What is the UK interest rate forecast for 2026?

The UK Bank of England interest rate was cut by 25 basis points in the final Monetary Policy Committee (MPC) meeting of the year in December. The cut to the current 3.75% marks the lowest level for UK interest rates since January 2023 and came off the back of encouraging inflation data in November. 

Like previous decisions, the UK central bank’s MPC was split. Five members voted in favour of the cut, while four preferred to hold rates steady. BoE governor Andrew Bailey cast the deciding vote  – highlighting the delicate balance between quelling inflation and not unduly dampening the economic growth.

What is the UK interest rate prediction from here?

While inflation did creep up again in December to 3.4% from November’s 3.2%, there is good reason to believe that it’s coming under closer control and will fall gradually towards the BoE’s 2% target in the coming months.

Tax rises in the Budget, and a slowing labour market are likely to rein in household spending power, especially if wage rises fall back further, which could help keep a lid on price rises. With UK growth in the doldrums, the minds of policymakers could therefore become more focused on supporting the economy through further interest rate cuts.

Yet inflation may still prevent them from doing so. While the economy is weakening and cracks are opening in the jobs market with payrolled employment continuing to contract, there are still inflationary forces at work. Services inflation – partly driven by the rising costs of employment – is still running at well over 4% and household budgets are feeling the strain of higher food costs, swelling people’s own inflation expectations.

Until these key elements roll over concertedly we expect inflation to remain stubborn and a balance of BoE policymakers to remain cautious about easing policy prematurely. This effectively leaves the door open to an extended pause from this point if the data fails to justify a move.

Overall, it’s likely that inflation will ease as lower rail fares and energy prices drag it further towards the 2% level. But that won’t show up in the data for the next MPC meeting on 5th February. Therefore, the earliest we can expect a further bank rate cut is March, and whether we see multiple cuts over the course of this calendar year very much hangs in the balance. 

If growth continues to disappoint and inflation and wage growth keeps trending down the Bank could pursue a more aggressive rate cut policy, but a more resilient economic scenario combined with stubborn price rises could see it sit on its hands for much of the year.

What does it mean for mortgage rates?

For those looking to get a mortgage or remortgage, the big question is should you go for a variable rate that will fall when the Bank of England base rate does, or should you lock in a fixed mortgage rate that offers certainty over what you will pay?

Mortgage interest rates have been generally trending down over the past year with the BoE cutting interest rates and competition among banks and building societies intensifying. They could fall a little further as markets expect the base rate to fall to 3.25%-3.5% from the current 3.75% over the course of 2026 – though that’s far from guaranteed as it relies on inflation subsiding towards target.

If you want the certainty of knowing what your rate will be over a set period to help you budget then a fixed rate may be right for you. However, if you are happy to accept some variation, up and down, then a tracker could allow you to benefit from a faster pace of cuts. That would require the scenario that inflation decelerates in short order and there are more Bank of England cuts than currently priced in.

What does it mean for cash savings?

The best interest rates on easy access accounts fell over the course of 2025, corresponding to the rough trajectory of BoE base rate. However, it is still possible to find accounts that offer rates around or even slightly ahead of the prevailing rate of UK inflation.

A cash platform such as Charles Stanley Direct Cash Savings could assist in getting a competitive deal. For instance, the best available easy access rate at the time of writing is 3.7% AER. 

Savers may also wish to consider fixed term accounts where rates are currently more generous than for easy access – provided the money isn’t required before the end of the term. If base rates are cut further in the coming months the return on a fixed rate account will be protected, whereas rates on easy access accounts have little chance of improving and could instead drop away. Presently a 12-month fix around the 4.2% level is achievable.

Remember, you shouldn’t judge a savings account solely by its headline rate. For example, check it meets your needs in terms of access to your money or whether the rate drops after a bonus period.

More about Charles Stanley Direct Cash Savings

An online savings platform like Charles Stanley Direct Cash Savings, powered by Bondsmith, allows you to find better rates in one place and switch easily between accounts from different banks and building societies.

• Mix and match a range of terms from easy access to five years through one secure account
• A single application, identification check and log in
• A selection of top tier interest rates available from high street and challenger banks
• Minimums starting from £1

To start, open a Charles Stanley Direct account, and open your Cash Savings account from the portal. For an introduction to the service check out this video on our YouTube channel.