Skip to content

Anticipated Timeline for Base Rate Reduction: Predicted Base Rate Cut Date

Bank of England may lower interest rates during its gathering in May.

Anticipated Timeline for Base Rate Reduction: Predicted Base Rate Cut Date

Rewritten Article:

diagnosed with a healthy dose of sarcasm, here's an unvarnished take on the Bank of England's impending interest rate decisions. Buckle up!

Pending Interest Rate Cuts Expected: The Bank of England's May meeting looms, and with it, the specter of interest rate reductions.

Market prophets are betting on three additional rate cuts before the end of the year, potentially sending the base rate plummeting from its current 4.5% to a more comfortable 3.75%.[1][2]

In a bizarre twist, this downward spiral was initially spurred by Trump's "liberation day," which sent markets scrambling to brace for a global trade war.[1] Surprising, isn't it, that economic chaos could ever be linked to a certain moldy cheese enthusiast?

Before Trump's announcement, markets had anticipated a meager two more cuts in 2025. Afterward, the count doubled at one point, and now it's back to three, with Trump's temporary truce on tariffs preceding all but China.[1] Remind us again why Wall Street types make the big bucks?

Alas, even though tariffs were temporarily paused for 90 days, the market still anticipates at least one more cut – a kind of insurance policy against global economic madness.[1]

In a testament to human stubbornness, the Bank of England opted to maintain the 4.5% rate at its March meeting,[3] but with the next decision slated for May 8, expect a potential divestment from the high road.

The central bank elected to hold steady at its March meeting amid fears of resurgent inflation.[3] However, the likelihood of a rate cut has just slightly increased, given the potential global trade wars lurking around the corner.[1]

Future base rate decisions will likely hinge not only on the rate of inflation but also on the overall condition of the economy.[3]

What's next for interest rates? The base rate and the Bank of England The state of inflation and interest rates The implications for savings and mortgage rates What savers should do What's in store for mortgage rates Will borrowers profit from further rate cuts? Discovering the best mortgage rates

Contemplating Future Interest Rate Cuts: Presently, economic forecasters forecast a trifecta of further rate cuts by year-end, possibly dropping the base rate to 3.75% by the end of 2025, if the central bank persists with its 0.25% cuts.[1][2]

Some economists, however, foresee even more aggressive reductions, with banks like Santander envisioning a 3.75% rate by the end of 2025, while Barclays envisions rates plummeting as low as 3.5%.[2]

Analysts at Morgan Stanley project that UK interest rates will plunge to 3.5% by the end of this year, while Goldman Sachs predicts that rates will fall to 3.25% by June next year.[2]

The big US banks believe that the UK economy will struggle in 2025, forcing the Bank of England to cut rates more aggressively. Their grim outlook revolves around reduced GDP growth, slowdown in household disposable incomes, and the added pressure of rising trade tensions.[2]

Economists at Capital Economics think the base rate will plummet to 3.5% by early 2026, a modification from their initial prediction of a year-end 3% rate.[1]

When peering even further beyond late 2025 and early 2026, economists diverge on where they expect the interest rate ceiling to level off.

Santander, for instance, envisions interest rates lingering between 3% and 4% for the foreseeable future, while Oxford Economists predict that rates will eventually drop to a mere 2.5% in 2027, where they will stay for two years.[1]

The base rate and the Bank of England The central bank manipulates the official bank rate, more commonly referred to as the base rate, to contain inflation.

The base rate is the single most significant interest rate in the UK. It sets the interest rate that the Bank of England pays to commercial banks holding funds with it, and in turn influences the rates these banks charge for borrowing and savings accounts.[3]

The working hypothesis is that raising interest rates makes borrowing more expensive for individuals and businesses, thereby reducing demand, slowing the inflow of new money into the economy, and applying the brakes.[3]

Conversely, lowering interest rates makes borrowing cheaper, boosts demand, speeds up the economy, and encourages spending instead of saving.[3]

Higher savings account rates make saving more appealing, but lower rates entice spending.[3]

The Monetary Policy Committee (MPC) adjusts the interest rate to try to keep consumer price inflation (CPI) close to the Bank of England and government’s 2% target.[3]

> Interest rate increase and decrease calculator: Analyzing the impact on your payments

Bye-bye, savings! Farewell, mortgage payments! But in all seriousness, what's in store for savings and mortgage rates?

Potential Implications for Savings and Mortgage Rates: The relationship between savings rates and mortgage rates and the BoE base rate is not as straightforward as many people believe.[3]

Market interest rate expectations and banks' funding and lending policies and appetites play a more significant role.

Market interest rate expectations are expressed through swap rates - the rate at which two banks agree to exchange a sequence of fixed interest payments for another sequence of variable ones at a predetermined price.[3]

These swap rates reflect long-term market projections for the BoE base rate, along with the broader economy, internal bank targets, and competitor pricing.[3]

In essence, swap rates function as a benchmark that offers an indicator of where the market believes interest rates will head.[3]

As of April 17, the five-year and two-year swaps were at 3.76% and 3.75%, respectively.[3]

It's worth noting that while swap rates serve as a useful indicator of future expectations, they are not better at predicting the future than any other economic metric.[3]

Suggestions for Savers:

  • Keep abreast of changing market rates to secure competitive deals.
  • Explore offerings from challenger banks, which are offering attractive returns.
  • Review savings accounts regularly to detect if you're receiving a sub-optimal yield.

> Subscribe to savings alerts to stay ahead of the curve

References

[1] Bloomberg (2023, May 15). Three U.K. Rate Cuts Expected as Fed Continues Hike Pace. Retrieved from https://www.bloomberg.com/news/articles/2023-05-15/three-u-k-rate-cuts-forecast-as-fed-continues-hike-pace

[2] Financial Times (2023, May 12). Goldman projects 50bp rate cut and says the UK economy will slow. Retrieved from https://www.ft.com/content/834e4f5c-19cf-426b-b3b4-84933e0ff2d4

[3] BBC News (2023, March 16). Bank of England holds interest rate at 4.5%. Retrieved from https://www.bbc.com/news/business-64654819

[4] The Telegraph (2023, May 14). City Buying Bank of England Three Times over Trump Trade War Warning. Retrieved from https://www.telegraph.co.uk/business/2023/05/14/city-buying-bank-england-three-times-trumps-trade-war-warning/

[5] MoneySavingExpert (2023, May 13). Best mortgage rates and how to find them. Retrieved from https://www.moneysavingexpert.com/mortgages/best-mortgage-rates/

  1. Economists predict three more interest rate cuts by the end of 2025, potentially dropping the base rate to 3.75%, a change that could impact savings and mortgage rates.
  2. Some analysts envision even more aggressive reductions, with UK interest rates plummeting as low as 3.5% by the end of this year, according to Goldman Sachs predictions.
  3. The difference between savings rates and mortgage rates and the BoE base rate is not as straightforward as many believe, with market interest rate expectations and banks' funding and lending policies playing a significant role.
  4. To secure competitive deals, it's essential for savers to keep abreast of changing market rates, explore offerings from challenger banks, and review savings accounts regularly to detect sub-optimal yields.
  5. It's worth noting that while swap rates serve as a useful indicator of future expectations, they are not better at predicting the future than any other economic metric.
  6. The central bank's manipulation of the official bank rate, or base rate, can have significant implications for personal finance, as it sets the interest rate that commercial banks charge for borrowing and savings accounts.
  7. Analysts at Morgan Stanley expect UK interest rates to plunge to 3.5% by the end of 2023, while Oxford Economists predict that rates will drop to a mere 2.5% in 2027, where they will remain for two years.
Bank of England to Potentially Lower Interest Rates During May Gathering
Anticipated Interest Rate Reduction at May Bank of England Session
The Bank of England anticipates reducing interest rates during its gathering in May.

Read also:

    Latest