Bank of England Interest Rate Forecast Update Post-CPI
- Written by: Gary Howes
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The Bank of England is forecast to cut interest rates on three further occasions after Wednesday's soft inflation reading, according to new forecasts.
Businesses and households can look forward to lower borrowing rates as the likelihood of a rate reduction on Thursday is now a nailed-on certainty.
Money markets - specifically the OIS curve - shows another rate cut in the first half of 2025 is also now 'in the price'.
However, following the inflation numbers, that showed headline price increases of 3.2% y/y in November, the odds of a second 2026 cut have jumped to 70%.
They were at 40% ahead of the release.
The market had anticipated inflation to rise by a more feisty 3.5%. Importantly, the Bank of England thought it would rise by 3.4%.
The pricing means that although lending rates are coming down, so too are savings rates. However, leading brokers tell us that business balances should still be attracting a 4% headline earnings rate following Thursday's rate reduction (more on this here).
However, analysts warn interest rates could fall faster than markets currently expect. Analysts at Stable say businesses should act now to secure high-yielding interest accounts to put their treasury balances to work. (Request a free consultation directly, here).
"Much faster disinflation than the BoE expected would clear the path for the central bank to provide more support to demand in 2026," says Andrew Wishart, Senior UK Economist at Berenberg.
"The incoming data support our recent shift to a weak demand lower inflation narrative which caused us to lower our end-2026 bank rate forecast from 3.50% to 3.00%. We suspect investors are still under-pricing 2026 easing," he adds.
