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The Bank of England is due to deliver its latest interest rate decision on 8 May.

Rate setters take into account a number of different factors when deciding where to set its base rate, not least inflation, wages, economic growth and other external factors such as major international trade wars.
However, it is key to remember that the Monetary Policy Committee’s (MPC) primary mandate is to keep inflation on or around its 2.6% target.
So what is the lay of the land in the UK right now, and how could it affect your finances?

Wages
The latest wage data from the Office for National Statistics (ONS) on 15 April showed continued strong growth in earnings. Average earnings excluding bonuses was up 5.9%.
This means that wages grew in real terms (when factoring in inflation) by 2.1% between December 2024 and February 2025.
Although these figures are averages and individual workers will find their personal experiences differ, it does mean that, on the whole, British workers are still getting solid pay rises.
This goes some way towards rectifying the high levels of inflation the economy experienced between 2021 and 2023, but much damage has been done to household finances regardless.

Inflation
The latest inflation figures from the ONS show prices rose by 2.6% on the Consumer Prices Index (CPI) measure of inflation. This was below forecasted expectations and delivers some good news for households and the economy more widely.
Importantly, core CPI – which excludes energy, food, alcohol and tobacco (more volatilely priced products) – fell to 3.4%.
Core inflation is an important indicator of the underlying progress of prices in the economy and has been persistently higher than comfortable since the cost-of-living crisis.

What does this mean for the bank rate?
The Bank of England will be considering both wages and inflation carefully when it comes to make its decision on 8 May.
However, as alluded to previously, there are some major international economic issues troubling the overall picture.
While the MPC’s key mandate is to manage price rises, it could look to ease rates in order to stay ahead of an economic slowdown driven by external factors beyond its control.
Investment markets are currently ‘pricing in’ around four cuts this year – which would take the current base rate to 3.5%. This would provide potentially considerable relief for mortgage holders, businesses and anyone with debt.
However, investment markets are not always reliable. A good indicator of where rate expectations sit in the economy is to look at the mortgage market.
Mortgage providers price their products based on ‘swap rates’. While the base rate feeds into the pricing in the swap rate market, there are a number of wider factors which affect its dynamics.
The important point here is that mortgage providers look to be starting a rate-cutting price war, with a range of big and small lenders cutting rates.
Major lenders are now offering products below 4% – some way below the current base rate and a marked improvement for those looking for mortgage deals.

Wider effects on finances
These economic indicators have an important role in showing us the direction of travel of the economy and the potential challenges and opportunities financial portfolios face.

Although it is important to be aware of them, it is also essential to not make rash decisions when there is bad news.

What is essential is to ensure you have a plan in place, that it isn’t fundamentally challenged by short-term circumstances, and mistakes aren’t made that could jeopardise your future outcomes.

If you have concerns about any area of your portfolio, or anything else discussed in this article, don’t hesitate to get in touch.

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