One cut or two? A December surprise? Mortgage professionals predict Bank of England's next move
Markets are increasingly betting that the Bank of England will begin cutting rates in early 2026, as falling gilt yields and dovish comments from Governor Andrew Bailey hint at a change in direction. For brokers, the tone has softened, but expectations remain measured.
“The recent fall in gilt yields, and therefore swap rates, shows that markets are now expecting the Bank of England to cut the Bank Rate in February, with a possible move in December,” said Nicholas Mendes, mortgage technical manager at John Charcol. “This follows comments from Bank of England Governor Andrew Bailey that were viewed as dovish.”
Ten-year gilt yields have dropped from 4.81 to 4.49 per cent since early September, with the 30-year down from 5.70 to 5.30 per cent. The two-year swap now stands at 3.60 per cent and the five-year at 3.65 per cent. Mendes said this could allow for “modest” mortgage rate cuts, adding that “most changes are likely to be modest” in the short term.
Balancing Act
Inflation at 3.8 per cent and unemployment at 4.8 per cent leave the Monetary Policy Committee walking a fine line between curbing prices and supporting growth. Wage data later this month will be crucial, with Mendes warning that service sector inflation “may remain sticky for some time.”
He also highlighted fragility in US credit markets, where smaller lenders such as Zions Bancorp and Western Alliance have reported heavy losses. “This is not a repeat of the 2007–08 crisis,” he said, “but it is a reminder that stress in US property and lending can have a wider impact on financial markets.”
Mendes advised borrowers coming off fixed rates to secure deals early: “A measured approach is advisable.”
Waiting Game
Most brokers doubt any change before Christmas. Gaurav Shukla, principal at Home Me Mortgages, said: “I don’t expect the Bank of England to move in December as it is too close to the Autumn Budget, and the Bank will want to assess the impact of any fiscal measures first. A February move seems more likely, provided inflation continues to ease and wage growth stabilises.”
He expects “relative consistency in lender pricing” into next year: “Unless there is a sharp shift in inflation or growth, I expect only modest rate adjustments rather than aggressive cuts.”
Jeni Browne, director at Mortgage Finance Brokers, agrees. “Definitely not December, inflation will be running too hot plus there will be the budget aftermath, February possibly but things are too fluid just now to be sure,” she said. “[I’m] expecting two cuts next year max, [I] expect lenders to trim their own margins to try and win business.”
Broker Priorities
For David Titherington of The Mortgage Station, market conditions point to stability rather than sharp change. “I don’t think rates will be cut again this year, inflation is still too high currently,” he said. “I expect lender pricing to stay pretty stagnant during this period.”
He warned that FPC limits on high loan-to-income lending could cool first-time buyer demand, while remortgage and product transfer activity “may take up a large percentage of our time.”
No Christmas Gift from the Bank
Harry Arnold, associate director at Anderson Harris, also expects little movement before the new year. “I suspect base will remain at its current level with no Christmas present from the bank for UK mortgage holders,” he said. “Next year will likely come down to the inflation data to come and who wins the ongoing debate on the MPC of inflation vs economic stagnation.”
Arnold added: “We have seen marginal reductions in swaps that may give room for some very minor cuts, especially for those lower LTV blue-chip deals. We think any movement will be marginal with spreads already tight amongst the larger lenders.”
For now, consensus across the industry is that patience will be rewarded, but only slowly. The gilt market may be turning, yet brokers expect this winter to be about preparation, not reaction.
