UK Interest Rates: Where will they go next?

Since December 2021, the Bank of England has increased the Bank Rate 10 times. There hasn’t been a single Monetary Policy Committee meeting since where the rate hasn’t been increased.

Just like we’d like the weekends lottery numbers, we’d love to have the foresight to tell you what’s going to happen next, but unfortunately we can’t be certain.

However, despite there being no proven formula for predicting the future of interest rates, as professional mortgage advisors, it’s crucial that we have an understanding of the potential future outcomes so we can best guide our clients who’re counting on our advice to make important financial decisions about their future.

As such, we can look at a variety of factors and opinions to determine likely outcomes, and help our clients safeguard their financial futures regardless of how stormy the waters become. So first of all, it’s important to understand why interest rates are still increasing, and where better to start than with our friends down at Threadneedle Street.

Why have interest rates gone up?

On Thursday 2 February 2023, we raised our interest rate (Bank Rate) by 0.5 percentage points to 4%.

Our interest rate influences many other rates in the UK, including those you might have for a loan, mortgage or savings account. Bank Rate is also widely known as ‘the base rate’ or just ‘the interest rate’.

We are raising interest rates because inflation is too high. It’s around 10% now and our target is 2%. 

Raising interest rates is the best way we have to bring down inflation.

It means many people will face higher borrowing costs. And some businesses will face higher loan rates.

We know that will make things harder for many people, coming on top of higher energy and food bills.

But we need to act to lower inflation. Low and stable inflation is vital so that money keeps its value and people can plan for the future with confidence. It’s fundamental for a healthy economy.

That’s why we have been raising interest rates over the last year.

Inflation has already edged down a little. We expect it to begin to fall quickly from the middle of this year and be around 4% by the end of the year. We expect it to continue to fall towards our 2% target after that.

Source :

  • The Bank of England raised interest rates by 0.5 percentage points to 4% on Thursday 2 February 2023.
  • The decision to raise interest rates was made because inflation is too high, currently at around 10%, and the target is 2%.
  • Raising interest rates is the best way to bring down inflation and maintain the value of money.
  • Low and stable inflation is vital for a healthy economy and for people to plan for the future with confidence.
  • The rate increase will affect borrowing costs for loans, mortgages, and savings accounts, as well as loan rates for some businesses.
  • The Bank of England expects inflation to begin to fall quickly from the middle of this year and be around 4% by the end of the year.
  • The Bank of England expects inflation to continue to fall towards their 2% target after that.

So now the Bank of England has helped us understand why they’re increasing the Bank Rate, it makes sense to find out what they’re expecting to do at future MPC meetings.

How high will interest rates go?

The future is uncertain, so we can’t be precise about what will happen to Bank Rate in future. That will depend on what happens in the economy and what we think will happen to the rate of inflation over the next few years.  

We will continue to review how the economy is doing and whether a change in interest rates is needed every six weeks or so. If it looks like higher inflation is going to be more persistent than we thought, then we may need to increase interest rates further to make sure it comes back down. 

We will make our next interest rate decision on Thursday 23 March 2023.

Source :

So, based on the statement provided above, it is clear that the future of interest rates is uncertain. The Bank of England acknowledges that future decisions will depend on what happens in the economy and their predictions for the rate of inflation over the next few years.

The Bank of England also states that they will continue to review the state of the economy and whether interest rates need to be changed every six weeks. This implies that the Bank of England is constantly monitoring the situation and may make future changes to interest rates as necessary.

So, although the Bank of England has provided information on their current decision to raise interest rates, the future of interest rates remains uncertain and subject to change depending on economic conditions and inflation predictions.

So what about their inflation predictions?

The Bank of England is expecting inflation to rapidly fall this year. The current inflation rate sits at 10.1% which is quite a distance from their target of 2%. This is what they have to say:

There are few reasons why we expect inflation to fall quickly this year.  

First, wholesale energy prices have fallen a lot. In Europe, they have halved over the past three months. You may not have felt the impact of this on your bills yet. But this change will help to bring inflation down.

Second, we expect a sharp fall in the price of imported goods. That’s because some of the production difficulties businesses have faced are starting to ease. 

Third, as people have less money to spend, we expect there to be less demand for goods and services in the UK. 

All this should mean that the prices of many things will not rise as quickly as they have done.

There are signs that inflation might now have turned a corner and begun to fall a little. We need to make sure it continues to fall and stay low. We expect inflation to begin to fall from the middle of this year and be around 4% by the end of the year. We expect it to continue falling towards our 2% target after that.

Source :

The above statement indicates that the Bank of England is concerned about the current levels of inflation and are committed to reducing it. They’ve noted several factors which will help bring inflation rates down and have noted that there are positive signs that it has begun to fall already.

Despite this, they are clear that they need to ensure it continues to fall and stay low.

The Bank of England expects inflation to be around 4% by the end of the year and to continue falling towards their 2% target after that.

Overall, the Bank of England’s attitude towards inflation this year can be characterised as proactive and focused on reducing inflation to their target level. It is unsurprising that they’d adopt this attitude, as the central bank has been widely criticised for not acting quickly enough, and allowing the inflation rate to get out of control. So considering this hyper-focus on bringing inflation down, we cannot rule out any further increases to the base rate this year.

What else affects mortgage interest rates?

As mortgage experts, we also keep a close eye on swap rates. A swap rate is the interest rate that banks charge each other to borrow money for a certain amount of time. Swap rates are used to set the interest rates on loans and other financial products such as mortgages. When these swap rates go up, borrowing money becomes more expensive, and when swap rates go down, borrowing money becomes cheaper. Swap rates can have a significant impact on the UK mortgage market, as they influence the cost of funding mortgages for lenders. We keep an eye on swap rates and how they may affect mortgage rates, as this can help us keep our clients informed so they can make the best decisions when it comes to choosing a mortgage product.

What’s happening to Swap Rates right now?

The rates have become more volatile over the past year, rising due to factors such as base rate increases, inflation, the falling value of sterling, and the war in Ukraine. The recent fall in swap rates can be attributed to the collapse of Silicon Valley Bank and Signature Bank. The decrease is good news for mortgage borrowers as they can expect cheaper deals from lenders due to the significant decrease in the cost of funding. However, the overall volatility and uncertainty in the market may continue until confidence returns, which means it is uncertain whether central banks will increase rates much further.

Should I apply for a mortgage is 2023?

Given the current mortgage rates in the UK, it’s important for individuals who are considering applying for a mortgage to carefully evaluate their financial situation and determine whether taking on a mortgage is a smart decision for them at this time. It’s also crucial for individuals to understand the types of mortgage products that are available to them, and the risks associated with each.

For those who are not comfortable with risk, a fixed-rate mortgage may be the best option, as it provides a set interest rate for a certain period, typically two, three, five, or ten years. This can provide certainty and stability in a person’s monthly mortgage payments, which can help with budgeting and financial planning. However, if interest rates drop, then their repayments will not drop as a result. They would need to wait until their fixed-rate period ended to find a new product with a lower rate, or pay an early repayment charge to get out of their current product early.

However, for those who are willing to take on more risk, a variable-rate mortgage may be more appealing. Variable-rate mortgages sometimes start with a lower interest rate than a fixed-rate mortgage, but the rate can fluctuate over time based on changes in the Bank Rate or other economic factors. This means that monthly payments may vary and can potentially increase if interest rates rise. However, if interest rates comes down, then those on a variable-rate mortgage will benefit from lower repayments. Considering all we’ve learned about the future of interest rates; you can see why someone would need to be comfortable with risk when considering one of these products.

When considering whether to apply for a mortgage, individuals should also consider their personal financial goals and priorities. For example, if a person’s primary goal is to build equity and own a home, a mortgage may be a smart decision, even if interest rates are higher than they have been in the past. However, if a person’s primary goal is to save money in the short-term, a mortgage may not be the best option, especially if interest rates are high and monthly payments may be difficult to afford.

Ultimately, the decision to apply for a mortgage will depend on an individual’s unique financial situation and goals, as well as current market conditions. It’s important to carefully evaluate all options and consult with a professional mortgage advisor before making any concrete decisions.

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