Interest rates are set to stay higher for longer than previously expected, according to the latest forecasts by the Organisation for Economic Organisation for Economic Co-operation and Development.
The international think tank’s outlook has been updated following October’s Budget and it now predicts that the Bank of England base rate will drop back to 3.5% in early 2026.
In its previous outlook, published in May, it forecast interest rates would fall to 3.75% by the end of 2025.
In today’s update, which takes in the impact of the Autumn Budget, the OECD says it expects increased public spending will boost the economy in the short-term.
But it anticipates that “wage-driven pressures on the price of services and the fiscal stimulus” will lead to inflation remaining above its target over 2025-26.
Chancellor Rachel Reeves says the think tank’s update is positive news.
She says: “Growth is our number one priority, and the OECD upgrade will mean the UK is the fastest growing European economy in the G7 over the next three years.”
But she adds that “growth only matters if it’s matched by more money in people’s pockets”, which she says the government is striving to deliver by minimising tax rises and boosting investment.
Mortgage Advice Bureau deputy chief executive Ben Thompson says: “The OECD’s predictions could lead to some uncertainty in the swap markets and, as a result, moves in mortgage rates in the coming days.”
But he says this should not dent market optimism as rates are still falling overall.
Thompson adds: “2025 is set to be a good year for prospective homeowners, so now is the time to get mortgage ready and speak to a broker.”
