UK mortgage interest rates will rise four times this year, markets predict | Interest rates
The Bank of England will increase the cost of borrowing four times this year and raise interest rates in the UK from 3.75% to 4.75% amid conflict in the Middle East, according to financial market speculators.
In a blow to mortgage payers, international investors are betting that the UK is vulnerable to a sustained rise in inflation following the US-Israeli attack on Iran.
Financial market data show investors believe the Bank will try to combat spiraling prices with a four-quarter point rate hike before the end of December.
Last week, after leaving interest rates steady, the Bank’s monetary policy committee (MPC) signaled it may have to raise borrowing costs in the coming months as the US-Israeli war against Iran threatens to push inflation above 3% in the UK.
However, the Bank’s governor, Andrew Bailey, claimed that financial markets had gotten ahead of themselves in expecting a rate hike this year.
Comparison website Moneyfacts said expectations that the Bank would raise interest rates several times this year were driving up the cost of fixed-rate mortgages and having a “catastrophic effect” on the mortgage market.
The average two-year fixed mortgage rate rose to 5.43% on Monday, from 5.35% on Friday (the highest level since February 2025) and from 4.83% at the beginning of March.
Hundreds of mortgage products have been withdrawn from the market. The number of home mortgage products decreased from 6,659 on Friday to 6,144.
Some analysts doubt the possibility of four rate hikes this year. Derek Halpenny, MUFG’s head of research for global markets in Europe, the Middle East and Africa, said expectations of four rate hikes were “overrated.”
Goldman Sachs said that an interest rate increase in the UK is unlikely this year. In a note to clients published on Friday, he said: “Our economists now think MPC will remain on hold and continue for longer. [the base rate] “At 3.75% through 2026.”
But investors appear increasingly convinced that the Bank will tighten monetary policy to prevent higher energy prices from impacting higher wage demands and retail price increases.
The growing sense of panic in global financial markets grew over the weekend as oil shortages in Asian economies became more severe and Donald Trump on Saturday gave Iran 48 hours (until shortly before midnight GMT on Monday) to open the Strait of Hormuz. It carries about one-fifth of the global supply of oil and liquefied natural gas.
India has announced that it is ready to buy Iranian oil if Tehran can send its own tankers through the strait.
Investors turning to safe havens bought US assets, pushing the dollar to new highs this year.
Global stock markets fell on Monday and gold fell 6% to $4,218 an ounce; By the end of January, it was down almost $5,600.
The UK was one of many countries that lost out as the value of its currency fell. Demand for devalued bonds has pushed the yield, or interest rate, to its highest level since 2008.
Sterling fell 0.18% to $1.332; but the decline was halted by predictions that the Bank would raise rates and make it more attractive to hold assets in the UK.
The 10-year gold yield rose 0.06 points to 5.05% on Monday morning. The 10-year bond yield has risen 0.8 percentage points since the start of the conflict in the Middle East, heading for its worst month since the “mini-budget” crisis of 2022.
Chris Beauchamp, chief analyst at stockbroker IG, said: “Investors who spent the weekend monitoring fresh strikes in the Middle East are now waiting to see what happens when Trump’s 48-hour term ends tonight. But they are in no mood to linger and have continued to sell stocks and precious metals.”
“Every day the war continues, it does more damage to the global economy and drives inflation higher, with the possibility of a recession increasing by the hour,” he added.
