Market Update - November 2026
The latest commentary on the UK economy, mortgage and savings markets.
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Joseph Thompson
- The UK economy has proved more resilient than expected, but persistent inflationary pressures have prompted a rise in Bank Rate to 4.00%.
- Higher inflation and interest rates will weigh on future growth. Household spending remains supported by growing real incomes, lower savings and credit growth, although falling consumer confidence and rising unsecured loan defaults point to emerging vulnerabilities.
- House purchase approvals fall in September as uncertainty and higher mortgage costs weigh on demand, while remortgaging remains robust.
- Savings balance growth is weaker in September as households draw down savings to support living standards.
Bank Rate increases to 4.00% in November as inflationary pressures persist…
- The MPC announced on 5 November that it had voted 8-1 to increase the Bank Rate from 3.75% to 4.00% with one member of the committee voting for a 50-basis point rise. The minutes to the meeting were published alongside the November Monetary Policy Report that show CPI inflation is expected to rise significantly to around 5.00% by Q2 2027, largely due to higher energy prices because of the ongoing conflict in the Middle East. Whilst there is still no clear evidence of so-called ‘second round’ inflationary effects, where energy prices have a knock on impact on wages and other prices, the degree of inflationary pressure in the pipeline was deemed sufficient to warrant an increase in Bank Rate.
- Both households and businesses’ inflation expectations remain above pre-conflict levels, and without a resolution to the conflict in sight this will feed into wage settlements and contract renewals in the new year. It is therefore likely that these second round effects will become visible, if they exist, in coming months. The Bank Governor, Andrew Bailey, suggested further rises may be necessary unless a resolution to the Middle East conflict is achieved. However, the Committee's collective position is that policy is not on a preset path, and future decisions will depend on how far higher energy prices feed through to other prices and the wider economy.
…and the UK economy proves more resilient than expected. - Stronger-than-expected GDP growth and signs of stabilisation in the labour market added to the case for the MPC to raise Bank Rate this month. Previously it was deemed that weak growth and slack in the labour market would offset some of the inflationary impact from higher energy prices in the domestic economy. However, GDP grew by 0.5% in Q2 and is expected to grow by 0.7% in Q3 driven by higher rates of investment and productivity growth in the services sector, in particular IT and communication services, which includes Artificial Intelligence (AI). Business investment grew by 1.8% in 2026 Q2, following growth of 3% in Q1 and was the strongest two quarter period of growth since 2022. So far, the contribution to growth from AI appears to reflect activity in the development and implementation of AI rather than broader gains elsewhere in the economy.
- In September the ONS announced a new approach to measuring labour productivity, that indicated productivity had grown more, and fewer hours were worked between 1997 and 2024. This suggests the UK was less of an outlier in productivity growth relative to its G7 peers than previously thought.
- Estimates using this new approach for 2024 onwards are not available until later this month, but proxy measures obtained by the Bank suggest it has been relatively strong over the last two years, with some evidence that AI adoption has contributed to the recent pickup. Productivity has increased in both sectors exposed to AI adoption and those less exposed. So, whilst AI is playing a part, the increase also reflects falling employment in lower paid, lower productivity jobs, which mechanically raises the average. These job losses have hit youth employment particularly hard and have left the UK less economically active.
- Household consumption is a key contributor to GDP growth, and consumption has been resilient despite the pressures faced by households. Consumption has been supported by real income growth over the first half of the year. In the three months to August regular pay grew by 3.7% in nominal terms and by 0.8% after adjusting for inflation. However, households are expected to smooth consumption in response to higher energy costs by saving less, with the saving ratio forecast to fall by around 2 percentage points over 2026. Unsecured borrowing is providing further support for households. The annual growth rate of credit card lending remained near an all-time high at 13.1% in September, marginally below August’s 13.3%.
- Consumer confidence fell sharply in October. The GFK indicator fell by “an extraordinary” 11 points to minus 24. Housing market confidence also weakened with the BSA Property Tracker confidence indicator falling to minus 29 in October, its lowest level for over three years. This weakness reflects ongoing economic uncertainty and higher interest rates, while households will face tougher financial conditions in coming periods as higher energy prices feed through to other prices and reduce real income growth.
- Households will also face higher mortgage repayments. The OBR forecasts, conditioned on the Bank Rate reaching around 4.5% from mid 2027 and staying at that level until 2031, show the average effective interest rate on the outstanding stock of mortgages rising from 4% in 2026 to around 5% in 2031. Mortgage payments as a share of household disposable income are expected to rise to reach 4.5% in 2031, the highest since 2009 and more than double the 2021 level of 2%.
- The UK’s largest lenders reported that default rates on secured loans slightly decreased in Q3 and were expected to be unchanged in Q4. The BSA Property Tracker survey also found that 91% of mortgagors were confident they could repay their mortgage over the next six months. This suggests that most homeowners are not experiencing financial difficulties, despite the rise in the cost of living.
- However, lenders reported that default rates on unsecured lending, including credit cards, increased in Q3 2026 and were expected to increase further in Q4. Households tend to default on unsecured loans first before loans secured on their home and so this could be an early warning that mortgage arrears could begin to increase, especially given the recent increase in mortgage interest rates.
Default rates on secured and total unsecured loans to households, BoE credit conditions survey
UK economy now expected to be materially weaker in coming years
- Whilst annual GDP growth is now expected to be considerably stronger in 2026, growing by 2.2% compared to the 1.2% forecast in July (see table below), the outlook is now weaker in coming years given the headwinds of higher interest rates and inflation and the reduction in households’ real incomes. Continuing fiscal tightening will also weigh on household consumption. Separately, OBR forecasts published alongside the Budget indicate that the 2020s are set to be the worst decade for living standards on record.
| BoE Central projection (November 2026) | 2026 Q4 | 2027 Q4 | 2028 Q4 | 2029 Q4 |
| CPI inflation | 3.8 (3.2) | 4.0 (2.1) | 2.0 (1.9) | 1.8 |
| GDP | 2.2 (1.2) | 1.0 (1.4) | 1.4 (1.7) | 1.6 |
| Unemployment rate | 4.8 (5.1) | 5.0 (5.3) | 5.1 (5.2) | 5.0 |
| Private sector regular average weekly earnings | 3.2 (3.0) | 3.5 (3.1) | 3.4 (3.1) | 3.1 |
| Bank Rate | 3.9 (3.9) | 4.9 (4.2) | 4.9 (4.1) | 4.7 |
BSA members and associated can download the full market update which includes further analysis of the mortgage and savings markets and a range of charts.
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