, or cut them.

Mortgages

Just under a third of households have a mortgage, according to the government’s English Housing Survey.

When interest rates rise or fall, more than 1.2 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their payments.

More than eight in 10 mortgage customers have fixed-rate deals. While their monthly payments aren’t immediately affected, any future deals are.

Mortgage rates are much higher than they have been for much of the past decade.

This means homebuyers and those remortgaging have to pay a lot more than if they had borrowed the same amount a few years ago.

About 1.6 million deals will expire in 2024, according to banking trade body UK Finance.

You can see how your mortgage may be affected by interest rate changes by using our calculator:

Credit cards and loans

Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.

Lenders could decide to put their rates up if they expect higher interest rates from the Bank of England. However, if rates fall, interest payments may get cheaper.

Savings

The Bank of England interest rate also affects how much savers can earn on their money.

Individual banks and building societies have been under pressure to pass on higher interest rates to customers.

There are some good deals on the market and experts say customers should shop around, as money may be in accounts paying little or no interest.

The UK’s financial watchdog warned banks will face “robust action” if they offer unjustifiably low savings rates to customers.

The Bank rate is currently at its highest level for 16 years.

However, the rate was higher than this for much of the 1980s and 1990s, and was running at 17% in November 1979.

There have been questions about why interest rates have not been cut, with the rate of inflation dropping sharply.

Inflation was at 3.2% in March – down from a peak of 11.1% in October 2022, but still above the Bank’s 2% target. Further falls are expected.

Bank of England governor Andrew Bailey has said that he has seen “encouraging signs” that inflation is coming down, but the Bank had to be sure it would fall back to its target and stay there.

“We’re not yet at the point where we can cut interest rates, but things are moving in the right direction,” Mr Bailey added. He is expected to make further comments about the next steps on Thursday.

The Bank has to balance the need to slow price rises against the risk of damaging the economy – which has shown little sign of growth.

Interest rates have also been increasing across the world.

However, in recent months, other central banks – including the US Federal Reserve and the European Central Bank – have also paused their rate rises.

The UK has had one of the highest interest rates in the G7 – the group representing the world’s seven largest so-called “advanced” economies.