What Next For Interest Rates?

What Next For Interest Rates? 

As we have seen over recent years, the UK economic landscape has shifted drastically. Inflation is one of the main factors that have influenced such shifts. The Bank of England has a mandated target of 2% inflation rate and whilst during the covid years we saw a low of 0.7% in March 2021, we have also reached record breaking highs of 11.1% in October last year.

One year on, what have we seen and what is next for interest rates? 

Firstly, let’s understand why there was such a large spike in October 2022 aside from the direct impact of the mini budget. It is important to know that there are a number of reasons as to why we saw this increase. The demand for housing post Covid restrictions was simply not met by the supply available. Naturally with more demand than supply, it became increasingly difficult and expensive to purchase property. This of course was directly influenced by the changes in flexible working from home and lifestyle changes people adopted post covid. 

Another key influence was the impact caused by Russia invading Ukraine in early 2022. With energy prices already high and the UK in an energy crisis, the war spurred an increase in gas prices. Russia plays a large role as a global gas supply chain. With this ongoing conflict, the supply of gas has been disrupted which has seen the increase above mentioned. 

These two key factors alongside climate change and the shortage in farm produce have contributed to inflation.Interest rates becoming the talk of the country as this is the ‘go to’ tool to impact the rise in inflation. As such, interest rates, as of September 2023 are at 5.25%, the highest we have seen since 2009. Which has led to a cost of living crisis.

By increasing interest rates, borrowing becomes more expensive which leads to less spending. The consequence of such a measure is a direct impact of a fall in inflation. 

Whilst inflation is gradually falling, the Bank of England ‘expect it to fall further to around 5% by the end of this year.’ Further, as per the Bank of England ‘We expect inflation to keep on falling in 2024 and reach our 2% target in the first half of 2025. That means prices would still be rising, but they would be only rising gradually.’  Which as we say, is why the Bank of England took action by increasing interest rates. 

So whilst there is mixed optimism about lowered interest rates in the near future, they are unlikely to reach the lows we saw between 2009 and 2021. Andrew Bailey, governor of the Bank of England has reiterated this. In part, he mentioned that the public shouldn’t expect interest rates to fall until there is “solid evidence” that inflation is slowing down. 

On Thursday 2nd November 2023, the Bank of England held the interest rate for the second consecutive time at 5.25% with the aim to continue reducing inflation. The Bank of England expects inflation to fall further this year and next. When can we expect to see this drop? Let us know what you think. 

Stuart Bradney, Head of Investment Finance at Carbon Funding Consultants has his say: “We feel as though we are at the peak and feel that it is unlikely to see any further rises. However, as we’ve learned we can never rule out an increase such as a marginal 0.25% increase. We do believe that we are nearly at the peak.”

Do you agree with Stuart? We’re keen to hear from you. As always, if you’d like to talk to us about high interest rates affecting your personal mortgage or personal development ambitions, please don’t hesitate to get in touch. Feel free to call 01932 505 340 or email us at: