Here’s a refined forecast of UK interest rates over the next five years, drawing on central bank guidance, market expectations, and independent forecasts:
🔍 Overview & Short-Term (2025–2026)
Current status: The Bank of England’s base (Bank) rate stands at 4.25% as of June 2025.
Projections for 2025: Markets foresee two additional 0.25 pct cuts this year, dropping the rate to around 3.5% by May 2026 .
Official BoE data: Bank minutes (Feb–Mar 2025) signal cautious, gradual easing.
Analyst divergence: Goldman Sachs forecasts cuts reaching 3.25% by mid‑2026, while Morningstar sees inflation remaining above target into 2028.
🏛️ Medium-Term (2027–2028)
Nora Da Real Estate / MoneyToTheMasses / FXOpen estimate steady rates of 3.5–4.0%, with modest increases post‑2026 owing to rising neutral rate and inflation pressures.
Market swaps data suggest:
Jan 2027: ~3.53%
Jan 2028: ~3.58%
Jan 2029: ~3.69%
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🔮 Long-Term Outlook (2029–2030)
Markets project a slow upward drift, reaching about 3.8–3.9% by 2029–2030.
Structural analysis positions the long-term neutral rate around 3%, though current bond yields and forecasts suggest slightly higher sustained levels.
📊 Forecast Summary Table
| Year/Period | Projected Base Rate (%) |
|---|---|
| End of 2025 | ~3.75–4.00 |
| Mid-2026 | 3.25–3.50 |
| Early 2027 | 3.50–3.60 |
| Early 2028 | 3.50–3.80 |
| By 2029–2030 | 3.80–3.90, slight upward trend |
Key Influences
Inflation: Currently modestly above target (~3–3.5%), projected to fall gradually; still pressure in services and wages .
Economic growth: UK growth expected weak—~0.75 % in 2025, ~0.9–1.4 % in 2026; this tempers the pace of cuts.
Neutral rate shift: Structural factors (debt, demographics) may keep long-run rates higher (around 3%) .
Global & fiscal pressures: Trade uncertainty, fiscal looseness, and sticky inflation could delay further easing .
🧭 In Summary
Short-term (2025): Expect 2–3 quarter-point cuts, bringing the base rate down to around 3.5–3.75%.
Medium-term (2026–2028): Gradual stabilization with rates hovering between 3.5%–4.0%.
Long-term (2029+): Slight upward drift to 3.8–3.9% by 2030, reflecting a new “normal”.
Please note these are forecasts—actual policy decisions will hinge on incoming data on inflation, growth, and external shocks.
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