The average two-year fixed-rate mortgage has risen from 4.83% at the start of March to 5.90% on Wednesday. Photograph: Lauren Hurley/PAView image in fullscreenThe average two-year fixed-rate mortgage has risen from 4.83% at the start of March to 5.90% on Wednesday. Photograph: Lauren Hurley/PAUK interest rate predictions fall as US and Iran agree two-week ceasefireMarkets now forecast one rate rise this year, down from two on Tuesday, although mortgage rates may not fall quickly
City traders have cut their forecasts for UK interest rate rises this year, after the US and Iran agreed a two-week ceasefire.
The money markets are now fully pricing in only one rise in UK interest rates by December, which would take the Bank of England’s base rate back up to 4%. On Tuesday, two rate rises were fully priced in, as Donald Trump threatened that a “whole civilisation will die” unless Tehran complied with his demands to reopen the strait of Hormuz.
Rate expectations fell as the oil price tumbled on Wednesday, amid hopes that supplies from the Middle East could return towards prewar levels. Brent crude, the international benchmark, was down 13.3% in morning trading at $94.71 a barrel, down from $109 a barrel before news of the ceasefire proposal emerged.
During March, markets had priced in as many as three UK interest rate rises in 2026. Those expectations have pushed up the cost of fixed-rate mortgages even though some economists predicted the Bank would “look through” the inflationary impact of the crisis and leave rates on hold.
The average two-year fixed-rate mortgage has risen from 4.83% at the start of March to 5.90% on Wednesday, the highest since July 2024, according to the data provider Moneyfacts.
Adam French, the head of consumer finance at Moneyfacts, cautioned that mortgage rates might not fall quickly. “Markets have reacted to easing tensions by pushing down expectations for future interest rate rises. Because swap rates reflect these expectations, they have started to fall, too, reversing some of the sharp increases seen since the conflict began,” he said.
“It should take the immediate upward pressure off mortgage rates. However, rates are likely to remain higher for some time yet. The volatility of the conflict can quickly move markets, which may leave many lenders cautious about making any sudden moves.
“The longer the ceasefire holds and markets calm, the more the mortgage market will stabilise, and rates could even begin to edge lower. But for now, it’s more likely to slow or pause increases rather than trigger any sharp falls.”
The European Central Bank is expected to raise eurozone interest rates twice this year, to head off the inflationary impact of higher oil and gas prices. Last month three ECB rate rises had been fully priced in by the markets.
