How low will interest rates go?

Today’s 0.25 per cent Bank of England base rate cut was considered a nailed-on certainty but the question of where rates will end up in this cycle is a matter of hot debate.

Predictions have altered dramatically since Donald Trump began his tariff attack on international trade and the global financial system.

We’ve moved from an expectation that rates may not fall by much because Trump is US president to rates may fall substantially… because Trump is US president.

The trickiest dilemma is faced by the Federal Reserve in the US, where the threat of recession is being balanced against both the initially expected Trump-driven inflation and the new tariff-driven inflation.

Last night, the Fed opted to hold rates in the range of 4.25 per cent to 4.5 per cent.

At home, the Bank of England has its own problems to deal with, including Britain’s sticky inflation. However, it is widely expected to continue to view that as temporary but the UK economy’s slow growth and weak productivity as more permanent.

This was reflected in today’s Bank of England decision, where rates were cut from 4.5 per cent to 4.25 per cent by the Monetary Policy Committee, but two members voted for a larger 0.5 per cent drop.

Fidelity’s Ed Monk commented that this shows ‘the momentum for rate cuts is building’.

The disruption of US tariffs to global trade and business sentiment is seen as a serious issue by the Bank of England and likely to exacerbate the difficulties the UK economy already faces. This will remain the case regardless of any direct UK-US trade deal.

Weak data on Britain's crucial services sector and a decline in consumer confidence cemented the view among analysts that rates would fall this week.

But where do we go from there?

Barclays says it expects a further three rate cuts in this cycle, to take base rate down to 3.5 per cent.

Marion Amiot, chief UK economist at S&P Global agrees, suggesting: ‘With inflation set to rebound in the April release, the Bank will monitor carefully how this shapes firms’ pricing and employment decision, along with the aftermath of the global trade wars on UK economic activity.

‘As a result, we expect only a gradual rate cut cycle, with one cut per quarter until Q1 2026.’

Again, that would mean another three cuts by the end of March next year, taking base rate down to 3.5 per cent.

This is a substantial turnaround from minimal rate cut expectations at the start of the year, but we’d still be a long way from the rock bottom levels of recent years.

There may be some thinking that Trump’s rattling of the world’s cage would be enough to send UK interest rates tumbling further, yet that may be wishful thinking.

Central bankers know we still have a hangover from super-low interest rates skewing markets and have little appetite to return to them.

Meanwhile, I wouldn’t bet the house on us seeing the four rate cuts currently predicted.

A couple of months of bad inflation data could see things change. 

Or maybe the economy may even pick up, despite Labour’s best efforts to pour cold water on business and consumer sentiment.

More rate cuts would certainly do people like me who need to remortgage soon a favour, but barring a full-scale financial crisis I doubt we will get much below 3.5 per cent.

The good news for borrowers is that mortgage rate cuts are running ahead of the Bank of England, with banks and building societies engaged in something of a price war.

Balance sheets are robust, profits are riding high, and borrowers and the UK housing market have somehow dodged the bullet of interest rates shooting up.

This makes them keen to lend, despite the downbeat mood surrounding the UK economy.

I’m due to remortgage in autumn – waving a sad goodbye to my 1.4 per cent five-year fixed rate – and my plan is to use This is Money’s fee-free mortgage finder service with broker L&C to secure a new deal ASAP, rather than wait for rates to come down further.

I can then sleep soundly knowing I have locked in a mortgage rate and if they continue to come down before my remortgage is due, I can always jump ship to a better deal.

I’ll fill you in more on how that goes and the remortgage process through my eyes in future.

Savers may also want to act. Savings rates have held up well considering the slide in interest rate forecasts and you can still fix for one to five years at about 4.5 per cent, or get an easy access cash Isa paying 5 per cent.

These deals may not stick around. Check our independent best buy savings tables for the top rates.

And remember, if there’s one thing you can usually rely on with interest rate forecasts it’s that they end up being wrong.

So, make decisions based on what’s right for your financial situation rather than hopefully believing the prediction you want most to come true.

Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.That makes it even more important to search out the best possible rate for you and get good mortgage advice. Quick mortgage finder links with This is Money's partner L&C> Mortgage rates calculator> Find the right mortgage for you To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C.This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit.You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes.If you’re ready to find your next mortgage, why not use This is Money and L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.> Find your best mortgage deal with This is Money and L&C Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.