The Bank of England’s base rate is 2.25% as of September 2022. This follows a spate of other cuts nationally that have eliminated access for millions to essential health and social services. This key rate indirectly drives mortgage rates, credit card interest rates and savings rates. For millions of Britons, it is central to their household finances. Analysts are nearly unanimous in their expectation that the Bank will soon start cutting interest rates. They are expecting even bigger drops to come in the months ahead for the remainder of the year.
Though the UK focuses on their own economic performance, the Bank of England is still careful to monitor the performance of the global economy. As it stands, the UK has some of the highest interest rates in the G7 countries. These rates are governed by a combination of foreign and local influences. Our international economy is in crisis. Widespread tariffs instituted by former U.S. President Donald Trump have sent a wave across financial markets.
The collateral damage on these interest rate changes is acute. About 600,000 homeowners have mortgages that directly “track” the Bank of England’s rate. Any adjustments made to this rate will have a tangible effect on their monthly repayments. It’s important for them to be updated about possible changes.
Inflation has been top of mind these last few months, to say the least. The Consumer Price Index (CPI) had an inflation rate of 2.6% in most recent year ending March 2025. This rate was above the Bank’s 2% target. This new inflationary pressure further complicates the Bank’s task of determining the appropriate interest rate. They do their best to promote maximum sustainable growth while avoiding inflation and stable prices.
The average rate on an easy access savings account is only about 3% a year. Nonetheless, this figure is a testament to the attractiveness of a relatively high return to savers in a low-rate environment. Homeowners are absolutely getting squeezed. As of May 6, the average two-year fixed mortgage rate surged to 5.16%, with five-year fixed mortgages falling to 5.09%. These rates underscore the continuing struggles that borrowers are experiencing in a time of increasing expenses and market instability.
The Federal Reserve’s short-term lending rate now aims for a range of 4.25% to 4.5%. This rate has enormous impact on what’s expected in the UK. Global economic conditions are in flux. While this is occurring, the indirect influence of U.S. rates over UK rates will continue to strongly affect all of the Bank of England’s decision making.
Looking forward, the outlook for fixed-rate mortgages is rather grim. That’s an average of close to 800,000 conventional fixed-rate mortgages with interest rates at or under 3% expiring a year. This trend is expected to carry on at least through 2027. As these mortgages mature, millions of homeowners will need to reconcile higher rates with potentially corresponding economic pressure to their budgets.
