Predictions base rate will not come down until June

Personal finance comparison website Finder.com brought together a panel of academies, economists, mortgage and savings experts, to ask them for their predictions on what will happen to the base rate for the rest of 2024.

It found 70 per cent do not expect the base rate to fall until at least June while 50 per cent predicted the monetary policy council will choose to lower rates in the meeting on June 20.

Additionally, 20 per cent believed the base rate will not be brought down until the following meeting on August 1.

The experts believed the Bank of England was likely to take a “much more cautious” approach to battling inflation, and would therefore be in no rush to bring interest rates down prematurely.

This sentiment was summed up by University of Surrey senior lecturer in economics, Lucian Rispoli, who said: “The Bank will want to adopt a ‘wait-and-see’ approach.

“It’s true inflation is coming down but, in my view, the monetary policy committee wants to see more continuous sustained decreases towards the 2 per cent target.”

He added that cutting interest rates at this point “might ‘undo’ all the progress made in terms of battling inflationary pressures”.

Unless the first cut comes soon that could mean that we don’t see the rate cuts even reach a full percentage point before the end of the yearDavid Hollingworth, L&C Mortgages

This idea was shared by Finder.com deputy editor, George Sweeny, who added: “I don’t expect them to make forward-thinking changes like lowering rates until they have hard data that clearly spells out an easing of inflationary pressure.”

Meanwhile, L&C Mortgages associate director, David Hollingworth, expected the Bank to wait until the beginning of August before lowering interest rates.

“The MPC has been clear that it will not rush to cut rates until inflation is under tight control and the recent inflation numbers proved that this won’t be a journey without some bumps along the way,” he explained. 

Earlier reduction

Other experts predicted rates may come down sooner than this, with 20 per cent believing the base rate will be lowered on May 9, pointing to the anticipated decline in energy prices.

One such expert, CEBR managing economist, Sam Miley, stated: “Inflation is expected to slow sharply from April as a result of energy price changes. This is the first meeting after that policy change.”

Just one of the experts expected interest rates to fall in the meeting on March 21.

Open University senior lecturer in economics, Alan Shipman, predicted: “By March, the weakness of investment and GDP growth will make it clearer that the Bank raised rates too far and too fast in 2022 and 2023.”

Extent

The experts were also asked what they predict the base rate will be in the MPC meeting on December 19, the final meeting of the year, with seven out of 10 of them expecting interest rates to fall to 4.5 per cent.

The experts noted there is the potential risk of a minor recession but, despite this, remained optimistic that rates would gradually come down.

Finder.com editor, Kate Steere, stated: “If rate cuts are not starting until mid-way through 2024, the bank will want to do this gradually so it can monitor the impact.”

This was echoed by Hollingworth who said: “Unless the first cut comes soon that could mean that we don’t see the rate cuts even reach a full percentage point before the end of the year”.

Despite expectations there will be “a slow downward trajectory for rates”, University of Stirling professor in finance, David McMillan, noted that current geopolitical risks could derail these predictions.

“There obviously remains risks on the horizon, predominantly in the form of geopolitical risks, which could have an impact on energy prices.

“This could, however, have the double effect of raising inflation while tipping the UK into a deeper recession.”

The remaining members of the panel were undecided, with one out of 10 predicting a 4 per cent rate, one out of 10 anticipating a 3.75 per cent rate, and one in 10 expecting a 4.75 per cent rate by the end of the year.

tom.dunstan@ft.com

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