Mortgage rates: When will UK interest rates fall again?

[BBC]
Kevin Peachey - Cost of living correspondent
5 min read

The Bank of England has kept interest rates on hold at 5%, but further cuts are expected later in the year.

Interest rates affect the mortgage, credit card and savings rates for millions of people across the UK.

The first drop in rates for more than four years came in August, but borrowing costs remain high.

What are interest rates and why do they change?

An interest rate tells you how much it costs to borrow money, or the reward for saving it.

The Bank of England's base rate is what it charges other lenders to borrow money.

This influences what they charge their customers for loans such as mortgages, as well as the interest rate they pay on savings.

The Bank of England moves rates up and down in order to control UK inflation - which is the increase in the price of something over time.

When inflation is high, the Bank may decide to raise rates to keep it at or near the 2% target.

The idea is to encourage people to spend less, to help bring inflation down by reducing demand.

Once this starts to happen, the Bank may hold rates, or cut them.

When will UK interest rates go down further?

The current Bank rate is 5%, having spent many months at 5.25% - which was the highest level for 16 years.

However, interest rates were significantly above this for much of the 1980s and 1990s, hitting 17% in November 1979.

Inflation is now far below the peak of 11.1% in October 2022.

The main inflation measure, CPI, rose slightly to 2.2% in the year to July and remained at that level in August. It means prices are rising at a much slower rate than in 2022 and 2023.

Announcing the August cut, Bank of England governor Andrew Bailey had said that "inflationary pressures have eased enough that we've been able to cut interest rates today".

But he warned: "We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much."

The Bank also considers other measures of inflation when deciding how to change rates, and some of these remain higher than it would like.

Some parts of the economy, like the services sector - which includes everything from restaurants to hairdressers - were still seeing more significant price rises in recent months.

It has to balance the need to slow price rises against the risk of damaging the economy, and avoid cutting rates only to have to raise them again shortly afterwards.

Most economists and analysts did not expect rates to fall in August, but think the next cut may come in November.

How much could interest rates fall?

Although UK inflation briefly hit the Bank's 2% target in May and June, it is forecast to remain slightly above that level for the rest of 2024, before settling back down in early 2025.

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