More than 2.3m UK households face a sharp rise in mortgage payments as they come off fixed-rate deals in 2027, with the Bank of England expected to begin raising interest rates this week.
asserted
Bank → face → rates
The Bank’s nine-member monetary policy committee (MPC) is widely expected to increase the base rate from 3.75% to 4% on 5 November after UK inflation rose further to 3.5% in September.
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inflation → expect → September
It could be the first of four quarter-point rises over the next 12 months, according to financial market expectations, which would exacerbate the financial pressure on households grappling with higher energy and food bills.
uncertain
which → accord → bills
Thousands of borrowers are due to come off fixed contracts in the final months of this year, with 700,000 having been forecast to switch over to new rates between July and December.
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700,000 → come → July
A further 2.3m households will reach the end of their fixed rates next year, according to data collected by UK Finance, a banking industry body.
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households → reach → Finance
There has been no change in the Bank of England base rate since December last year, but volatility in the bond markets – triggered in part by energy prices and inflation fears linked to the war in the Middle East – has driven up the swap rates that affect the pricing of fixed-rate mortgages.
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that → trigger → mortgages
An increase in the Bank of England rate could drive those rates, and wider household costs, even higher.
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increase → drive → rates
Data released last week showed that mortgage approvals in the UK fell to a near three-year low in September as potential buyers were deterred by the jump in borrowing costs.
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buyers → release → costs
Alongside last week’s budget, the Office for Budget Responsibility (OBR) warned that household disposable incomes would fall by 0.6% next year after taking account of inflation.
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incomes → warn → inflation
The downgrade compares with the 0.6% increase in disposable incomes the watchdog had forecast in March – an outlook the OBR’s David Miles described as “a pretty grim picture”.
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Miles → compare → picture
That income squeeze is also being driven by the energy price shock, which the OBR said would push consumer inflation to 3.5% this year, significantly higher than the 2% forecast in March.
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OBR → drive → March
Ofgem’s energy price cap, which determines household bills, is expected to rise by more than £400 in January, according to the latest forecast from EDF.
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which → determine → EDF
John Healey, the chancellor, made a £100 payout to 20m households the centrepiece of his budget, saying he wanted to “take the pressure off in the coldest months and see people through to the spring”.
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he → make → spring
His cost of living package – which also included cancelling fuel duty rises planned by Rachel Reeves and extending a VAT cut on electricity bills – was paid for by tax rises on banks, savers and landlords.
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which → include → banks
The Bank of England has taken a wait-and-see approach to rising inflation since the start of the Iran war, in contrast to other central banks, including the US Federal Reserve, Bank of Japan and European Central Bank, which have already raised borrowing costs this year.
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which → take → costs
Andrew Bailey, the governor of the Bank of England, has made clear that the MPC is watching closely to see if rising prices are being passed through into higher wages for workers – evidence of the so-called “second-round effects” that can lead to inflation becoming embedded.
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inflation → make → effects
Before the war in the Middle East, the Bank had been expected to cut interest rates several times this year, with inflation expected to drift back down towards its 2% target.
But an extended period of historically high oil prices, affected by the closure of the strait of Hormuz choking off supplies, has instead fed through into high and rising inflation.
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closure → expect → inflation
The Bank will publish updated forecasts for economic growth and inflation alongside its interest rate decision this week.
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Bank → publish → decision
The UK economy beat expectations to be the joint fastest-growing in the G7 in the first half of 2026, which the Office for National Statistics said was partly driven by AI-related sectors.
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Office → beat → sectors
But official forecasts for next year have been cut sharply amid fears that the higher cost of energy will eventually start to weigh on economic growth.
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cost → cut → growth
Although money market pricing suggests the Bank will raise interest rates four times by next July, many City economists suggest two rate rises are more likely.
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rises → suggest → July
The Aporia
