Most analysts expect interest rates to rise in the UK and mortgages are on the radar
Before the US-Israel attacks on Iran, the market predicted a drop in interest rates in 2026. Now, with inflation at 3.5% and oil on the rise, expectations have changed.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM BBC BUSINESS · 2 MIN
The Bank of England (BoE) could break a streak of six meetings without a rate change. According to BBC Business, the base rate is at 3.75%, and most analysts predict it will rise to 4% at the next meeting in November. It would be the first increase in more than three years.
The recent cycle began in August 2023, when the rate reached 5.25%. The cuts began in August 2024, and five reductions took the rate to 4%. After that, the BoE maintained interest rates in September and November 2025, cut them in December and maintained the rate in January, March, April, June, July and September 2026.
Before the US-Israeli attacks on Iran in February 2026, interest rates were expected to fall throughout the year. Since then, oil has risen with interruptions in the Strait of Hormuz, retreated with ceasefires and rose again in July, with the resumption of attacks between the US and Iran.
Inflation explains much of the change in tone. The consumer price index (CPI) reached 11.1% in October 2022, after the Russian invasion of Ukraine. In the 12 months to September 2026, it rose to 3.5%, up from 3.1% the previous month, against a BoE target of 2%. According to the ONS, the acceleration came from the rise in gasoline and diesel. Energy bills also rose in July and October, following price ceiling adjustments.
The effect reaches the pockets of those who have real estate financing. Just under a third of British households have a mortgage, according to the English Housing Survey. Around 500,000 homeowners have a mortgage tied to the BoE rate, and each 0.25 percentage point rise adds around £31 a month to a typical loan, according to BBC Business.
Many analysts see a new increase at the November meeting and another at the beginning of 2027. The debate, therefore, is no longer about when interest rates will fall and has become how many hikes will still come. According to those who defend fiscal responsibility, low and sustainable interest rates depend on controlled inflation and orderly public accounts.
What changes for the investor
Higher interest rates tend to weigh on longer-term assets and heavily indebted companies, because they make credit more expensive and reduce the present value of future earnings. For those who follow interest rates, the dollar and stock exchanges like the Nasdaq, the points of attention are the BoE's decision in November, the signal it will give for 2027 and the evolution of oil, which remains linked to inflation. This article does not provide a purchase or sale recommendation or price projections.
Automatically translated from Portuguese.
