UK interest rate forecast for the next five years

Explore the UK interest rate forecast with third‑party predictions, trends, and a five‑year outlook for projected UK interest rates.

By Dan Mitchell10:58 (UTC), 8 September 2025 Updated

Street in City of London with Royal Exchange, Bank of England and new modern skyscrapers — UK projected interest rates in 5 years defy current expectations – Photo: Alexander Spatari / Getty Images

UK interest rate forecasts can provide valuable economic insights – whether you’re trading the pound, following the Bank of England, or watching macro trends. Here’s our round-up of third-party BoE rate forecasts and predictions for 2025 and beyond.

Current UK interest rates overview

The Bank of England (BoE) base rate, known as the UK interest rate, stands at 4.00% following the latest 25 basis point cut at the August 2025 policy meeting. This marked the fifth reduction in a year, as the BoE responded to a cooling UK economy and persistent, though gradually easing, inflation.

The decision to lower rates in August was described by BoE officials as 'a gradual and careful' move, reflecting the Committee’s aim to balance risks to both growth and inflation. Notably, the vote revealed an uncommon 5-4 split within the Monetary Policy Committee (MPC) – five members supported the 0.25% cut, while four voted to keep rates unchanged.

Compared to its recent 15-year high, the current rate is the lowest since mid-2022, but still well above the near-zero rates seen previously.

Daniela Hathorn, senior market analyst at Capital.com, commented: 'The fact that four MPC members voted to keep the rate unchanged was a lot less dovish than anticipated, prompting the pound to rise on the back of it.' This rare division highlights the current uncertainty over the appropriate pace and timing of further policy moves.

UK interest rate history

After holding the base rate steady at 5.25% from August 2023 through July 2024, the Bank of England enacted a series of cuts. The first reduction came in August 2024, lowering the rate by 25 basis points to 5.00%, followed by another cut to 4.75% in November. Further quarter-point reductions brought the rate to 4.50% in February 2025, 4.25% in May, and 4.00% in August 2025.

Past performance isn’t a reliable indicator of future results.

Short-term UK interest rate forecasts

As of late-August 2025, short-term UK interest rate predictions suggested further policy easing from the Bank of England, but the pace and scale of rate cuts remained disputed among major forecasters.

In its August 2025 UK interest rate forecast, ING Think projected a gradual reduction, with the Bank of England base rate expected to fall to 3.75% by the end of 2025 and 3.50% by Q1 2026. ING anticipated the rate settling at 3.25% for the remainder of 2026 and into 2027.

Fitch Ratings, in its 22 August 2025 outlook, expected UK inflation, which rose to 3.8% in July, to ease to 2.8% by end-2025, helped by wage disinflation and a 7% fall in the energy price cap. Risks remain skewed to the upside amid rising inflation expectations. Inflation was projected to average 2.2% in 2026–2027, just above the Bank of England’s 2% target. Fitch sees the policy rate cut to 3.75% by end-2025 and 3% in 2027.

Scotiabank adopted a more bearish view in its latest update, forecasting the policy rate would hit 3.75% by year-end, fall to 3.50% in early 2026 and slip to 2.75% by the end of that year.

HSBC, responding to the August rate decision, wrote: 'The BoE will continue to reduce Bank Rate at a continued 25bps-per-quarter pace, until it gets to 3.00% in Q3 2026.' HSBC expected steady easing but noted the risk of slower progress if wage growth remained elevated.

Analyst forecasts are based on current information and may not reflect future market developments. Predictions should not be considered financial advice. Always conduct your own research before making trading decisions.

UK interest rate predictions for the next five years (2025-2030)

Most major analysts have not issued a long-term interest rate forecast for the UK.

The Office for Budget Responsibility (OBR) projected in its latest outlook that the Bank of England base rate would gradually decline to around 3.5% by 2029.

The Bank of England (BoE) issued guidance up to 2028 in its August 2025 Monetary Policy Report. The BoE expected a 0.50-percentage-point reduction to 3.5% by Q3 2026, followed by incremental increases to 3.6% in 2027 and 3.7% in 2028.

Analyst forecasts are estimates based on available information. Predictions may be inaccurate, and can’t account for unforeseen market events.

Past performance isn’t a reliable indicator of future results.

Potential impact of projected UK interest rates on consumers and businesses

Consumers

For consumers – mortgage rates remain a key consideration. As the BoE base rate potentially declines towards 3.5% by 2029, borrowing costs may ease. Variable-rate mortgage holders could see lower repayments, although lenders may not pass on full reductions immediately. Fixed-rate deals are closely linked to market expectations of future policy moves. For more, see our UK mortgage rate forecast.

Businesses

For businesses – lower interest rates may reduce financing costs, supporting investment and cash flow. This could particularly benefit interest-sensitive sectors. However, modest GDP growth – projected at 1.1% in the year to Q3 2026, according to the Bank of England – indicates demand conditions could remain subdued.

Traders

For forex CFD traders – currency pairs that include the pound may also be affected. Interest rate expectations are a key driver of the forex market. Further cuts could weigh on sterling if rate differentials with other major central banks widen. Short-term moves may reflect BoE communications as much as actual policy changes.

FAQ

What are interest rates and why do they matter in the UK?

Interest rates represent the cost of borrowing money; the Bank of England sets the headline rate – called the ‘bank rate’ – which guides wider market rates. They influence what consumers and businesses pay to borrow and what savers earn on deposits. Changes in the Bank Rate affect everything from mortgage costs to the value of sterling, as well as inflation and economic growth. In the UK, interest rates are a key tool for meeting the government’s inflation target and steering the wider economy.

Who decides the UK base interest rate and how often does it change?

The Bank of England’s Monetary Policy Committee (MPC) sets the UK base rate. The MPC meets eight times a year, approximately every six weeks, to review economic data and vote on rate changes. Members consider factors such as inflation, employment and GDP growth. Rate changes are not on a fixed schedule; they depend on prevailing economic conditions.

Which organisations publish UK interest rate forecasts?

UK interest rate forecasts are published by a range of organisations, including investment banks (e.g. ING, HSBC, Scotiabank), rating agencies (such as Fitch), government bodies (notably the Office for Budget Responsibility) and the Bank of England itself. Economic consultancies and independent market analysts also issue regular UK interest rate projections. Each forecast is derived from its own models and assumptions.