The Bank of England expects four or more rate cuts by 2025, economists say
The Bank of England is expected to cut interest rates at least four times this year, according to a new survey of 51 economists.
A recent survey suggests the base rate could fall from 4.75 percent to 3.75 percent or lower by 2025, with most respondents predicting a four-point cut to support slower UK economic growth.
The findings go beyond the two rate cuts currently priced in by financial markets for 2025, after traders pushed back expectations for a further rate cut due to strong wages data and higher-than-expected inflation at the end of last year. Indeed, 15 percent of those surveyed believe rates will drop to 3.5 percent, while three economists predict a cut of 3.25 percent.
Economists warn that policymakers will be under pressure to balance concerns about sluggish growth – which most respondents believe will run 1-2 percent this year – with inflationary risks posed by continued wage growth and the impact of recent national insurance increases. While only two economists expect inflation to be below the 2 percent target in 2025, most expect it to remain between 2.5 and 3.5 percent.
A significant 37 percent of respondents cited rising wages as the single biggest factor driving inflation. Andrew Sentance, a former member of the Bank’s monetary policy committee, noted that “a 3-4 per cent increase in wages still means that labor costs rise by around 6 per cent once the NI increase is added”. The latest poll of the Bank revealed that there was a divided committee, three members were in favor of reducing the rate to 4.5 percent, while the remaining six supported it with 4.75 percent.
On the continent, more than half of economists surveyed expect the European Central Bank to move further on tapering, bringing rates down from 3 percent to 2 percent or less by 2025. On the other side of the Atlantic, participants were divided because of the approach of the Federal Reserve: a fifth predicted a reduction of two rates, another fifth expected a reduction of three rates, and 35 percent predicted a decrease of four or more US rates this. a year.
