Analysts predict the Bank of England might lower interest rates to 2.75% next year, reflecting growing optimism that the peak of Britain’s inflation crisis has passed.
HSBC analysts anticipate rate cuts beginning in November’s Monetary Policy Committee (MPC) meeting and continuing at each subsequent meeting starting from February next year.
This outlook follows the MPC’s recent decision to maintain the current 5% rate, after a period of increases that saw rates peak at 5.25% as efforts intensified to curb inflation. Last month marked the Bank of England’s first rate reduction in four years.
HSBC analysts have commented that the improved medium-term growth outlook is partially influenced by monetary policy adjustments.
“With the majority of indicators showing a slowdown in the labor market, we, along with the Bank of England, are increasingly convinced that the most severe inflationary pressures and the risk of them persisting have diminished. Consequently, the current policy rate appears to be significantly higher than neutral,” the analysts stated.
Their analysis of the latest Monetary Policy Committee (MPC) statement indicates that policymakers are not eager to make rapid rate adjustments.
The analysts further noted: “Based on our forecast that CPI inflation will climb to 2.9% by January next year, slightly exceeding the Bank of England’s projections, it is likely that it will be February before the MPC is confident enough to implement consecutive rate cuts, potentially reducing the Bank Rate to 2.75% by December next year.”
HSBC also anticipates that rates will be maintained at this level throughout 2026.
