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United Kingdom Interest Rate

United Kingdom Interest Rate

Bank Rate in United Kingdom

The Bank of England's policy rate from 2013 to 2022 was initially maintained at historically low levels to support post-financial crisis recovery. The rates saw a gradual increase pre-pandemic but were slashed to near-zero in 2020 to mitigate the economic impact of COVID-19. As the UK economy started recovering in 2021-2022, and inflationary pressures mounted, the Bank began increasing rates to control rising inflation.

The Bank Rate ended 2022 at 3.50%, up with the 0.25% end-2021 value and above the reading of 0.50% a decade earlier. For reference, the average Bank Rate in Major Economies was 3.50% at the end of 2022. For more interest rate information, visit our dedicated page.

United Kingdom Interest Rate Chart

Note: This chart displays Policy Interest Rate (%) for United Kingdom from 2014 to 2023.
Source: Bank of England.

United Kingdom Interest Rate Data

2018 2019 2020 2021 2022
Bank Rate (%, eop) 0.75 0.75 0.10 0.25 3.50
SONIA Rate (%, eop) 0.70 0.71 0.04 0.19 3.43
10-Year Gilt Yield (%, eop) 1.27 0.82 0.20 0.97 3.67

Bank of England keeps rates unchanged in December

On 14 December, the Bank of England (BOE) left the bank rate at 5.25%, following 515 basis points of hikes since late 2021 through to August 2023. Market analysts were expecting a hold.

The decision not to hike further was driven by sustained falls in headline and core inflation in recent months, a loss of steam in the labor market and muted economic activity. On the flipside, with headline and core inflation still over double the Bank’s 2.0% target and headline inflation the highest in the G7 in October, it was premature to begin cutting rates.

In its communiqué, the Bank reiterated its willingness to hike further if required, and stated that in any case monetary policy would “need to be restrictive for an extended period of time.” This contrasts the more dovish tone of the Fed, which at its December meeting suggested it would cut rates next year. The Consensus among our panelists is for the bank rate to decline from its current level by end-2024, but to remain elevated compared to pre-pandemic levels. There is a 200 basis-point spread among panelists over the end-2024 rate outlook.

On the outlook, Berenberg’s Kallum Pickering said: “We still think the eventual path for rates in 2024 and 2025 will be lower than markets currently expect. While the end-2024 bank rate expectation of 4.3% is close to our own call of 4.0%, we think the 3.6% end-2025 call is 60bp too high. Once the BoE starts to cut in Q2, we look for end-2025 rate expectations to fall a little further.” UniCredit’s Daniel Vernazza expects monetary easing to begin later: “We continue to expect rate cuts to start in 3Q24, one-quarter later than cuts by the Fed and the ECB, reflecting the higher stickiness of wage growth and services inflation in the UK. But with the economy likely to enter a recession in the coming quarters, and inflation clearly moving down towards 2% next year, the risks are skewed towards an earlier start to cuts.”

Consensus Forecasts and Projections for the next ten years

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects British interest rate projections for the next ten years from a panel of 35 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for British interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our British interest rate projections.

Want to get access to the full dataset of British interest rate forecasts? Send an email to info@focus-economics.com.

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