Will Interest Rates Fall Again Soon?

Interest rates play a crucial role in our economy, affecting everything from mortgage rates to credit card rates. The Bank of England sets the base rate, which influences the rates set by banks and other financial institutions ...

Recently, the base interest rate has been at 5.25% and the Bank of England (BoE) has only just reduced it by a quarter to 5%, so the question that needs to be asked is whether it will come down further in the coming months?

"There are several factors that influence interest rates!"

These include inflation, economic growth, and global market conditions. Inflation is a major consideration for central banks when setting interest rates. When inflation is high, interest rates tend to increase to curb spending and control prices. On the other hand, when inflation is low, interest rates are usually decreased to encourage borrowing and stimulate economic growth.

Another factor that impacts interest rates is the state of the economy. In times of economic growth, interest rates may increase to prevent the economy from overheating. However, during periods of economic downturn, interest rates are often lowered to stimulate borrowing and spending. This was evident during the 2008 financial crisis, when the Bank of England drastically reduced interest rates to help boost the economy.

In light of the economy growing by 0.4% in May and inflation finally reducing to 2% the Bank of England decided to cut the rate slightly. I think they're being careful because June's figures may be more muted due to bad weather and strikes in the health sector, although the Euros 2024 probably helped the retail sector!

The ACAEW's sentiment tracker rose from 14.4 to 16.7 recently which is the highest reading since 2022 so many financial experts are feeling more upbeat. However, as positive as I am feeling about my clients' prospects improving, I don't see a major interest rate-cutting cycle anytime soon.

I believe the BoE is watching what the new Labour Government are doing. The recent junior doctor's pay awards are surprisingly big and with GPs now shouting about their pay deals, and other areas of the public sector up for negotiation soon, that may drive inflation upwards again.

"Other factors like cutting major infrastructure projects can really have an impact on BoE decisions!"

The next interest rate decision is on the 19th of September and I'll be quite surprised if they cut it. I don't think it will move again until the end of the year when the new Government are out of their first 100 days and the economy settles down a little.

I guess it's just a case of wait-and-see for now.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.