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 the base rate could fall from its current 4.75 per cent to 3.75 per cent or lower in 2025, with a majority of respondents forecasting four quarter-point reductions to support the UK’s slowing economic growth.
The findings go beyond the two rate cuts currently priced in by financial markets for 2025, after traders scaled back expectations for monetary easing on the back of robust wage data and higher-than-expected services inflation at the end of last year. Indeed, 15 per cent of those surveyed believe rates will drop to 3.5 per cent, while three economists predict cuts to 3.25 per cent.
Economists warn that policymakers will be under pressure to balance concerns about sluggish growth — which most respondents believe will hover at 1-2 per cent this year — with inflationary risks posed by continued wage growth and the impact of the recent national insurance rise. Although only two economists anticipate inflation dipping below the 2 per cent target in 2025, most project it to remain between 2.5 and 3.5 per cent.
A significant 37 per cent of participants cite wage increases as the single biggest factor driving inflation. Andrew Sentance, a former member of the Bank’s monetary policy committee, noted that “pay rises of 3-4 per cent still mean labour costs rising by about 6 per cent once the NI rise is added in”. The Bank’s latest vote indicated a split committee, with three members favouring a rate cut to 4.5 per cent, while the remaining six supported holding at 4.75 per cent.
On the continent, over half the economists surveyed expect the European Central Bank to move more aggressively with cuts, bringing rates down from 3 per cent to 2 per cent or lower in 2025. Across the Atlantic, participants were divided over the Federal Reserve’s trajectory: a fifth predicted two rate cuts, another fifth expected three, and 35 per cent forecast four or more reductions in US rates this year.
