Lloyds Banking Group CEO’s Warning on Interest Rates

Charlie Nunn, the CEO of Lloyds Banking Group, has provided a cautionary outlook on interest rates, suggesting that rates between 3.5% and 4.5% will become the new normal. He emphasized that the era of mortgage rates in the range of 1.5% to 2.5% is unlikely to return. This projection implies a higher cost of borrowing for consumers in the UK.

Current Economic Context

  • Bank of England’s Base Rate: The base rate has remained at a 16-year high of 5.25% since August 2023. The next meeting of the Bank of England’s monetary policy committee is scheduled for August 1.
  • Future Rate Cuts: While there is speculation about when the Bank of England might cut interest rates, Nunn’s comments suggest that significant reductions are not anticipated in the near future.

Impact on Mortgage Holders

The Bank of England’s latest Financial Stability Report highlights several key impacts on households:

  • Mortgage Repayment Increases: Around 3 million UK households are expected to face further increases in mortgage repayments over the next two years.
  • Large Increases for Some Households: Approximately 400,000 households could see their mortgage repayments rise by over 50%.
  • Interest Rate Impact: Currently, 35% of households with mortgages pay interest rates below 3%. These households will experience increases in their mortgage rates between now and the end of 2026.
  • Monthly Payment Increases: A typical household coming off a fixed-rate mortgage in the next 30 months could see their monthly payments increase by about £180.

Broader Economic Implications

  • Longer Borrowing Periods: The report notes that more households are borrowing over longer periods to reduce monthly repayments, leading to higher overall debt.
  • Renter Struggles: The proportion of renters behind on rent has increased to 16.5% in the first quarter of 2024, up from 15.7% a year ago.

Stability and Support

Despite these challenges, the Bank of England maintains that the overall risk environment for the economy and the financial sector remains unchanged. The banking sector is deemed capable of supporting households and businesses even if economic and financial conditions worsen significantly.


The projection of a new normal for interest rates between 3.5% and 4.5% signals a significant shift from the low rates experienced in recent years. This adjustment will have widespread implications for mortgage holders and renters alike, with many facing increased financial burdens. However, the banking sector’s capacity to support the economy provides some reassurance amidst these changes



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