Borrowing rates, set by the Bank of England, will decline to 2.75% by the end of next year, Goldman predicts
UK interest rates will almost halve from their present rate of 5%, according to US investment bank Goldman Sachs.
Borrowing rates, set by the Bank of England, will decline to 2.75% by the end of next year, Goldman predicts, indicating a faster decline than borrowers and lenders have forecast.
The decline in rates will be welcome news to mortgage borrowers who have had a tough couple of years, although savers will be hit again.
Central banks typically use interest rates as a way to cut inflation since costlier borrowing reduces demand.
Financial markets currently suggest the Bank will cut to a rate of 3.5%, but inflation in the UK has been tamed more quickly than thought, with the price of goods now increasing at 1.7% per year – below the Bank of England’s target of 2%.
This easing of living cost pressure and a more relaxed stance from the BoE suggests faster rate cuts, Goldman said.
Goldman Sachs said that “slow productivity growth, falling prices of capital goods and population ageing” would hold rates down, while “sharply rising public debt and a pick-up in population growth” would keep them above the lowest values.
The BoE raised interest rates to 5.25% last year, taking them to their highest since before the great financial crisis of 2007-2008. It then reduced lending rates to 5% in August of this year.
Commercial lenders use the bank base rate as a guide on how much to charge borrowers and how much to reward savers.
Mortgage borrowers’ troubles began two years ago in the aftermath of Liz Truss’s mini-Budget, when her unfunded tax cuts sent shockwaves through financial markets and almost overnight mortgage costs increased.
The average two-year fixed-rate mortgage went from 3.66% to 5.24%, as per mortgage brokers London & Country.
Any reduction in borrowing costs will also be welcome news to the Treasury and Chancellor Rachel Reeves, who is looking to borrow to invest, in an effort to grow the economy.
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