Interest rates have been high primarily to combat inflation, which has been elevated since 2021. The Bank of England began raising rates to reduce inflation, and as inflationary pressures have eased, it has started to cut rates gradually—from 5.25% in August 2024 down to 4.25% by May 2025
. However, the exact timing and extent of how long interest rates will stay high remain uncertain and depend on several factors, including:
- How fast prices continue to rise or fall (inflation)
- The overall health and growth of the economy
- Employment levels
- Global economic developments and trade policies, such as tariffs
In the UK, the Bank of England is taking a cautious, gradual approach to lowering rates, monitoring economic data closely and making decisions approximately every six weeks
. In the US, mortgage interest rates have remained persistently high around 6.5% to 7% through early 2025 due to ongoing inflation concerns, economic uncertainty, and the impact of tariffs. Experts suggest rates will likely stay elevated through at least the first half of 2025, with some forecasts expecting the Federal Reserve to delay rate cuts until later in the year or even beyond
. Furthermore, some financial experts anticipate that higher inflation and large government deficits over the next several years could keep interest rates elevated for an extended period, possibly several years, as bond yields and real interest rates remain high
. In summary:
- Interest rates have started to come down slowly in 2025 but remain elevated compared to pre-inflation levels.
- Further rate cuts are possible but will be gradual and depend on inflation and economic conditions.
- Rates are expected to stay relatively high through at least mid-2025, with some projections extending this period longer due to inflation and fiscal policy concerns.
- The situation is dynamic and subject to change based on economic data and global developments
Thus, while interest rates may begin to decline gradually, they are likely to stay relatively high for much of 2025 and possibly beyond, with careful monitoring by central banks guiding the pace of any reductions.
