UK (Parliament Politics Magazine) – UK interest rates are expected to stay at 4% until 2026 as the Bank of England balances inflation and a weak labour market, economists warn.
As reported by The Independent, economists warn that the Bank of England is likely to hold interest rates at 4% until 2026 due to ongoing economic uncertainty.
How will the Bank of England rate hold affect refinancing costs?
The Bank of England’s Monetary Policy Committee will announce its latest policy decision on Thursday. The central bank will keep rates at 4% following a 4.25% cut in August.
Experts believe no rate cuts will occur in November or December, meaning 4% could remain until February. This move may strain mortgage holders, with many set to refinance at higher rates in the coming years.
How are rising prices impacting UK inflation and the labour market?
UK consumer prices index rose to 3.8% in July, up from 3.6% in June, marking the highest level since January 2024.
The Office for National Statistics shows the increase is largely driven by food and drink prices, while overall wage inflation remained at 5%.
The MPC uses interest rates to manage inflation and aim for the 2% target. While the UK economy stagnates, unemployment remains at a four-year high and job vacancies continue to fall.
In August, officials said interest rate cuts should proceed gradually and carefully due to economic uncertainty. Chancellor Rachel Reeves will deliver her autumn Budget on November 26, with tax rises widely expected to manage finances.
What did Thomas Pugh say about the Bank of England’s interest rate decision?
Thomas Pugh, chief economist for auditing firm RSM UK, stated,
“It’s all but guaranteed that the Bank of England will hold interest rates at 4% at its meeting on Thursday.”
He added,
“The committee will stick to its gradual and cautious guidance, as it continues to try to balance rising inflation with a weakening labour market.”
What did Philip Shaw say about UK interest rates and future cuts?
Economist Philip Shaw predicts UK rates will remain at 4% through December, with a reduction not expected until February.
He added that the latest economic figures will be
“unlikely to disperse the committee’s collective doubts over whether the inflationary coast is clear to resume easing”
monetary policy by November.
What did Rob Wood and Elliott Jordan-Doak say about UK interest rates?
Pantheon Macroeconomics experts Rob Wood and Elliott Jordan-Doak said Bank of England governor Andrew Bailey remains confident as markets price in a 40% probability of further rate cuts this year.
They said,
“The late Budget will likely also encourage the MPC to wait until December at least before considering another cut.”
They added,
“We expect little change to the MPC’s guidance from August, given the hawkish dataflow and MPC members’ comments suggest little reason or desire to change their position from early August.”
What did Laura Suter say about rising interest rates and tax impact?
Laura Suter from AJ Bell stated,
“These numbers highlight how the rising tide of interest rates has swept hundreds of thousands more savers into the tax bracket.”
She said,
“The Government may be benefiting from increased revenue, but many ordinary savers are worse off. Using tax wrappers like cash Isas or investment Isas is now more important than ever to protect your savings from the taxman.”
Ms Suter stated,
“HRMC says it cannot reconcile bank account interest with taxpayer data in around a fifth of cases, costing hundreds of millions in uncollected tax revenue.”
She added,
“While that’s a win for the lucky taxpayers who are let off the hook by HMRC’s systems, it illustrates that the current approach is error-prone.”
Key details about the UK’s 2025 Budget
Chancellor Rachel Reeves will present the Budget on November 26. She has delayed it for OBR forecasts and consultations, drawing criticism for prolonging fiscal uncertainty. Tax rises are expected to cover a projected £50bn shortfall, targeting property, pensions, and landlords.
Speculated reforms focus on wealth, including inheritance tax, capital gains, and council taxes. Income tax, National Insurance, and VAT are expected to remain unchanged for working people.