Interest rates latest: Bank rate will go lower than expected next year, economist says – as inflation ‘falls to 1% in 2024’ | UK News
Interest rates expected to be held today – but future direction likely to become clear
The Bank of England is widely expected to keep interest rates at 5.25% today for the fourth meeting in a row.
Borrowing costs will remain at a 16-year high for now – but markets expect them to start shifting downwards in early summer as inflation nears the 2% target.
Interest rates are increased to squeeze household incomes – because people spending less tends to bring prices, and therefore inflation, down.
How the base rate timeline will look if today goes as expected…
Any doubts about the Bank’s decision today were almost certainly put to bed by the slight rise in inflation in December – from 3.9% to 4%.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “With inflation ticking back up in December, it’s likely to have quelled immediate urges from policymakers around the table for rate cuts any time soon.
“Given the ultra-cautious stance three of the nine members of the Monetary Policy Committee have taken towards inflationary risks, having voted for a rate hike at the last meeting, the chances of a reduction in the base rate at this gathering look very slim indeed.”
All eyes will be on the latest Monetary Policy Report, with its outlook for inflation to be in sharp focus.
Some economists predict the Bank will move forward its projection for CPI falling to 2% to the middle of this year, rather than in 2025.
This would signal good news for households, which have grappled with above-target price rises since the middle of 2021.
It might also suggest markets aren’t too far off with the forecast of early summer rate cuts.
But Andrew Goodwin, chief UK economist for Oxford Economics, said policymakers would be looking for “more reassurance that price and wage pressures are retreating to a target-consistent pace on a sustained basis before pressing the ‘cut’ button”.
Average UK wage growth has outstripped the rate of inflation for five months in a row – which has been good news for hard-pressed workers, but less so for policymakers who want to see that inflationary pressures are easing.
Mortgage rates have been creeping down at the start of 2024 in anticipation of early summer rate cuts, but we may get an indication today whether the Bank thinks lenders have become “over-excited”.
Laith Khalaf, head of investment analysis at AJ Bell, said: “It feels like the market may have got over-excited about looser monetary policy in the UK.
“If the Bank wants to send a signal that markets have got ahead of themselves, this week’s interest rate decision provides a golden opportunity to do so.”
