The past year has been another with its ups and downs for most people’s finances, as well as the UK economy as a whole. So, what might 2026 hold when it comes to all things money matters?
The past year has been a rollercoaster for personal finances and the UK economy at large. Interest rates have begun to dip, providing a lift for borrowers and businesses, but proving less favourable for savers.
Despite wage increases outpacing inflation for the majority of workers, many may not feel the benefits. The economy experienced a robust first half in 2025, only to stall thereafter.
So, what could 2026 bring in terms of financial affairs?
Interest rates
The Bank of England’s base rate kicked off 2025 at 4.75%, ending the year at 3.75% following a narrow vote by its Monetary Policy Committee in favour of a cut this month. Andrew Bailey, the Bank’s Governor, warned that future votes are likely to be tightly contested, so don’t anticipate 2026 to be a year of plummeting borrowing costs, reports the Mirror.
Experts are forecasting two or possibly three base rate reductions in 2026, but much will hinge on whether inflation continues to soften, the trajectory of wage growth, and other factors.
Mortgage rates
The recent rate cut by the Bank of England was an early Christmas gift for mortgage borrowers – impacting not just those on variable rate deals but also as new fixed-rate home loans had already started to decrease in anticipation.
The roughly 1.8 million borrowers whose fixed deals are set to expire in 2026 will be closely monitoring developments, with many bracing for a payment shock. To illustrate, the average five-year fixed rate home loan stood at just over 2% in June 2021, according to UK Finance.
Industry analysts Moneyfacts report the equivalent figure now hovers around 4.9%, though it remains possible to secure deals considerably below this threshold.
Broker LandC Mortgages’ expert David Hollingworth observed: “The rate cut in December was an early present for mortgage borrowers. That had become so widely anticipated by financial markets that it was already pricing into fixed rates, which have been dropping in recent months.”
He added: “There should be more base rate reductions next year which should help keep mortgage rates down. The question is how many rate cuts there may be and how quickly they come. The Bank of England has been cautious in its tone and so improvements may be gradual.”
Hollingworth continued: “Overall though lenders are pricing really competitively and mortgage rates look more positive. There could be more slight and gradual improvement as well as we move closer to interest rates bottoming out.”
He concluded: “With more stability in rates it should help put decisions about buying back on the agenda for those that may have held off ahead of the Budget. It’s also good news for those coming to the end of their deal in ’26, as although rates are still higher than the ultra lows of five years ago, the options have improved.”
Meanwhile, property experts are forecasting only modest growth in average house prices over the coming year, though certain regions are expected to outpace others significantly, mirroring patterns anticipated for 2025.
Estate agents Jackson Stops anticipates average prices will climb between 2% and 3% as the UK’s housing market “shifts from subdued to steady, and normality resumes for the first time since the pre-Covid era”.
Household bills
There could be positive developments on this front as several essential bills might decrease – or at minimum not escalate as rapidly.
Consider energy costs, where those under Ofgem’s price cap face a modest rise at January’s start, but Chancellor Rachel Reeves’ Budget measures announced last month will reduce energy bills by approximately £150 annually from April.
Inflation is also moderating, falling to 3.2% last year, with forecasts suggesting it will drift towards 2% by mid-2026. Food inflation – among the heaviest burdens on household budgets – has declined to 4.2% and is projected to decelerate further next year.
Water bills are anticipated to increase again next April, albeit not matching this year’s dramatic 26% spike.
Commuters received welcome relief as all regulated rail fares have been frozen for the first time in three decades, after weary passengers became accustomed to annual inflation-linked rises.
Economy
The UK economy is predicted to continue its sluggish pace in 2026, causing consternation for the government. Experts anticipate an approximate 1% expansion for the entire year, which will inevitably impact tax receipts and the Treasury.
The UK’s unemployment rate has already nudged up to 5%, and it’s projected to inch higher in 2026. Concurrently, wage growth is expected to decelerate further.
