Interest rates could be cut by the Bank of England as soon as next May, according to financial analysts.
Analysts at financial services giant Morgan Stanley predict the base rate - which influences the interest rates charged by banks and lenders - could eventually drop down to 4.25% by the end of the year. The base rate is currently at 5.25% - its highest level in 15 years.
The move would be welcome news for millions of mortgage holders that have been hammered by rising monthly costs. Morgan Stanley predicts falling energy costs will help drive the Bank of England to cut rates.
In a note to clients, researchers at Morgan Stanley said: “The Bank of England cuts from May, we think, with rates at 4.25% at the end of 2024.” But there is still huge uncertainty.
The Bank of England chief economist Huw Pill said last week that it “doesn't seem totally unreasonable” for the first cut to happen in August next year. But his boss, Bank of England governor Andrew Bailey, has said it is “really too early to be talking about cutting rates”.
The Bank of England paused its base rate at 5.25% at its last two meetings, in November and September. Before this, the Bank of England had put up rates fourteen times in a row, starting in December 2021 when the base rate was at a record low of 0.1%.
Interest rates have been going up as the Bank of England tries to lower inflation, which is currently at 6.7% - down from its high of 11.1% last October, but still well above the target of 2% inflation. The Bank of England now expects inflation to fall to 4.8% in October and remain around that level for the rest of the year. This would mean Prime Minister Rishi Sunak will have met his pledge to halve inflation.
But in less positive news, analysts at Morgan Stanley warned the UK could enter recession next year - this is defined as two quarters, or six months, of negative growth. This is slightly worse than forecast by the Bank of England, which thinks growth will be flat from now until the end of 2024.