Inflation falls but when will we see interest rate cuts?
The latest UK inflation figures, published last month, showed a sharp fall to 3.9 per cent in the year to November 2023.
As we move into 2024, the big question being posed by businesses is, when will interest rates start to head in the same downward direction?
The welcome fall in overall inflation – down from 4.6 per cent in October and from a recent peak of 11.1 per cent – has increased the pressure on the Bank of England (BoE) to begin cutting rates from their 15-year high of 5.25 per cent.
And there appears to be some good news ahead. Goldman Sachs has upgraded its outlook for UK growth and predicts the BoE will reduce borrowing costs, starting in May.
The Wall Street investment bank believes there will be a series of interest rate cuts until they hit three per cent in May 2025.
Business organisations have been increasingly vocal in their calls for interest rate falls.
Martin McTague, national chair of the Federation of Small Businesses (FSB), said: “As inflationary pressures ease, small firms will be wanting the Bank of England to indicate when interest rates may start to fall – this would increase access to finance, drive economic growth and provide a fighting chance at avoiding a recession.
“Businesses will be hoping for a stable environment characterised by more predictable market conditions and lower costs in 2024.”
The Institute of Directors (I0D) has also called on the bank to slash interest rates son as its research revealed confidence in the UK economy ended 2023 sharply lower as falling inflation failed to boost optimism ahead of the new year.
Dr Roger Barker, director of policy at the IoD, said: “Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making.
“Business leaders remain extremely cautious about the outlook for the wider economy over the next 12 months, although they are more optimistic about the prospects for their own organisations.
“In the coming months, the Bank of England will be considering its next step in term of interest rates. Based on the evidence of this survey, an early cut in interest rates would be justified in terms of helping to kick-start business confidence.
“With inflationary pressures abating, business is in dire need of a boost if it is help drive meaningful economic growth in 2024.”
Meanwhile mortgage lenders have started the year by cutting rates. The UK’s biggest lender, the Halifax, has cut some interest rates by close to one percentage point, with others following suit.
Mortgage approvals in the UK picked up in November, with consumer borrowing also on the rise, according to the Bank of England.
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