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Interest rates held but future hikes likely
The Bank of England kept interest rates steady this week but indicated potential increases later in 2026 due to economic uncertainty tied to the Middle East conflict. The rate-setting committee's report outlined scenarios where borrowing costs could rise once or twice-or as many as six times if oil prices surge above $120 a barrel and inflation exceeds 6% early next year.
Mortgage payments set to climb for millions
Over 7 million UK homeowners with fixed-rate mortgages-87% of all mortgage holders-will face higher payments when their deals expire. The Bank estimates average monthly costs could rise by £80 over the next three years for those refinancing. While 53% of borrowers will see payments increase, about 25% who locked in higher rates earlier may see reductions.
Energy bills to jump despite fixed tariff protection
Household energy costs are projected to rise sharply this summer, with the annual bill for a typical household climbing from £1,641 to nearly £1,900 in July. Unlike the 2022 energy crisis, nearly 40% of households are now on fixed tariffs, shielding them temporarily. However, prepayment meter users-particularly lower-income families-could face steeper winter costs if prices remain elevated.
Inflation and food prices accelerate
The Bank forecasts inflation to rise further in 2026, driven by higher energy and food costs. Food price inflation could reach 4.6% by September, with potential for even sharper increases later in the year. Lower-income households, who spend a larger share of income on essentials, will be hardest hit, as many lack savings to cushion the impact.
"Lower-income families have fewer savings now than during the 2022 price surges, making it harder to absorb rising costs," the Bank noted.
Job market faces headwinds
Despite a recent dip in unemployment, the Bank warned of further job losses as households cut spending and businesses curb hiring amid rising costs. While wage growth isn't expected to match inflation this year, higher living costs could influence 2027 pay negotiations, some committee members cautioned.
