When are Bank Rates expected to fall?

With an announcement expected from the Bank of England on Thursday 9th May, we share our predictions for interest rates and what this means. 

The past few years have seen the prices of everyday essentials, including food shopping and regular bills, continue to rise affecting people across all levels of society. In fact, you’d be hard-pressed to find anyone who has not felt the impact. 

No surprises that this has led to soaring inflation, the measure of how expensive goods and services are for households over a set period of time. Alongside essentials, loans and mortgages have also become more expensive as interest rates have increased to combat this inflation meaning people have to be more cautious of their economic activity. And this isn’t factoring in shrinkflation, where prices remain stagnant but items become smaller or of worse quality. 

High inflation has a number of causes, including the after-effects of Brexit which has increased import costs as well as reducing economic activity, the Covid-19 pandemic and the war in Ukraine. The Bank of England then sets their base rate as a way of taking demand out of the economy in order to reduce inflation. And when the base rate is high, it too affects the prices we all pay on a day-to-day basis. 

After just over two years of high inflation, many will be asking: when will rates begin to fall? 

With an announcement expected on Thursday 9th May, we share our predictions for interest rates and what this means. 


Where are the rates currently? 

In March 2024, the Bank of England agreed to maintain its Bank Rates at 5.25%. This came with the understanding that the UK GDP was expected to grow by a small amount in the first half of 2024, following a decline at the end of 2023.  

The Consumer Price Index (CPI) reflects the cost of everyday items and services. The inflation rate has spiked in the past few years and in October 2022, following the disastrous Liz Truss mini-budget, it grew to 11.1% which was the highest in over 40 years. Though recently, CPI inflation rose by 3.2% in the 12 months to March 2024, down from 3.4% in February. This rate is expected to fall below the 2% target in the second quarter of the year.  

Also, the Energy Price Cap for households fell in April, with the price of electricity and gas going down by around £238, which will also help interest rates to fall. 


So, will rates fall soon?  

All this could point towards rates being cut, however, some think maintaining rates at their current level could be wise for longer. The Organisation for Economic Co-operation and Development, the leading economic authority, has shared that borrowing should remain high until the rate of prices eases further and stays there. 

This is a common theme across many central banks, with Bank of England Governor Andrew Bailey refusing to say when cuts can be made as recently as March. He told Sky News, "We're not yet at the point where we can cut interest rates, but things are moving in the right direction." 

If we see a further fall in rates, it will be a relief for the many who are struggling to afford essentials. However, even if this were the case, interest rates may still remain high unless it’s a drastic cut - which, factoring in everything, looks unlikely.  

The money markets which predict future base rates when enabling borrowing for banks, which drives the interest rates that banks charge for loans and mortgages have been forecasting higher rates for longer over recent weeks which is why fixed rate mortgages have again increased after some falls earlier in the year.


A more stable economy

Ultimately, these are just predictions and in reality, unexpected and shock economic announcements could reverse the fall of inflation. However with inflation now well below its previous peak, it’s evident that things are looking more positive than they were even a year ago. However, even with this news, many people across the UK will still find it hard to manage in the current financial landscape. Prices are still going up, just not as fast as they were.

Here at Great Western Credit Union, we are proud to serve our local community by providing fair, ethical and affordable loans and saving services to tens of thousands of people across the South West. Recently, we have been particularly focused on building our savings services to help people navigate the cost of living crisis. 

There’s still time to apply for our Fixed Rate Saver, allowing members to lock away their finances for a set time to earn 5% AER/ gross interest whilst benefiting their local economy. Applications close on 10th May or it may be earlier if the Fixed Rate Saver becomes over-subscribed, so don’t miss your chance. 


To learn more, email us at info@gwcu.org.uk or visit https://greatwesterncu.org.  

Published by
Posted on
07 May 2024