When Will Interest Rates Go Down?

Inflation has been on the constant rise since 2023. With the decrease in wage rate, stagnant economy, there has been a rife in speculation if the central bank will cut down on rates.

December’s CPI inflation has risen for the first time unexpectedly in an year by 0.1% to 4% twice the 2% target. The Bank of England has been stressing on the fact that rates are not going to come down anytime soon.

If you have a fixed rate mortgage deal which is soon to come to an end or you are on tracker mortgage standard variable rate you will be keen to know where the interest rate is headed next .

Why have interest rates been rising?

Interest rates have risen in the UK over last few years due to inflation which in turn have increased the cost of living and risen due to pandemic and ongoing war in Ukraine.

The main cause behind inflation is rising energy and food costs, shortage of workers leading to higher wage demands. In order to afford higher living costs companies have to raise the cost of goods and services they are offering.

One of the job of bank of England is keeping up with the annual CPI inflation rate to 2%. They can do so by raising or lowering interest rates.

MPC, or Monetary Policy Committee has raised the base rate almost 14 times now from December 2021 to the highest i 15 years by 2023 (5.25%).

How do higher interest rates affect inflation?

When interest rates increase, the cost of borrowing money will also become more expensive. On the other hand the banks offer better rates to savings account. This way we tend to spend less and save more.

If the demand for goods and services is less, the prices will fall down as well, theoretically reducing the inflation rate.

The bank is always concerned about the wage price spiral. The unemployment rate in the UK is low as the business cannot find workers to fill vacancy.

In this case the employees have more power in their hands to ask for high wages and maintain their living stated with rising inflation. To pay for high wage bills business increase the cost of goods and services maintain the inflation for long time.

When will interest rates fall?

Most analysts believe that interest rates have increased and are meant to fall. The interest rate is expected to lower by 3% at the end of 2025. According to the projections of Berenberg Bank the rate might fall by 4% in 2024.

However MPC has 6 votes to three to keep the interest rate at 5.25%. The three votes were favouring the increase of interest rate to 5.5%.

Bank governor, Andrew Bailey, indicates that rates will be stable for quite some time. 

According to the Monetary Policy Report, the interest  rates will remain around 5.25% till 2024 and then decline to 4.25% by 2026 year end.

What’s happening to savings rates?

Saving rates follow whatever happens in the market with interest rate and their future predictions.

With interest rates currently being held by the Bank of England and future predictions of it  being lowering the saving rates have been falling too.