Bank of England Economist Signals Possible Interest Rate Rise in 2026

The Bank of England's chief economist has warned that interest rates may need to rise later this year, despite slower economic growth. The statement comes as the Bank weighs up competing pressures: persistent inflation on one side and sluggish growth on the other. For anyone with a mortgage or considering a remortgage, this signals that borrowing costs could remain elevated or even increase in the coming months.

Why rates might rise despite slower growth

The traditional economic playbook suggests that central banks cut interest rates when growth slows, to stimulate borrowing and spending. However, the chief economist's comments highlight an uncomfortable reality: inflation remains stubborn enough that the Bank may need to keep rates higher for longer, or even raise them further. This approach aims to prevent prices from spiraling upward, even if it means accepting slower economic expansion in the short term.

Inflationary pressures — the forces pushing prices up — can come from various sources, including energy costs, wage growth, and supply chain disruptions. When inflation runs above the Bank's 2% target, policymakers face difficult choices. Raising rates makes borrowing more expensive for households and businesses, which can dampen spending and help bring inflation back under control. The chief economist's warning suggests that this balance is still tilted toward fighting inflation rather than supporting growth.

What this means for mortgage rates

The Bank of England's base rate directly influences the cost of borrowing across the economy, including mortgages. When the base rate rises, lenders typically increase their mortgage rates in response. If you're on a variable-rate mortgage or a tracker mortgage (which follows the base rate), any increase would likely feed through to your monthly payments fairly quickly — often within a month or two.

Fixed-rate mortgage holders have more protection in the short term. If you've locked in a rate for two, five, or even ten years, your monthly payment won't change until that deal expires. However, if you're approaching the end of your fixed term, the prospect of higher base rates means you could face a significant jump in payments when you remortgage. Lenders price fixed-rate deals based on where they expect rates to be in future, so even the possibility of a rate rise can push fixed mortgage rates upward before the Bank actually moves.

The timing question

It's important to note that the chief economist's comments indicate rates 'may need to rise' this year — not that a rise is guaranteed. The Bank of England's Monetary Policy Committee meets regularly to review economic data and vote on rate decisions. Each meeting considers the latest inflation figures, employment data, wage growth, and broader economic indicators. If inflation cools more quickly than expected, or if growth weakens substantially, the Bank could hold rates steady or even cut them instead.

This uncertainty makes mortgage planning challenging. Borrowers and potential remortgage customers face a dilemma: do you lock in a fixed rate now to guard against possible increases, or wait in hope that rates might fall? There's no perfect answer, as it depends on your individual circumstances, risk tolerance, and how long you plan to stay in your property.

Market reaction and lender behaviour

Mortgage lenders watch Bank of England signals closely. Even before an official rate change, statements like this from senior economists can prompt lenders to adjust their pricing. Some may increase rates pre-emptively to protect their margins, while others might hold steady to remain competitive. The result is a constantly shifting landscape of mortgage deals, with rates moving week by week in response to economic news and Bank of England commentary.

For borrowers, this creates both opportunity and risk. Those who monitor the market carefully and move quickly can sometimes secure deals before rates rise further. However, rushing into the wrong mortgage simply to avoid a potential rate increase can be costly if you end up with high fees, unfavorable terms, or a product that doesn't suit your needs.

What this means for you

If you're currently on a fixed-rate mortgage with more than six months remaining, you have some breathing room. However, if your deal expires in the next three to six months, now is a sensible time to review your options. Many lenders allow you to reserve a rate up to six months before your current deal ends, protecting you against potential increases while giving you the flexibility to switch to a better rate if one emerges. Check whether your current lender offers a retention deal (often available to existing customers) and compare this against what's available on the wider market.

For those on variable or tracker rates, budget carefully for the possibility of higher payments. Even a 0.25 percentage point rise adds around £35 per month to a typical £200,000 mortgage. If you're struggling with current payments, speak to your lender sooner rather than later — they have obligations to support customers in difficulty. If you're considering a house purchase or remortgage, professional advice can help you navigate the choices between fixing now for certainty or staying flexible in case rates do eventually fall. The key is to make an informed decision based on your circumstances rather than trying to time the market perfectly.