British economists are forecasting at least four interest rate cuts by the Bank of England in 2025, as the central bank grapples with weak economic growth. A comprehensive survey of 51 leading economists by The Times indicates the base rate will likely fall to 3.75 per cent from its current 4.75 per cent position.
The projected cuts exceed market expectations, which had only priced in two reductions for the year. This disparity emerged after recent data revealed robust wage growth and elevated services inflation at the close of 2024. The survey shows 35 per cent of respondents anticipate the base rate dropping to 3.75 per cent, whilst 15 per cent predict a fall to 3.5 per cent.
Economic growth forecasts remain modest, with most economists projecting figures between 1-2 per cent for the coming year. The Bank faces a complex balancing act, as wage pressures and the government’s planned increase to employers’ national insurance threaten to maintain inflationary pressures.
Remarkably, only two economists expect inflation to fall below the Bank’s 2 per cent target in 2025, with 40 per cent forecasting annual consumer price inflation between 2.5-3.5 per cent. Current inflation stands at 2.6 per cent, according to November’s official figures.
The Bank’s monetary policy committee remains divided on the path forward. Six members voted to maintain rates at 4.75 per cent in December, while three favoured a reduction to 4.5 per cent. Catherine Mann, an external committee member, has indicated potential support for more aggressive easing if growth deteriorates.
International central banks are expected to follow similar trajectories, with the European Central Bank potentially cutting rates to 2 per cent or below. The Federal Reserve’s strategy remains less certain, complicated by potential new tariffs, dollar strength, and the prospect of stimulus measures under president-elect Trump’s administration.
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