In a promising development for the UK economy, analysts from Bloomberg Economics and the National Institute for Economic and Social Research have forecasted that the inflation rate could fall below two per cent by April – for the first time in several years.
This optimistic outlook aligns with recent economic growth forecasts and suggests potential interest rate cuts by the Bank of England (BoE) in Spring 2024, as it meets its critical two per cent goal.
The Consumer Price Index (CPI) inflation rate, which reached a peak of 11.1 per cent in October 2022, has shown signs of easing throughout the year.
This trend follows the BoE’s strong monetary policy stance, which included hiking the base rate to a 15-year high of 5.25 per cent.
Recent data indicates a move towards the Bank’s target inflation rate of two per cent, with the CPI rate for the 12 months to November 2023 recorded at 3.9 per cent, a decrease from 4.6 per cent in October.
Bloomberg economists have identified the UK economy as poised for ‘modest if not spectacular growth,’ this was backed up by the Office for Budget Responsibility’s Budget report in the Budget.
The OBR’s report showed that GDP growth is expected to reach 0.8 per cent this year – up from the previous estimate of 0.7 per cent growth reported in November 2023.
Similarly, forecasts for 2025 and 2026 show growth will increase to 1.9 per cent and 2.2 per cent respectively. These rates are both higher than previous estimates from the Autumn Statement.
While this will be looked at as a step in the right direction, the reality remains that the UK’s long-term growth outlook remains relatively weak.
The decreasing inflation rate may offer the BoE sufficient room to commence easing interest rates.
This may offer a boon for those with existing high-interest debts and mortgages, or those looking to take out new lines of credit.
However, for those hoping for a boost to their savings, this latest news may be less welcoming, as it may signify future cuts to saving rates from high street banks.
Given the changes ahead, it is important that you re-evaluate your financial plans to align with changes in inflation and the base rate. To find out how we can help you, please contact us.