What is going on with Mortgage rates?

Bank Rate, inflation and what could happen next

Interest rates can sometimes feel like a very distant subject, but Bank Rate has a direct impact on everyday life — from mortgage payments and loans to the interest earned on savings.

The Bank of England’s Bank Rate is one of its main tools for keeping inflation under control. When rates rise, borrowing generally becomes more expensive and saving becomes more attractive. The aim is to encourage households and businesses to spend a little less, reducing demand and easing pressure on prices. When inflation is under control, the Bank can consider reducing rates to support the wider economy.

We have seen this play out dramatically over the past few years. UK inflation climbed rapidly during 2021 and 2022, eventually reaching around 11%. In response, the Bank steadily increased Bank Rate from just 0.1% in late 2021 to 5.25% in August 2023. As inflation subsequently eased, the Bank began cutting rates in August 2024. Bank Rate eventually reached 3.75% in December 2025, where it remained following the Bank’s September 2026 meeting.

But the battle against inflation isn’t quite over yet. The latest figures from the Office for National Statistics show that CPI inflation rose to 3.1% in August 2026, up from 2.9% in July. Higher transport costs, particularly motor fuel, were a significant factor behind the increase.

So, what might the next 12 months look like?

There is still plenty of uncertainty. The Bank expects inflation to rise further in the near term, partly because of higher and more volatile energy prices. Its September assessment suggested inflation could move above 4% in early 2027 before easing.

Interestingly, financial-market participants are somewhat more optimistic about the longer-term picture. The Bank’s September survey of 92 market participants put median CPI inflation expectations at 2.5% one year ahead, while the median expectation for Bank Rate was 3.75%. These are market expectations, not an official Bank of England forecast.

For households, the message is fairly simple: the era of ultra-low interest rates looks unlikely to return soon, while inflation may remain a little uncomfortable before gradually moving closer to the Bank’s 2% target. Energy prices, wage growth and events around the world could, however, change that outlook considerably.

 Sources: Office for National Statistics; Bank of England. Forward-looking figures are from the Bank of England’s September 2026 Market Participants Survey and should be treated as market expectations rather than forecasts.

If you are looking for a property and unsure on mortgage options, then why not pop in for a chat (and a Tea/Coffee) with our friendly sales manager Justin, or email him: Justin@Avrasons.co.uk