The Bank of England’s interest rate is crucial. It plays a huge role in shaping the housing reality for millions of citizens across the UK. This rate is the key determinant for mortgage, credit card, and savings rates. It shapes the day-to-day lives of people and families. The UK is enduring a time of unpredictable economic circumstances. Voters and Board Members alike are wondering when interest rates will start to fall again, particularly given the recent reversal in the Federal Reserve’s rate strategy.
From late 2021, the Bank of England has raised interest rates at record pace. This move signals that they’re trying to address the increasing pressure of escalating inflation. In August 2023, the rate shot up to 5.25%. This milestone set her country on the path for one of the highest per capita rates in the G7 nations. This major bump came on the heels of historically high inflation rates, which reached 11.1% in October 2022. Back in January 2021 we were essentially at 0.7% inflation. This striking number speaks to the transformative change in the economic landscape.
Inflation pressures began to show signs of falling away, which along with uncertainty caused the Bank of England’s base interest rate to fluctuate. It fell to 0.1% in January 2021 before skyrocketing in the subsequent years. The inflation rate receded to a recent low of 1.7% in September 2024. It has begun to trend upward again since then. This trend raises questions about the effectiveness of previous interest rate hikes and whether further increases will be necessary to stabilize prices.
This is especially bad news for homeowners, and the implications of these interest rate changes are dire. Around half a million homeowners have mortgages that follow the Bank of England’s base rate. That’s because their payments vary each month, tied directly to the interest rate the bank chooses to offer. More than 800,000 fixed-rate mortgages with interest rates of 3% or lower will mature annually. This downward trend has the potential to last all the way through the end of 2027. Now, as these fixed rates end, millions of American homeowners will see their housing costs increase significantly. Or they will have to refinance at today’s higher market rates.
As of November 19, the average two-year tracker mortgage rate is still 4.66%. The two-year fixed residential mortgage rate currently stands only slightly higher at 4.88%. These rates speak not only to the unique domestic fiscal and monetary policy environment but to international financial flows and trends.
Other important central banks—including the Eurozone—in tandem moved gradually to still higher interest rates. In June 2024, the European Central Bank (ECB) belatedly moved in the right direction by cutting its main interest rate for the eurozone from an all-time high of 4% to 3.75%. By June 2025, they had effectively lowered it by 0.25 percentage points, solidifying it at 2%. The Federal Reserve in the United States just completed two consecutive months of rate cuts in September and October. As such, they immediately screeded the rates down to 3.75-4%.
The ongoing adjustments by these institutions underline a broader trend of central banks responding to changing inflation dynamics while striving to support economic growth. Yet the current average rate for no penalty, easy access savings accounts is only 2.51%. This low rate underscores the difficulty that savers face during this period of higher interest rates.
Despite the complexities surrounding interest rates and inflation, many analysts speculate that a decrease in rates may not come soon. The Bank of England is primarily interested in cutting inflation. They’ll focus on shoring up the economy first before considering any cuts.