Expert Interest Rate Predictions in the UK for 2025

The UK’s interest rate trajectory remains a critical point of focus for investors and traders as the economy navigates persistent inflation, shifting trade relationships, and a cautious monetary policy stance from the Bank of England. Analytical UK interest rate forecasts for the next five years vary significantly, reflecting uncertainty in both domestic and global markets. In this article, we will examine institutional projections, market expectations, and key macroeconomic drivers influencing potential rate adjustments.

UK Interest Rate Landscape

The UK's interest rate landscape has undergone significant transformations over the past few years. From the end of 2021 to the middle of 2023, the Bank of England (BoE) raised interest rates from the historic low of 0.1% to 5.25%—the highest in UK interest rates history since 2008. The decision to elevate interest rates from near-zero levels was primarily driven by the need to counteract rising inflation, which has emerged as a considerable threat to the UK's economic stability.

The trajectory of UK interest rates from the depths of the COVID-19 pandemic-induced lows to their highs mirrored the broader effort to stabilise the economy in the face of unprecedented challenges. Initially, in response to the pandemic, borrowing costs were slashed to 0.10% in March 2020, setting a record low aimed at stimulating economic activity. However, as inflation began to surge, largely fueled by recovering demand and supply chain disruptions, the MPC shifted its strategy towards tightening monetary policy.

By 2023, the landscape of interest rate predictions had experienced dramatic revisions. Early forecasts suggesting a rise to as high as 6.5% were recalibrated following a summer of unexpectedly positive inflation data. This adjustment set the stage for the environment, where the peak rate of 5.25% was viewed as the maximum in the hiking cycle.

By December 2024, the Bank of England's Monetary Policy Committee (MPC) adjusted the Bank Rate to 4.75%, following two 25 basis point cuts earlier in the year, starting in August.

Inflation has significantly declined from its peak of 11.1% in late 2022 to 2.3% in October 2024, nearing the Bank's 2% target. This reduction was attributed to easing energy prices and improved supply chains. However, persistent inflation in the services sector suggested that the MPC could proceed cautiously with future rate cuts.

The UK's economic growth showed resilience, and the Organisation for Economic Co-operation and Development (OECD) upgraded its growth forecast to 1.7% for 2025. This positive outlook was partly due to increased government spending outlined in the October 2024 budget. Nonetheless, the OECD warned that the substantial fiscal measures may result in interest rates remaining higher for a longer period to manage potential inflationary pressures.

As of June 2025, the organisation revised its UK GDP growth outlook downward to 1.3% for 2025 and 1.1% for 2026, citing heightened trade tensions, tighter financial conditions, and elevated uncertainty.

Between January and August 2025, the Bank of England cut interest rates by 75 basis points, bringing the base rate to 4%. While markets had priced in at least one further reduction this year, divisions within the Monetary Policy Committee have reduced those odds to roughly 50%. Investors now expect the next rate cut no earlier than the February 2026 meeting, with the base rate projected to stabilise at 3.5% by mid-2026.

The MPC continues to monitor domestic economic indicators, including wage growth and employment figures, to assess underlying inflation dynamics. The MPC's strategy involves balancing the need to support economic growth with the imperative to prevent a resurgence of inflation. This approach is informed by the BoE's projections, which anticipate a modest economic expansion and a gradual return of inflation to the target level over the medium term.

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Analytical UK Interest Rate Forecast for the Next 5 Years (2025-2029)

According to economists, while the exact pace and magnitude of adjustments in this period are difficult to pinpoint, the signal is that the era of exceptionally low borrowing costs appears to be behind us.

Shifts in monetary policy are expected to be shaped by:

Inflation Trends: Sustained alignment of inflation with the BoE's 2% target is crucial. Any deviation could prompt adjustments in the pace of monetary policy changes.
Economic Growth: As mentioned, OECD has upgraded the UK's growth forecast to 1.7% for 2025, influenced by increased government spending. It sees growth slowing to 1.3% in 2026. While growth would be welcomed for the British economy, it could also lead to higher inflation, impacting monetary policy decisions.
Fiscal Policy: Recent fiscal measures, such as increased government spending and potential tax hikes, could impact the BoE's monetary policy decisions. The BoE may need to balance these fiscal policies with its monetary policy to achieve its inflation and growth objectives.
Global Economic Conditions: International factors, including trade policies and global economic growth, will also play a role in shaping the UK's monetary policy. Potential global economic disruptions could influence the BoE's decisions.

UK Interest Rate Forecasts for 2025-2026

The BoE is anticipated to implement further cuts in 2025. Bank of England interest rate forecasts for 2025, informed by market analysts and financial institutions, suggest borrowing costs of 3.75%. This expectation aligns with the BoE's cautious approach to monetary easing, aiming to support economic growth while keeping inflation near the 2% target. However, persistent inflationary pressures, particularly within the services sector, may necessitate a measured pace of rate reductions.

Market forecasts indicate a gradual easing of UK interest rates in the years following 2025. ING anticipates the rate at 3.75% at the end of 2025, followed by two cuts next year. Nomura expects a measured approach from the BoE — its Bank of England interest rate forecast for 2026 calls for quarterly rate cuts, reaching a final rate of 3.50% by February 2026. Meanwhile, Deutsche Bank projects a reduction in the Bank Rate to 3.25% by early 2026.

UK Interest Rate Predictions for 2027-2029

There are few long-term projections for the UK Bank Rate given the numerous variables influencing rate decisions. Fitch predicts the policy rate at 3% in 2027. According to The Guardian, members of the monetary policy committee forecast that the Bank Rate could fall to 3% by 2028. There are no authoritative forecasts for 2029, but the Office for Budget Responsibility (OBR) predicted that the rate would fall to around 3.8% from mid-2026 onwards.

The Bottom Line

Understanding UK interest rate trends is essential for navigating the financial markets. As shifts in monetary policy and economic indicators are anticipated, staying informed will be highly important. Traders looking to take advantage of these changes may consider opening an FXOpen account, a gateway to forex, stock, and index CFDs, supported by advanced trading tools and competitive trading conditions, including tight spreads from 0.0 pips and low commissions.

FAQ

What Are UK Interest Rate Forecasts for the Next 5 Years?

Analytical interest rate predictions for the next five years depend on factors like inflation, economic growth, and central bank policies. Some analysts believe that at the end of 2025 the interest rate could be cut to 3.75%, while at the beginning of 2026, the rate may be between 3.50% and 3.25%. There are fewer longer-term forecasts. Fitch projects that the rate will be at 3% in 2027. According to The Guardian, members of the monetary policy committee indicated that the Bank Rate could fall to 3% by 2028. The Office for Budget Responsibility (OBR) predicted that the rate would fall to around 3.8% from mid-2026 onwards.

What Are Bank of England Base Rate Predictions for 2026?

According to Nomura, a measured approach from the BoE will bring the interest rate to 3.50% by February 2026, while Deutsche Bank projects a reduction to 3.25% by early 2026. ING expects two rate cuts from 3.75%.

How May Traders Determine Future Interest Rates?

Determining future interest rates involves analysing economic indicators, central bank policies, and global economic trends. Factors like inflation, economic growth, and geopolitical events play crucial roles.

Are Interest Rates Expected to Go Up or Down?

Post-2024, analysts predict interest rates in the UK will trend downwards yet remain relatively restrictive compared to pre-pandemic monetary policy, settling above 3%. Interest rates in the UK in 2025 see potential stabilisation as the economy adjusts to monetary policy shifts and inflation targets are reached.

What Are UK Interest Rate Forecasts for Next 10 Years?

There are no publicly available forecasts from authoritative sources beyond 2028. As numerous factors affect monetary policy decisions, it is difficult to predict interest rates in the long run. ING and Scotiabank project interest rates at 3.75% at the end of 2025, while by the end of 2026, the rates could fall to 3.25% and 2.75% respectively. In 2027, the rate could decline to 3% and remain at that level through 2028.