Potential Interest Rates Plummet to Three Percent as Predicted by City AM Shadow MPC Member
The Bank of England held interest rates at 4% on Thursday, as policymakers grapple with the ongoing challenge of managing inflation. However, a number of economists have offered their predictions for where interest rates may settle in the near future.
Anna Leach, chief economist at the Institute of Directors, predicts that interest rates will settle around 3.5% to 3.75%. This prediction is shared by Julian Jessop, who believes a 'neutral' level of interest rates would be around 3.5%. Ben Ramanauskas, senior research fellow at Policy Exchange, and Kallum Pickering also share this view, with Pickering predicting rates to settle at 3.75%.
On the other hand, Ruth Gregory believes interest rates may need to be reduced to 3% next year instead of 3.5%. She attributes the easing in price growth to the effects of a weakened labour market. Katharine Neiss, another economist, agrees with this lower projection, attributing it to receding risks to nominal wage growth and a cooling labour market. Peel Hunt's Kallum Pickering and the Institute of Directors' Anna Leach are two members who believe one more interest rate cut is possible. Other members believe interest rates could be cut twice.
Not all economists share this optimistic view. Jack Meaning, Barclays chief UK economist, did not provide a specific prediction about where interest rates will settle. Vicky Pryce states that a slowdown in inflation will allow interest rates to fall lower than markets assumed. Jonathan Haskel agrees with investors that interest rates will fall to around 3.5%.
The Bank's statements suggest MPC members are more worried about inflation remaining high. Four members of City AM's Shadow MPC believe interest rates will fall to 3% by the end of next year. However, a search of the results does not identify any specific economists or institutes forecasting that interest rates will fall to three percent by the end of next year.
Inflation for August remained at 3.8%, a figure that will undoubtedly continue to influence the MPC's decision-making in the coming months. As the economic outlook continues to evolve, it is likely that we will see further predictions and updates from economists and policymakers alike.
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