It’s hard enough predicting the future but what might the next year bring for your finances?
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.
Interest rates have started to fall, in a boost to borrowers and businesses, but a setback for savers. And wage rises have kept ahead of inflation for most workers, even if it didn’t feel that way for many. Meanwhile, the economy had a stronger-than-expected first half of 2025, but has ground to a halt since. So, what might 2026 hold when it comes to all things money matters?
Interest rates
The Bank of England’s base rate started 2025 at 4.75%, and finished the year at 3.75% after its Monetary Policy Committee narrowly voted for a cut this month. Andrew Bailey, the Bank’s Governor, cautioned that future votes were likely to be a close call, so don’t expect 2026 to be a year when borrowing costs tumble. Experts are pencilling in two or maybe three base rate cuts in 2026, but much will depend on if inflation continues to ease, what happens with wage growth, and much else besides.
Mortgage rates
The Bank of England’s recent rate cut was an early Christmas present for mortgage borrowers – not just those on variable rate deals but because new fixed rate home loans had fallen in anticipation.
The estimated 1.8 million borrowers whose fixed deals expire in 2026 will be keenly watching what happens now, with many facing a payment shock. For example, the average five year fixed rate home loan in June 2021 was just over 2%, according to UK Finance. Industry experts Moneyfacts says the same is now around 4.9%, although it is possible to bag deals for quite a bit less than that.
Expert David Hollingworth, of broker L&C Mortgages, said: “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.
“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.
“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.
“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, experts are predicting only a steady increase in average house prices over the next year. Although, just like in 2025, some regions will grow much faster than others. Estate agents Jackson Stops thinks average prices will rise 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 may be some good news on this front as a number of essential bills could fall – or a least not rise as fast.
Take energy, with those on Ofgem’s price cap set for a small increase at the start of January but, thanks to measures announced in Chancellor Rachel Reeves’ Budget last month, around £150 a year will be knocked off energy bills from April.
Inflation is also easing, dropping to 3.2% last year, with predictions it will fall towards 2% by the middle of 2026. And food inflation – one of the biggest drains on family finances – has come down to 4.2% and is likely to slow still further next year.
Water bills are also expected to go up again next April, though not as much as the 26% surge this year. But in a boost for commuters, all regulated rail fares have been frozen, the first time that has happened in 30 years. Weary travellers have got used to them rising in line with inflation every year.
Economy
The UK economy is set to remain in the slow lane in 2026, much to the government’s frustration. Experts reckon it will expand by something like 1% for the whole year, with a knock on for tax receipts and the Treasury. The UK’s unemployment has already edged-up to 5%, and is expected to crept higher in 2026. Meanwhile, wage growth is set to slow further.