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Why interest rates could rise over the next 12 months

Published: October 2, 2026 by Jennifer Armstrong

Persistent high inflation could mean further interest rate rises over the next year. While this could be good news for savers, it may place pressure on borrowers, including those with a mortgage.

Inflation refers to the general increase in the prices of goods and services across an economy. The Bank of England (BoE) has a 2% inflation target to create stability. The inflation rate briefly fell to 2% in mid-2024 following a period of high inflation after the Covid-19 pandemic. However, it has since risen again.

In the 12 months to August 2026, the rate of inflation was 3.1%, according to data from the Office for National Statistics (16 September 2026). The elevated inflation rate has partly been attributed to conflict in the Middle East, which has led to energy prices rising and affected supply chains.

Changing the base interest rate is one way the BoE can control inflation. If interest rates rise, consumers and businesses may reduce their spending, which could ease pressure on prices. Conversely, if interest rates fall and borrowing becomes cheaper, consumers and businesses may be encouraged to spend more.

Despite speculation that the BoE would increase the base interest rate in September, it held it at 3.75%.

Experts are predicting several interest rate rises in the coming months

Reports suggest that while the BoE held interest rates in September, rate rises could be on the horizon.

Indeed, according to the House of Commons Library (30 September 2026), the governor of the BoE, Andrew Bailey, said the longer energy price volatility continues, “the more likely it is we will need to raise the Bank Rate to ensure that inflation falls back to our 2% target”.

City AM (14 September 2026) reports that markets are now pricing in four quarter-percentage-point rises by July 2027. This would mean the base interest rate would increase from 3.75% to 4.75% in less than 12 months.

Remember these predictions aren’t guaranteed. As we’ve seen in recent years, unexpected events, such as a pandemic or geopolitical conflict, could lead to the BoE choosing a different route from the expected one.

But what would an interest rate rise mean for you?

Savers may welcome interest rates rising

The base interest rate set by the BoE will usually influence the interest rates available on savings accounts. As a result, if you’re holding money in a cash account, you might welcome a decision to increase the base rate as this could provide an opportunity for your savings to earn more interest.

Rising interest rates could place pressure on borrowers

If you’re a borrower through a loan, credit card, or mortgage, rising interest rates could mean your outgoings increase too.

As you’re often borrowing large sums through a mortgage, even a small change to your mortgage interest rate could have a significant impact on your finances.

Imagine you have a repayment mortgage with a balance of £200,000, which has a term of 20 years and an interest rate of 4%. Your monthly repayment would be about £1,212.

Assuming the predictions are accurate and the BoE increases the base rate by 1% and that your mortgage interest rate increases by the same amount, your repayment would increase to about £1,320 a month.

The additional cost becomes clearer when you calculate how much you’d pay in interest over the full mortgage term. With the 4% mortgage, the interest would add up to about £90,769 over the 20-year term. The sum rises to about £116,876 if the interest rate is 5%.

So, rising interest rates could affect your budget in the short term and mean you pay far more in interest over the long term.

We could help you compare mortgage options

If you’re searching for a new mortgage, rising interest rates could increase your repayments. As mortgage advisers, we’re here to help you assess the different mortgage options to understand which could be right for your circumstances. Please don’t hesitate to get in touch if you have any questions.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.


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