Pound rises as BoE decision looms: what a 3.75% hold means for UK borrowers

Sterling edged higher on Wednesday as investors positioned for the Bank of England’s first policy meeting of 2026, with markets widely expecting rates to be held at 3.75%.

The decision lands as an estimated 1.8 million fixed-rate UK mortgages are due to end this year, focusing attention on how policy signals could shape new loan costs, according to the Guardian.

BoE hold expected as markets firm up

According to FXStreet, traders expect the BoE to keep borrowing costs unchanged on Thursday after a 25 bps cut in December, while maintaining guidance that policy will follow a “gradual downward path.”

Officials previously said they were confident inflation would come closer to 2% in the second quarter of 2026.

Alongside the rate call, investors will parse the quarterly Monetary Policy Report for inflation projections and growth assessments.

Sterling strengthens, with eyes on US data

FXStreet reported the Pound was up marginally near 1.3700 against the US Dollar and around 0.8635 versus the Euro in European trading on Wednesday.

A currency heat map showed the Pound as the strongest against the Japanese Yen.

The US Dollar Index traded 0.15% higher near 97.50 ahead of the ADP private payrolls report and ISM Services PMI. Economists expect 48K private jobs and a PMI reading of 53.5.

FXStreet noted traders currently see the Federal Reserve delivering its first cut in June after holding rates at 3.50%-3.75% in March and April.

The US House also approved funding to end a partial shutdown, while the January Nonfarm Payrolls report will not be published on Friday, according to FXStreet.

What this means for borrowers in 2026

About 1.8 million fixed-rate deals are due to end this year, and most affected borrowers will need a new product, the Guardian reported.

Those coming off five-year fixes are likely to face higher monthly payments. By contrast, many two-year fix borrowers could see savings.

More base rate cuts are anticipated this year, which could feed into cheaper new deals. The next BoE announcement is on 5 February.

SVR risk and the case for shopping around

If no new deal is arranged when a fix ends, borrowers typically move to a lender’s standard variable rate.

The average SVR is 7.25%, according to Moneyfacts cited by the Guardian, with some lenders charging more.

On a £250,000 mortgage, moving from a 7.25% SVR to a 3.65% deal could save more than £500 a month, the Guardian reported.

Remaining on an SVR may make sense only in limited cases, such as when a mortgage is close to being repaid or the balance is small and new fees could outweigh savings.

Fix or track, and when to lock in

Fixed rates are at their lowest since 2022. At the time of writing, the best remortgage fixes were around 3.64% for two years and 3.70% for five years, while tracker best-buys were about 3.90%, according to the Guardian.

Fixed deals are typically cheaper than trackers right now, though the gap has narrowed as base rate expectations edge down.

Trackers often come without early repayment charges, which may suit borrowers expecting a windfall who want flexibility.

Remortgage offers are usually valid for up to six months, allowing borrowers to reserve a rate now and switch later if cheaper options appear, the Guardian reported.

Lenders generally contact customers three to four months before a deal expires with product-transfer options.

The Guardian noted there are more than 7,100 mortgage products on sale, and some lenders offer free valuations or legal work.

A whole-of-market broker can compare options, and some firms, such as L&C Mortgages, do not charge a broker fee.

All brokers receive a payment from the lender on completion.

Sterling levels to watch

FXStreet noted GBP/USD traded around 1.3712, holding above its rising 20-day exponential moving average at 1.3605, with a 14-day RSI at 62.

Maintaining daily closes above 1.3605 would keep the bias higher and open a push toward the four-year high of 1.3866. A decisive close below 1.3605 could see a retracement toward 1.3500.

Markets expect the BoE to hold at 3.75% while signaling a gradual easing path.

For the 1.8 million borrowers refinancing in 2026, today’s landscape favours fixed rates over trackers on price, with flexibility and timing still key.

Shopping around and reserving early can help manage costs as policy and data shape the next moves.

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