UK Interest Rates Outlook: What Economists Expect for the Rest of 2026
The consensus among City economists and independent forecasters on the trajectory of Bank of England interest rates through the rest of 2026 has shifted substantially since the Iran war and its inflationary consequences disrupted the rate-cutting pathway that had been building through the second half of 2025. Where the start of the year had produced widespread expectations of two or three further base rate reductions before the summer, the current consensus has pushed the expected timing of the next cut back to the third or fourth quarter at the earliest — and even that is contingent on inflation declining faster than current energy price data suggests is likely.
The Monetary Policy Committee’s immediate concern is the renewed upward pressure on headline consumer price inflation created by the oil and gas price spike. The Bank’s mandate requires it to target inflation at two percent over the medium term, and with headline CPI heading towards five percent in the near-term projections, the case for cutting rates — which would further stimulate an economy already generating inflationary pressure — is significantly weakened. The committee has been explicit that the rate path depends on the data, and the data is currently pointing in the wrong direction.
Mortgage market implications are significant. The window of opportunity that first-time buyers and remortgagers had anticipated — when falling base rates would bring fixed mortgage products below four percent and make home purchase viable for a wider group — has been pushed out further into the future. Brokers report that clients who had been timing their purchase decisions around the expected rate path are in many cases choosing to wait rather than commit at current pricing levels.
The most optimistic scenario, in which the ceasefire holds, oil prices retreat back towards $80 per barrel and inflation falls more quickly than central projections suggest, could see the Bank resuming cuts by September or October 2026. The more cautious scenario, in which geopolitical instability maintains energy price volatility, would defer the first further cut into 2027.
