Interest Rates Forecast to Fall to Three Per Cent, City AM Shadow MPC Predicts
LONDON – A majority of economists polled by City A.M. predict the Bank of England will cut interest rates to three per cent, signalling a potential shift in monetary policy as inflation eases and the labor market cools. The City AM Shadow MPC voted 8-1 to hold interest rates at the most recent meeting, reflecting a growing expectation of declining inflationary pressures.
The consensus forecast contrasts with some previous market expectations of rates peaking at 3.5 per cent. Economists cite receding risks to wage growth, a cooling labour market, and the impact of supply-side challenges as key factors influencing the downward revision.This anticipated easing of monetary policy would impact borrowers and savers alike,possibly lowering mortgage rates and reducing returns on savings accounts.
Expert Views:
* Andrew Sentance – Former Bank of England policymaker: Persistent inflation pressures linked to supply-side challenges and robust domestic demand mean monetary policy would have to be more restrictive. He estimates a peak rate of 3.75 per cent, slightly above his estimate of the neutral rate.
* Katharine Neiss – PGIM Fixed Income chief European economist: projects interest rates will settle at three per cent, attributing the lower forecast to a “lower level of neutral rates” and a cooling labour market.
* Ruth Gregory – Capital Economics deputy chief UK economist: Believes a weakened labour market will translate into easing price growth, potentially leading to rates falling to three per cent next year, lower than current investor expectations.
* Vicky Pryce – Center for Economics and Business Research chief economic adviser: Foresees a slowdown in inflation allowing for interest rates to fall lower than market assumptions, also predicting a three per cent peak.
