What is the future of interest rates in the UK?
When will interest rates fall? Most analysts think that interest rates have peaked, and will soon start to fall – with current market expectations placing the first cut this summer. The Bank will lower the base interest rate to 3% by the end of 2025, according to analysis by research firm Capital Economics.
| Date | Interest rate predictions (Bank of England base rate) |
|---|---|
| April 2024 | 5.25% (actual) |
| September 2024 | 4.95% (predicted) |
| January 2025 | 4.72% (predicted) |
| January 2026 | 4.24% (predicted) |
Today, economists and traders alike are now forecasting just two UK Interest rate cuts in 2024, with UK rates likely to fall from 5.25% to 4.75% by December, with the first rate cut likely to come in August or September, just before the predicted UK election.
| 2023 | 2025 | |
|---|---|---|
| BoE | 4.4% in Q2 | 3.8% in Q2 |
| ING | 4.5% | 2.5% in Q4 |
| Scotiabank | 4.25% |
Bank of England official nominal interest rates will rise linearly to 4% by 2030 (i.e., just over 25bp of hikes per year). This resting point for interest rates reflects a combination of long-term real GDP growth of 2% plus 2% inflation.
According to the BoE, interest rates are likely to come down to about 5.1% by the end of 2024, going further down to 4.5% in 2025 and 4.2% in 2026. Analysts don't provide UK interest rate forecasts for the next 10 years due to the complexity of factors that might significantly influence the future rate.
Financial markets are currently predicting the first cut in interest rates will be in June 2024, falling to around 3% by the end of 2025, according to the latest forecasts from Capital Economics. As a general rule: if interest rates fall, the mortgage rate forecast would be for mortgage rates to fall too.
It expects a rate of 5.1% for 2024, one of 4.5% for 2025 and a rate of 4.2% for 2026.
Monetary Policy Summary, March 2024. The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 March 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%.
The financial markets expect three cuts of 0.25 percentage points this year, forecasting the first to take place in June. The Bank said its survey of financial companies found that they expected rates to fall to 4.5% before the end of 2024.
What will interest rates be in 2027 UK?
Inflation is expected to fall below 2% and remain at that level from the last quarter of 2025 onwards, with the BoE projecting to cut rates from 5.25% to around 3.25% by Q1 2027, the end of its forecast period.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
The benchmark interest rate in the United Kingdom was last recorded at 5.25 percent. Interest Rate in the United Kingdom averaged 7.09 percent from 1971 until 2024, reaching an all time high of 17.00 percent in November of 1979 and a record low of 0.10 percent in March of 2020.
The Office for Budget Responsibility now expects Bank of England central interest rates to settle at 4pc by the end of its forecast period in 2028-29, rather than fall to 3pc as it had assumed in March.
Interest Rates for 2021 to 2027. CBO projects that the interest rates on 3-month Treasury bills and 10-year Treasury notes will average 2.8 percent and 3.6 percent, respectively, during the 2021–2027 period. The federal funds rate is projected to average 3.1 percent.
Most experts believe mortgage rates are due to go down, they're just not sure quite when. While inflation has dropped during the past year, it remains too high for the Bank of England. This means that the Bank of England may not start slashing interest rates just yet.
The upper boundary of the Federal Reserve's target range for its benchmark interest rate, currently 5.5%, will fall only to 4% by the end of 2025, according to the latest Bloomberg monthly survey. That's a half percentage point higher than respondents expected just a month ago.
The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%. Meanwhile, Wells Fargo's model expects 5.8%, and the Mortgage Bankers Association estimates 5.5%.
Mortgage Rate in the United Kingdom averaged 5.69 percent from 1995 until 2024, reaching an all time high of 8.87 percent in September of 1998 and a record low of 3.59 percent in November of 2021. source: Bank of England.
Will mortgage rates ever be 3 again?
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
| Deal type and length | Current average rate across all lenders | Current average rate across big six lenders |
|---|---|---|
| 2 year fixed-rate (75% LTV) | 5.74% | 4.99% |
| 5 year fixed-rate (75% LTV) | 5.24% | 4.63% |
| 2 year variable rate (75% LTV) | 5.84% | 5.75% |
| Standard variable rate (SVR) | 8.54% | 7.5% |
Deciding whether to fix your mortgage for 2, 3, 5 or even more years can be a difficult decision, as it will depend on your individual circ*mstances and your appetite for risk. If you're looking for certainty and peace of mind, a 5-year fixed rate mortgage may be the right choice for you.
- MPowered Mortgages. Rate: 4.57% fixed for 2 years before reverting to 8.74% Initial period: 2 years. Product fee: £999. ...
- MPowered Mortgages. Rate: 4.49% fixed for 3 years before reverting to 8.74% Initial period: 3 years. ...
- NatWest. Rate: 4.18% fixed until 31 August 2029 before reverting to 8.24% Initial period: 5 years.
Interest rates have held steady since July 2023.
The Fed raised the rate 11 times between March 2022 and July 2023 to combat ongoing inflation. After its December 2023 meeting, the Federal Open Market Committee (FOMC) predicted making three quarter-point cuts by the end of 2024 to lower the federal funds rate to 4.6%.
