The Bank of England is widely expected to raise interest rates from 3.75 per cent to 4 per cent when the Monetary Policy Committee (MPC) meets on Thursday. This would be the first rate hike in over three years, and it comes as 2.3 million UK households prepare to renew their mortgages in 2027. Those who secured five-year fixed-rate mortgages in early 2022, when rates were around 1 per cent, will face significant increases. For example, a £200,000 mortgage with a 25-year term would see monthly repayments rise from around £986 in 2022 to £1,289 now, an annual increase of over £3,600.
Mortgage rates have been climbing, with the average five-year fix exceeding 6 per cent last month. While Barclays plans to cut some residential mortgage deals on Tuesday, market estimates suggest up to four rate hikes could occur, with the yield on two-year gilts currently at 4.8 per cent. The UK economy's sluggish growth complicates the decision, as cutting rates to stimulate growth conflicts with the need to control inflation. The last rate hike was in August 2023, bringing rates to 5.25 per cent, followed by six decreases, the most recent just before Christmas 2025.
A rate increase would benefit savers, who currently earn up to 5 per cent on easy access savings accounts, but it poses challenges for mortgage renewals. Barclays analysts predict a 7-2 vote in favor of a hike, while RSM UK’s chief economist Thomas Pugh expects a closer 6-3 vote. Energy inflation remains a concern, potentially leading to another rate hike in February 2027, depending on the Middle East conflict's resolution. Barclays analysts Jack Meaning and Cian Hennigan note that further hikes would depend on evidence of second-round effects.
Households also face financial strain during the festive season, with 42 per cent saving less or nothing during Black Friday and Christmas. A quarter of people rely on savings to fund holiday spending, while 74 per cent expect to spend more. Bunq’s Joe Wilson advises building festive spending funds throughout the year to avoid overspending and take advantage of higher savings rates.