KEY INFORMATION
Interest rates in 2026: at a glance
- Current base rate: 3.75%
- Next decision: 5 February 2026.
- 2026 outlook: Further gradual cuts expected, but timing uncertain.
- End-2026 forecasts: 3%–3.50%
- Earliest next cut: March or April 2026. February considered very unlikely.
- Main risk: Inflation proves more persistent, delaying or limiting further rate cuts.
- What it means for borrowers: Mortgage rates may ease further, but cuts are often priced in early.
Why did the Bank of England cut interest rates in December 2025?
- The Bank of England cut UK interest rates in December 2025 to their lowest level in almost three years, marking the sixth interest rate cut since rates peaked in 2024, in an attempt to stimulate the economy.
- In light of the weakening jobs market and falling inflation, the central bank lowered interest rates from 4% to 3.75%, in a move that was widely expected.
- The Bank’s Monetary Policy Committee voted 5-4 to lower rates by a quarter point, with four members voting to hold interest rates at 4%, pointing to continued concerns about inflation.
- The cut came in a week that saw the UK unemployment rate hit its highest in almost five years, while inflation figures for November fell lower than expected to 3.2%.
- At its previous meeting on 6 November 2025, the MPC held interest rates at 4%. That decision was also a narrow one, with the vote split 5-4 in favour of a hold, rather than cutting interest rates to 3.75%.
- Minutes of the December meeting indicate that these knife-edge decisions look set to continue into 2026. The Bank’s governor Andrew Bailey said:
“We’ve passed the recent peak in inflation and it has continued to fall, so we have cut interest rates for the sixth time, to 3.75% today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”
Will the Bank of England cut interest rates on 5 February?
The Bank of England is expected to hold interest rates at 3.75% when it next meets on 5 February, amid inflation increasing higher than expected.
Markets have all but written off the chance of a cut this month. While a poll of 56 economists by Reuters found 54 expect a hold and only 2 expect a cut.
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Interest rate predictions for 2026
The outlook for interest rates in 2026 is that interest rates will fall – but opinions vary on how soon this will happen and how low rates will go.
Speaking on 23 January, rate-setter Megan Greene said the Bank of England may not be able to lower interest rates as much as expected this year, due to strong UK pay growth and expected rate cuts in the US.
- In a speech in London at the Resolution Foundation think tank she said a decline in wage growth “may have run its course”, pointing to recent Bank of England surveys that suggest employers are planning to give pay rises of 3.5% or more this year.
- She also said the MPC’s decision on when next to lower borrowing costs would be affected by whether the US Federal Reserve lowered rates, because this could cause inflation in the UK to rise.
- However, as we explain above, the MPC’s views are deeply divided, so the Bank’s decisions on interest rates will not necessarily follow her views.
Economists’ interest rate predictions
There’s a broad range of views from economists on what may happen next with interest rates:
- UBS expects two cuts this year, in March and June, bringing interest rates down to 3.5% and then 3.25%.
- Morgan Stanley predicts the Bank of England to deliver its next interest rate cut in March, scrapping its forecast for a February cut, after data showed inflation increased by more than expected in December. It then expects the bank to cut interest rates in July and November, compared to its previous forecast of cuts in April and June.
- Economists at Capital Economics forecast interest rates will be cut from 3.75% to 3% in 2026. It forecasts inflation will fall to the Bank of England’s 2% target by the end of 2026, which would be a bigger and faster fall than expected. It also expects the unemployment rate to rise further to a peak of 5.2% in early 2026.
- HSBC’s interest rate prediction is that the base rate will fall to 3% by the end of 2026.
- ING predicts two interest rate cuts in the first half of 2026, in March and June, taking the base rate to 3.25%.
- Deutsche Bank’s chief UK economist Sanjay Raja, told clients: “We stick to our long-standing call of two more rate cuts in 2026: one in March, and one in June, taking Bank Rate to 3.25%. Risks are skewed to a slower but deeper easing cycle.”
- However, not everyone expects two or three cuts: Barclays, NatWest, Nomura and Pantheon Macroeconomics are predicting just one interest rate cut this year.
However, the pace and extent of interest rate cuts in 2026 will depend on how inflation, wage growth and the wider economy perform.
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Latest Bank of England base rate news
The Bank of England cut interest rates in December from 4% to 3.75%, with five MPC members voting for a cut, while four favoured a hold. Both the decision to cut rates and the fact it was a narrow vote were widely predicted.
Prior to December, the most recent interest rate cut was on 7 August, when the bank cut interest rates from 4.25% to 4%, which was then the fifth interest rate cut in a year. The decision was narrowly passed by a 5–4 split vote, with one member initially pushing for a larger 0.5 percentage‑point reduction. The result was a much closer call than predicted.
That move followed cuts in May 2025, February 2025, November 2024 and August 2024, when the base rate was first cut from 5.25%.
In separate news, the governor of the Bank of England has said the central bank has “to be very alert” to the potential impact from heightened geopolitical tensions as President Donald Trump seeks to seize control of Greenland.
Andrew Bailey told MPs at Parliament’s Treasury Committee that the tensions would have consequences for global financial stability.
What are interest rates and why do they change?
- The Bank of England’s base rate acts as a benchmark for the cost of borrowing money. As a general rule, when interest rates increase, so does the cost of borrowing on mortgages and other types of borrowing.
- One major reason why the Bank moves rates up and down is to help control inflation. When inflation is high, the bank may increase interest rates to try to bring it down by encouraging people to spend less and reduce demand. And once inflation is at or near its target, the Bank may hold or cut interest rates.
- However, the Bank’s Monetary Policy Committee will assess a range of factors when deciding whether to cut interest rates including job and wages data and external factors that can impact the economy.
What’s happening with inflation?
- Official government figures released in January 2026 showed that CPI inflation in December increased to 3.4%, from the reading of 3.2% for November. This was a bigger increase than expected; City economists had forecast a modest increase to 3.3%.
- CPIH, which includes owner‑occupiers’ housing costs, stood at 3.6%, while RPI inflation came in at 4.2%.
- The OBR said in its economic and fiscal outlook for November 2025 that it expects consumer price index (CPI) inflation to average 3.5% in 2025, up from its forecast of 3.2% in March.
- It then expects CPI inflation to average 2.5% in 2026 – higher than its previous forecast of 2.1% – but anticipates it to fall to an average of 2% in 2027.
- In January 2026, a separate report from the Bank concluded that it had consistently underestimated the full effects of inflation that followed the energy price shock of 2022 due to Russia’s invasion of Ukraine.
- “After 2022, the Bank’s medium-term inflation and wage growth forecasts proved repeatedly too low,” the bank said.
- The Bank said it would try to improve its “modelling and understanding of key economic mechanisms, including the labour market, wage-price interactions and inflation expectations” to better understand the recent “inflation persistence”.
When is the Bank of England’s Monetary Policy Committee’s next meeting?
The next Bank of England Monetary Policy Committee meeting is on 5 February 2026. Its subsequent meetings are on 19 March 2026 and 30 April 2026. The Bank of England publishes a calendar of future committee meeting dates here.
How do interest rates affect mortgages, loans and savings rates
How changes in interest rates affect your mortgage
Falling interest rates usually means mortgage rates fall too. Stay up to date with our guide to Mortgage rate predictions.
However, how changes in interest rates affect your mortgage depends on your circumstances:
- You’re taking out a new mortgage: If you’re shopping around for a new mortgage or want to remortgage, the mortgage rates available should improve if interest rates fall, although this isn’t guaranteed. So make sure you shop around. For the cheapest mortgage rates read our guide to the Best mortgage rates.
- If you’re on a fixed rate mortgage the amount you’ll pay on your monthly mortgage payments will stay the same during your initial term – usually 2 or 5 years. So your mortgage payments won’t change if interest rates go up or down.
- You have a tracker mortgage: If you’re one of the estimated 600,000 households on a tracker mortgage deal and interest rates are cut, your mortgage payments will fall as the rate you pay on your mortgage falls and rises in line with the Bank of England base rate.
- If you’re on a discounted variable rate, you’ll pay a rate that’s lower than the lender’s Standard Variable Rate. If your lender decides to pass on the cut in interest rates, your mortgage payments will fall. But it won’t necessarily pass on all or any of the cut.
- You’re on your lender’s Standard variable rate (SVR): According to UK Finance, there are around 1.1 million households on their lender’s standard variable rate. If this includes you and your lender decides to reduce its SVR if interest rates fall, the amount you’ll pay will fall. But the lender may not pass on all or any of an interest rate cut. Lenders’ SVRs can be extremely expensive, so check your deal now to see if you can save by remortgaging.
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Interest rate changes’ impact on credit cards and loans
Other types of borrowing are affected in a similar way. If interest rates go up, borrowing of any type generally gets more expensive, while when interest rates are cut, borrowing generally gets cheaper. However, this is in general terms as the amount you’ll pay on things like credit cards and loans will depend on a number of factors including your credit history.
January 22, 2026 
