The Bank of England is expected to cut interest rates at least four times this year, according to a new survey of 51 economists.
The recent poll suggests that the base rate could fall from the current 4.75 percent to 3.75 percent or lower in 2025, with a majority of respondents predicting a four-quarter-point cut to support slowing economic growth in the UK.
The findings go beyond the two rate cuts currently priced by financial markets for 2025, after traders scaled back expectations for monetary easing on robust payroll data and higher-than-expected services inflation late last year. 15 percent of respondents even believe that interest rates will fall to 3.5 percent, while three economists predict a reduction to 3.25 percent.
Economists warn that policy makers will be under pressure to balance concerns about sluggish growth – which most respondents expect to hover at 1-2 percent this year – with inflation risks posed by continued wage growth and the impact of the recent increase in national insurance. While only two economists expect inflation to fall below the 2 percent target in 2025, most expect it to remain between 2.5 and 3.5 percent.
A significant 37 percent of participants cite wage increases as the biggest driver of inflation. Andrew Sentance, a former member of the Bank’s monetary policy committee, noted that “wage increases of 3 to 4 percent still mean labor costs will rise by around 6 percent when the NI increase is added in.” The Bank’s latest vote indicated a divided committee, with three members in favor of a rate cut to 4.5 percent, while the remaining six favored a rate cut to 4.75 percent.
On the continent, more than half of economists surveyed expect the European Central Bank to be more aggressive with spending cuts, pushing interest rates down from 3 percent to 2 percent or lower in 2025. Across the Atlantic, participants were split on the Federal Reserve’s trajectory, with a fifth predicting two rate cuts, another fifth expecting three rate cuts, and 35 percent predicting four or more rate cuts this year.