The Bank of England’s Governor, Andrew Bailey, has indicated that four interest rate cuts are likely in 2025, marking a significant shift in the UK’s monetary policy stance. Speaking at the FT’s Global Boardroom conference, Bailey highlighted the encouraging trend in inflation reduction, which has fallen more rapidly than initially projected.
The current interest rate stands at 4.75%, following two quarter-point reductions from its peak of 5.25%. Bailey’s comments align with market expectations built into the Bank’s November economic forecast, suggesting a measured approach to monetary policy adjustment.
UK inflation has witnessed a dramatic decline from its October 2022 peak of 11.1%, settling at 2.3% in October 2023. While this remains above the official 2% target, the trajectory has been notably positive. The Bank’s cautious approach stems from ongoing concerns regarding persistent services inflation.
The OECD’s latest economic outlook presents a more conservative view, suggesting that UK rates might not decrease as substantially as those of other major economies. Their projections indicate UK rates will stabilise at 3.5% by 2026, marginally higher than the US Federal Reserve’s expected terminal rate of 3.25-3.5%.
Economic growth forecasts for the UK remain modest but positive, with the OECD predicting 1.7% growth in 2024 and 1.3% in 2026, an improvement from 0.9% in 2023. These projections account for recent tax adjustments announced in the Autumn Budget.
Bailey outlined three potential scenarios for UK interest rates, with the central forecast suggesting a measured approach to rate reductions. The Bank’s strategy aims to maintain the delicate balance between controlling inflation and supporting economic growth, with market expectations currently pricing in three rate cuts by the close of 2025.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.