Bank of England reduces interest rates

The Bank of England has hinted that there could be rate cuts coming but with the target inflation rate of 2%¹ expected to be reached in spring, the Bank is unlikely to cut rates too quickly or by too far.

Any expectations for these low rates to return are wide of the mark, as the post-Covid rates were a response to exceptional circumstances to support the economy following the pandemic lockdown.

The Bank of England is expected to be cautious with any rate cuts with ongoing concerns about the weak job market. Unemployment rates are forecast to reach around 5.3% in 2026¹, with the job market affected by tax rises and increases in the minimum wage.

Other factors that are impacting inflation are the rise in energy and food costs as a consequence of the war in Ukraine. The cost of living has been a financial burden on many household budgets and despite inflation nearing the target, it remains high in historical comparison.

Many finance experts have predicted between one and three base rate cuts to be introduced throughout 2026, so the lowest rate we could realistically see is 3%, or 3.5% if there is just one rate cut.

The Bank of England governor Andrew Bailey has indicated that rate cuts could continue in 2026 but has warned not to expect pre-Covid rates, as these were a “product of exceptional things going on, starting with the financial crisis”.¹

How are rates affecting mortgage borrowers?

The last rate cut was implemented in December 2025, reducing the rate to 3.75% from 4%, representing the first time it has dropped below 4% in three years.

While this is good news for many borrowers coming up to remortgaging after a two- or three-year deal, it is a different picture for homeowners who took out a five-year fixed deal in the post-Covid rates of below 1%.

The Bank predicts that around two out of five¹ residential borrowers are likely to be moving onto higher rate mortgage deals in the next few years as their considerably lower fixed rate deals come to an end.

They also forecast that these borrowers will experience an average 8% rise¹ in the repayment costs for their mortgage. On the flip side, one in three¹ residential borrowers are expected to move onto lower rate mortgage deals in the next few years as they move from the higher rates when base rates were over 4%.

The current base rate of 3.75% is 1.5% lower than the peak of 5.25% between mid-2023 and mid-2024, so borrowers who arranged mortgage deals during this period will be able to access lower mortgage deals if their fixed term is ending soon.

Sources

https://www.bbc.co.uk/news/articles/czdq9gzdq5qo

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

March 2026