How far will interest rates fall?

Markets are now pricing in between three and four quarter-point rate cuts by the Bank of England in 2025 following the turmoil triggered by the announcement of US trade tariffs.

As we lay out in the data below, forward bond prices are now indicating that rates will be 0.84 percentage points lower than their current level of 4.5% by January 2026. This is only indicative - the Bank tends to move rates in 0.25 percentage point increments, suggesting at least three but perhaps four cuts this year. 

This represents a significant lowering of expectations for rates. Markets had been forecasting only two cuts this year as recently as March. 

It is the announcement on 2 April of trade tariffs on international partners by US President Trump that has driven expectations sharply lower. The White House has signalled a partial U-turn on tariffs since then but economists still expect a significant impact from the policy.

Tariffs complicate the picture for interest rates. On the one hand they are likely to be inflationary, making it harder for central banks to lower rates as inflation comes under control. Yet, they are also likely to slow down growth, taking momentum out of economies.

Markets are betting on tariffs prompting central banks to lower rates more quickly to ease economic conditions.

Mortgage and savings rates are also moving. Mortgage rates do not depend solely on the Bank of England rate but tend to move in broad correlation to it. The best rate available on 5-year mortgage has fallen to 3.89%¹ in recent days, down from 4.06% at the start of the week.

Savings rates on cash have held up so far but are predicted to move lower in the months ahead. The best rate on accounts with easy access and without short-term bonus rates is currently 4.75%²

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The next central bank meeting is scheduled for 8 May 2025 followed by meetings on:

• 19 June
• 7 August
• 18 September

What are the latest forecasts? 

Forward bond prices (see below) indicate three or four more quarter-point cuts this year. Market watchers have suggested the first of those could come in May.

Beyond that, markets are suggesting rates will continue to fall in early 2026 before levelling out, reaching around 3.67% in 18 months. 

How forward market interest rates have changed 

The path ahead for interest rates, as implied by market prices, has been changing. The chart below shows the implied level of interest rates from the 18 March 2025, 19 February 2025 and 9 April 2025. 

The implied level has shifted 0.32 percentage points lower since February - translating into one or perhaps two more cuts during the 18 month forecast period.

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