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UK Interest Rate Forecast for the Next 5 Years | Better Than Expected?

Interest Rate Forecast for the Next 5 Years
Colin Prunty
Colin Prunty | Mortgage & Protection Advisor
Updated 01, July 2025

With interest rates ever-changing, what does the interest rate forecast for the next 5 years look like?

What can you expect when it comes to interest rates across the next 5 years? Find out in this article.

What affects mortgage interest rates?

Interest rates are influenced by a complex mix of interconnected factors, including credit supply and demand, inflation, central bank policies, economic performance, and global market conditions. Here’s a closer look at how these elements come into play:

Supply and Demand for Credit

  • High Demand, Limited Supply:
    When more people and businesses are seeking loans but the availability of credit is tight, interest rates tend to rise.

  • Low Demand, Ample Supply:
    If fewer borrowers are seeking credit or if lending is widely available, interest rates usually fall.

Inflation

  • Rising Inflation:
    Central banks often raise interest rates in response to rising inflation to slow down spending and stabilize prices.

  • Low or Falling Inflation:
    When inflation is low or the economy is in recession, central banks may lower interest rates to encourage borrowing and stimulate growth.

Central Bank Monetary Policy

  • Policy Tools:
    Institutions like the Bank of England use instruments such as the Bank Rate to influence interest rates throughout the economy.

  • Effect on Lending:
    Changes in the Bank Rate typically lead to corresponding shifts in the interest rates banks charge consumers and businesses.

Economic Growth

  • Strong Growth:
    In periods of robust economic expansion, interest rates may be increased to prevent overheating and manage inflation.

  • Weak Growth or Recession:
    Lower interest rates can help support the economy by encouraging borrowing and investment during downturns.

Global Economic Influences

  • International Events:
    Global trends and events—such as changes in supply chains or international demand—can impact domestic interest rates.

  • Currency Fluctuations:
    Shifts in exchange rates can affect inflation. For example, a weaker currency might push inflation up, prompting higher interest rates.

Additional Factors

  • Credit Risk:
    Lenders adjust interest rates based on the borrower’s creditworthiness. Higher-risk borrowers usually face higher rates.

  • Loan Duration:
    Longer-term loans often come with higher interest rates due to the increased uncertainty over time.

  • Unemployment:
    Low unemployment often signals economic strength but can lead to wage growth and inflation, which might trigger rate hikes by central banks.

Related reading: 

What are the average mortgage rates (UK)?

In the last 25 years, the average mortgage rates in the UK have changed drastically.

This table shows how they’ve changed since 2000.

   Year       

2-Year Fixed   

3-Year Fixed  

5-Year Fixed   

10-Year Fixed   

2-Year Variable   

   2000

6.50%

6.20%

6.00%

6.50%

6.30%

  2001

5.80%

5.60%

5.50%

5.90%

5.70%

  2002

5.20%

5.00%

5.00%

5.30%

5.10%

  2003

4.80%

4.60%

4.50%

4.90%

4.60%

  2004

4.50%

4.30%

4.30%

4.60%

4.20%

  2005

4.40%

4.20%

4.20%

4.40%

4.10%

  2006

4.60%

4.40%

4.40%

4.60%

4.30%

  2007

5.00%

4.80%

4.80%

5.00%

4.70%

  2008

6.00%

5.80%

5.70%

6.00%

5.60%

  2009

4.00%

3.80%

3.70%

4.00%

3.60%

  2010

3.50%

3.30%

3.30%

3.60%

3.20%

  2011

3.80%

3.60%

3.50%

3.90%

3.40%

  2012

3.60%

3.40%

3.40%

3.70%

3.20%

  2013

3.50%

3.30%

3.30%

3.60%

3.10%

  2014

3.40%

3.20%

3.20%

3.50%

3.00%

  2015

3.20%

3.00%

3.00%

3.30%

2.80%

  2016

3.10%

2.90%

2.80%

3.20%

2.60%

  2017

3.00%

2.80%

2.70%

3.10%

2.50%

  2018

2.90%

2.70%

2.60%

3.00%

2.40%

  2019

2.80%

2.60%

2.50%

2.90%

2.30%

  2020

2.70%

2.50%

2.40%

2.80%

2.20%

  2021

2.60%

2.40%

2.30%

2.70%

2.10%

  2022

3.50%

3.30%

3.20%

3.60%

3.10%

  2023

3.50%

4.80%

4.70%

5.10%

4.60%

  2024

4.70%

4.50%

4.40%

4.80%

4.30%

2025

4.90%

4.09%

4.50%

4.46%

5.20%

Table data source: Statistica

The interest rates have continued to rise in recent years, although the rest of 2025 is expected to see a fall. In this next section, we’ll take a look at what the future holds.

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Interest Rate Forecast for the Next 5 Years

It’s difficult to predict where interest rates will go over the next 5 years. Many factors affect this, as we’ve already discussed, as well as other factors that we can not yet predict.

Current market forecasts suggest that interest rates will be cut once more in 2025, dropping to 4%, and then decline further to either 3.75% or 3.5% in 2026.

However, some major financial institutions predict a steeper fall. For instance, HSBC and UBS expect interest rates to decrease to 3% by the end of 2026.

On the other hand, some analysts anticipate rates will remain relatively high. Pantheon’s analysts forecast that interest rates will end 2026 at 4%, just 0.25 percentage points below current levels.

Meanwhile, economists at Capital Economics predict the base rate will fall to 3.5% by early 2026.

Looking beyond late 2025 and early 2026, economists differ on where interest rates will stabilize.

For example, Santander expects rates to stay between 3% and 4% for the foreseeable future.

In contrast, Oxford Economics predicts the base rate will eventually fall to 2.5% in 2027 and remain around that level through 2028 and 2029.

The Bank of England tends to meet eight months out of the year to discuss interest rates. Keeping an eye on the Monetary Policy Committee Dates page will keep you up to date on when you can expect changes to happen.

UK Interest Rate Forecast for the Next 5 Years

Final Thoughts

We hope this guide has been useful in helping you to understand the interest rate forecast for the next 5 years.

Should you require any further assistance in your mortgage application, please contact us to arrange a consultation with our expert team of brokers.

As a specialised mortgage broker, we have access to hundreds of lenders. We offer a free consultation with access to a free Equifax Credit Report. With this report, we can analyse your current situation and look at how to move forward.

As with any big financial decision, it is highly recommended that independent financial advice is sought ahead of committing to a specific option, to ensure that all terms are fully understood, the option is the most favourable for the applicant, and that the repayments can be made comfortably.

In addition, it is important to note that with any secured lending, the ultimate consequence of defaulting on the mortgage could mean that the property is repossessed by the lender.

Call us today on 03330 90 60 30 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.

Colin Prunty
Written by Colin Prunty

Hello! I’m Colin, a seasoned mortgage advisor with a career spanning several decades in the financial services industry.

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