Predicting interest rate trends in 2024: Will rates decline?

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England, london, bank of england. banks in great britain

Interest rates have a massive impact on all areas of our lives. Businesses and individuals both look to them when it comes to the costs associated with loans, return on savings and overall economic choices.

Predicting whether interest rates will rise or fall depends on a number of different factors both internal to the UK and externally. Let’s look at the outlook for the rest of 2024.

Current economic landscape

In February 2024, the base rate of inflation was at 5.25% and it has been this way since August 2023. This is, however, the highest that rate has been since 2008 and has been on a steep rise for the past two years.

As the UK enters a recession, there is speculation that interest rates will start to fall. The Consumer Price Index (CPI) measured inflation at 4% which is still higher than the Bank of England’s target of 2% but is lower than this time last year.

Inflationary pressures

The impact of inflation rates affects the price of everyday items such as food, services and other goods. This, in turn, influences the bank’s decisions on inflation rates.

Rising inflation may cause banks to raise interest rates in an attempt to calm down economic activities. On the other hand, lower inflation rates can make banks consider lowering interest rates to encourage borrowing and spending. This then helps to support economic growth.

One way to keep your cash safe from economic fluctuation is to have a Cash ISA. You can put away some money and enjoy tax-free interest on those savings.

Global economic uncertainty

It is not just factors within the UK that affect interest rates. External and global factors play a part too.

Although Brexit seems like a thing of the past, it still has an impact on the UK economy. The same can be said for geopolitical conflicts such as the Russian invasion of Ukraine. As goods such as certain food and fuel become harder to obtain due to war, the prices of these items increase which pushes inflation rates up.

Central bank guidance and forward guidance

It is thought that the Bank of England will begin to look to lowering interest rates to be more in line with their 2% aim. Andrew Bailey, the Bank of England Governor has recently hinted that inflation does not necessarily need to be at 2% before it drops interest rates.

Instead, the Bank of England is looking at sustained progress on factors such as pay progression, the labour market and services before they make a decision. This is a slightly more positive outlook as it means that interest rates may fall before inflation does.

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