Economists believe concerns for the economy could see the Bank of England forced to cut the base rates four times in the year ahead, with the first cut in February.
If correct, the base rate could come down from the current figure of 4.75 percent to 3.75 percent while some economists believe the rate could drop to as low as 3.25 percent.
That would be a huge relief to home buyers and those looking to remortgage as borrowing rates on some fixed rate deals could come down to around 3 percent by next Christmas.
The alarm has been sounded by recent figures showing the UK economy flatlined at the end of 2024.
At the same time, while property sales are predicted to boom in the first three months of 2024 as buyers try to complete purchases before an increase in stamp duty adds thousands of pounds to the cost, there are fears of a subsequent slowdown.
The alarm has been sounded by recent figures (Image: Getty)
It is feared that this would lead to a fall in consumer spending, which would hamstring economic growth unless there is the stimulus of a fall in .According to , more than 14 million people over the age of 20 have a .
The predictions of base rate falls come from a survey of 51 economists taking part in eighth annual economists.
Some 35 percent said the base rate would be lowered to 3.75 percent, 15 per cent said it would drop to 3.5 per cent and three said the Bank would be forced to cut it to 3.25 per cent over the next 12 months. The remaining 22 respondents said the base rate would be lowered to between 4 percent and 4.25 percent.
Economists said they expected the Bank to cut rates to boost economic growth, which was forecast to be in the range of 1-2 percent in the coming year by a majority of respondents. Underlining the dilemma facing policymakers, respondents also warned that the UK was likely to record strong wage growth and suffer inflationary pressures from the government’s increase to employers’ national insurance this year.
Only two said they expected inflation to drop below the Bank’s 2 percent target in 2025, with 40 percent forecasting annual consumer price inflation at 2.5-3.5 percent. Annual inflation is presently running at 2.6 percent, according to official figures for November.
More than a third of economists, 37 percent, said wages would be the single biggest driver of inflation in 2025 and 70 percent said annual earnings growth would be stuck in the range of 3-5 per cent. The Bank has said wage growth needs to fall to 2-3 percent for inflation to drop sustainably to 2 percent in the medium term.
Andrew Sentance, a former external member of the Bank’s Monetary Policy Committee (MPC) and a survey respondent, told the Times “pay rises of 3-4 percent still means labour costs rising by about 6 percent once NI rise is added in”.
The Bank’s nine-strong MPC has been divided over the future path of , with six members voting to keep the base rate unchanged at 4.75 percent in December and three favouring a cut to 4.5 percent. Within the six, Catherine Mann, an external member, has said she could favour a more aggressive policy loosening if growth falters.
Jumana Saleheen, a former Bank official and chief economist at the investment firm Vanguard, said: “the net impact of the budget announcements [will be] the main driver behind slightly elevated UK inflation”.
Survey respondents expected the European Central Bank to accelerate its cuts in 2025, with more than 50 percent forecasting borrowing costs to fall to 2 per cent or below. The eurozone’s benchmark is presently at 3 percent and has fallen faster than most advanced economies.
Economists were split over the path for US after the Federal Reserve bought down borrowing costs three times in 2024.