Get ready for 3pc interest rates
Interest Rates Expected to Drop to 3% by Late 2024, Predicts KPMG
Relief on the Horizon for Mortgage Borrowers as Inflation Cools
According to senior economists at KPMG, the Bank of England is poised to cut interest rates to 3% by the end of next year, providing a much-needed respite for millions of mortgage borrowers as inflation falls below the central bank’s 2% target.
With energy bills plummeting, inflation is anticipated to drop sharply in the coming months. Yael Selfin, chief economist at KPMG UK, warns that if the Bank of England fails to lower rates promptly, it risks inflicting harm on the economy.
“If inflation undershoots the target, it will be extremely challenging for the Bank to justify maintaining higher rates when it is no longer necessary,” Selfin stated.
The British economy slipped into recession towards the end of the previous year, and Selfin cautioned that by keeping rates at the current level of 5.25% instead of easing policy, the Bank risks over-tightening its monetary stance.
Last week, Governor Andrew Bailey acknowledged that rate cuts are “on the way” as inflation finally comes under control.
KPMG forecasts a sluggish economic recovery from the recession, with growth projections of 0.3% for this year and 0.9% for the next. The analysts predict that GDP will struggle to maintain a trend growth rate of around 1% throughout this decade.
Selfin cited a decline in migration as a contributing factor to the slowed growth, noting that the economy has grown accustomed to high levels of arrivals from abroad. Additionally, weak investment and poor productivity growth will further hamper the long-term economic outlook.
Business investment is expected to contract by 0.1% this year, as executives express concerns about the future. “Demand remains the primary source of concern for many businesses, prompting them to put hiring decisions on hold and reconsider investment plans,” Selfin remarked. “The upcoming general elections, both domestically and among the UK’s main trading partners, compound the uncertainty surrounding future tax and trade policies within an already fragile geopolitical landscape.”
Meanwhile, separate data from the job search engine Adzuna suggests that the job market is showing signs of recovery. In February, the number of vacancies reached 866,242, a mere 0.14% decrease from January’s levels, indicating a much smaller drop than in previous months.
Adzuna stated that the market appears to be turning a corner after a difficult start to the year. The figures reflect growing confidence among companies in the state of the UK economy. In some sectors, including travel and maintenance, the number of advertised roles increased compared to January’s levels. Additionally, graduate roles and property positions saw respective increases of 5.3% and 5.2% on Adzuna compared to January.