The UK’s economic recovery is expected to gain momentum over the next year, compelling the Bank of England to maintain higher interest rates for an extended period, according to the National Institute of Economic and Social Research (NIESR).

Indicating that expectations for further interest rate cuts this year might be overly optimistic, the think-tank highlighted that a modest economic recovery combined with persistent inflationary pressures should prompt the central bank to be more cautious about lowering borrowing costs.

NIESR’s forecasts suggest that interest rates will decrease gradually over the next year, from 5% to 4.6% in 2025, and to only 4.1% in 2026, before reaching 3.1% in 2028 – significantly higher than the 0.75% set by the Bank in 2019 before the Covid-19 pandemic.

Mortgages will remain costly, with many homeowners facing higher monthly interest payments, according to the forecast.

The Bank of England recently cut interest rates from 5.25% to 5%. However, the central bank expects the UK’s growth rate to be lower than NIESR’s forecast, potentially leading to at least one more rate cut this year and further reductions through 2025.