The Bank of England foresees the possibility of four interest rate cuts next year if the UK economy performs as expected, according to Andrew Bailey. He also praised the recent decrease in inflation rates.
Speaking at the FT’s Global Boardroom conference, the BoE governor noted that consumer price inflation had dropped more swiftly than anticipated a year ago.
Responding to queries about market expectations embedded in the November economic forecast, Bailey acknowledged the likelihood of four quarter-point rate cuts in the coming year, as per market speculations.
With inflation in the UK dipping to 2.3 per cent in October from its peak of 11.1 per cent in late 2022, the BoE has hinted at further reductions in borrowing costs. However, the cautious approach is due to concerns regarding persistent services inflation.
Bailey stated that while different inflation scenarios were feasible, the central projection indicated a gradual decrease in interest rates in the BoE’s latest monetary policy report.
The Organization for Economic Co-operation and Development (OECD) suggested that despite growth and inflation prospects in the UK, the BoE might not be able to lower rates as much as other central banks like the US Federal Reserve and the European Central Bank.
As per the latest economic outlook from the OECD, UK rates are projected to plateau at 3.5 per cent in 2026, slightly higher than the expected terminal rate for the Fed. The ECB, on the other hand, is forecasted to reduce its key rate to 2 per cent by late 2025.
The OECD also predicted a growth of 1.7 per cent next year and 1.3 per cent in 2026 for the UK economy, despite tax increases in the Autumn Budget. Inflation rates are set to exceed those of other G7 countries, with a peak at 2.7 per cent in 2025 before easing to 2.3 per cent in 2026.
According to Álvaro Pereira, chief economist of the OECD, the shallower rate cut path anticipated by the BoE reflects the robust domestic demand and the additional fiscal stimulus provided in the Budget.
Furthermore, the OECD emphasized the necessity of “prudent” fiscal policies since UK public debt is anticipated to exceed 100 per cent and rise further.
Data visualisation by Clara Murray
