Latest UK interest‑rate outlook and rate‑cut expectations

25th January 2026

The decisions on interest rates changes all the time so lets look at the current, up-to-date summary of how economists and the Bank of England (BoE) are thinking about the chances of more interest rate cuts in the UK. Both in the near term (months) and longer term (rest of 2026 and beyond).

Near-term (next few BoE meetings)

Still possible, but increasingly cautious.

Markets now expect the BoE's next rate cut to be later than previously thought — with Morgan Stanley pushing its forecast from February to March 2026, reflecting slightly stronger inflation than expected.

Latest official inflation data showed a small uptick in CPI to ~3.4%, making it harder for the BoE to cut quickly because inflation remains well above the 2% target.

Some BoE policymakers are warning that persistent wage growth and cost pressures may limit how fast cuts can come, potentially delaying the first move until mid-year or later.

Bottom line for the near term: A first cut is possible in early-mid 2026, but not guaranteed at the very first meetings — markets and policymakers are being cautious.

Rest of 2026 (medium-term)

Expectations still tilted toward gradual cuts, but not a deep easing cycle
Economists and market forecasts broadly agree that:

Overall borrowing costs are expected to fall further through 2026, especially if inflation continues to drift down toward target.

Markets imply roughly 0.3-0.5 percentage points of cuts priced in by year-end 2026, meaning maybe 1-2 cuts over the year.

Some bank forecasts see the BoE trimming rates more — for example Goldman Sachs and others have suggested cuts out to 3.0–3.5% by mid-to-late 2026, depending on inflation and growth.

Medium-term view
Growth is weak and inflation is slowing, which gives the BoE room to cut — but cuts are expected to be gradual and data-dependent, not aggressive.

Long-term (beyond 2026)
A more uncertain picture

Longer-term forecasts (e.g., into 2027 and beyond) depend a lot on how fast inflation gets back to 2%, how the UK economy performs and labour market conditions.

If inflation drops towards target and the economy weakens further, the BoE could resume cuts or hold rates lower for longer than markets currently expect.

Conversely, persistent inflation pressures (from wages or services prices) or stronger growth could keep rates higher and cut less than priced in.

Longer-term outlook
Still uncertain — not a clear signal for many cuts beyond 2026, but rather a gradual easing path if underlying price pressures abate.

Key factors influencing BoE decisions

Inflation data: rising inflation or sticky services prices make cuts less likely soon.
Wage growth and labour market: persistent wage growth can keep inflation above target and slow cuts.
Economic growth: weak growth and soft GDP figures push markets toward expecting cuts.
BoE policy language: policymakers are stressing caution — not ruling out cuts, but signalling they won't rush.
Market pricing: futures markets currently price some cuts in by end-2026, but less than earlier in 2025.

Although rate cuts in 2026 are likely it would seem they are being delayed due to the uncertainty in the picture overall.