UK interest rates: households feel the squeeze as cuts remain on ice

Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, part of Raymond James

It’s no surprise the Bank of England has left rates unchanged for the fifth successive occasion. Inflation has been moving in the right direction, but renewed conflict in the Middle East has given policymakers reason to proceed with caution, making lower borrowing costs unlikely for the foreseeable future.

For households, the risk is that above-target inflation isn’t finished as the UK remains particularly exposed to rollercoaster energy prices feeding into fuel costs and utility bills. Just as many families were hoping the cost-of-living squeeze was beginning to ease, a fresh inflation pinch point is approaching.

A balancing act for the BoE

Unfortunately for households and businesses feeling the heat, the Bank faces an awkward balancing act, highlighted by the split in the MPC voting. Rate cuts are impossible to justify so long as inflation risks loom large on the horizon, while quelling it with a rate rise would increase borrowing costs and make things even harder for large parts of the economy.

Provided energy markets remain contained, the most likely outcome is a prolonged pause at the current 3.75%. Policymakers are seeing some encouraging signs that inflationary pressures will moderate once the coming flare up passes. But until they are more confident that higher energy costs will not ignite wider price escalation or feed into wage demands, interest rate cuts are on ice, and the possibility of a raise is not off the table.

Where do private investors expect UK interest rates to go?

According to new Charles Stanley Direct research, on average DIY investors expect the BoE interest rate to be 2.86% in 6 months’ time.* This is at odds with market expectations that pencil in at least one hike over this timeframe, suggesting a far more optimistic view of inflation coming under control than in Threadneedle Street.

Relatively few UK investors expect rates to be north of 3% at the year end. Just 14% of DIY investors expect interest rates to remain in the 3.6%-4.0% zone in December 2026, while the same proportion expect interest rates to be between 3.1%-3.5% by that time.

*The research was conducted by Censuswide, among a sample of 1,000 DIY Investors in the UK (’Self-Directed’), defined as; investors who actively choose their own investments (stocks, shares, crypto etc), making their own asset allocation decisions, excluding; ‘passive investors’ who just invest in managed ‘index funds’/ETFs who don’t select their own individual stock and instead invest a diversified portfolio that is managed by someone else. Censuswide abides by and employs members of the Market Research Society and follows the MRS code of conduct and ESOMAR principles. Censuswide is also a member of the British Polling Council. The data was collected between 26.06.2026 – 06.07.2026.