Interest rates unlikely to reach 4.75% by next summer, say City economists
Experts say Bank of England unlikely to increase rates by full percentage point – and could lower them by end of 2027 Financial markets are wrong to predict the Bank of England will raise UK interest rates by a full percentage point or more by next summer, City economists believe. According to market-implied interest rate expectations, the Bank is likely to raise interest rates at least four…
City economists caution that the Bank of England is unlikely to raise interest rates by a full percentage point by next summer, and may even lower them by the end of 2027. Market predictions suggest the bank rate will increase from the current 3.75% to 4.75% by July, potentially reaching 5% by December 2027. However, experts like ING's James Smith and Deutsche Bank's Sanjay Raja believe a sharp tightening cycle is improbable due to a lack of evidence that energy cost hikes are driving up other prices.
They argue that market-implied interest rate expectations are inflated, with many traders positioning themselves for cuts rather than increases. Smith suggests the Bank may "sound the all clear" by next spring and could cut rates by year-end. Deutsche Bank's Sanjay Raja estimates only around 50 basis points of hikes are priced in, with the bank rate likely reaching 4.25% by February and remaining steady until the end of 2027.
Major financial firms like Goldman Sachs and Morgan Stanley also forecast lower rate increases than currently priced in markets.
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