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Experts predict when interest rates will drop as Bank of England holds rates again

Interest rates will likely drop over the coming months despite the Bank of England holding the base rate again in its latest decision, experts have said.

Inflation fell to 3.4 percent in the latest figures renewing hopes the bank could soon start to drop rates.

Peter Stimson, head of Product at mortgage lender MPowered, said: “This week’s sharp fall in inflation, and predictions that CPI could reach the Bank’s two percent target by the end of the second quarter, have removed much of its rationale for holding interest rates this high for this long.

“Nevertheless the Bank has shown that it is in no hurry to lower interest rates, and no major rate cuts appear likely until inflation reaches its target level, and stays there.

“The current consensus is that we could see two cuts to the base rate during the remainder of 2024, potentially three, and starting as early as May – though three might be a stretch if the Bank runs out of road this year.

“But timing is key. We believe interest rate cuts should start sooner rather than later.”

Shaan Raithatha, senior economist at Vanguard Europe, said he is predicting rates will start to drop from August.

He said: “Our base case is for a 25bp cut at every meeting thereafter, leaving Bank Rate at 4.25 percent by year-end.

“Risks are skewed towards a slower pace of easing, particularly if wages and services inflation moderate more slowly than we expect.”

Samuel Mather-Holgate, independent financial advisor at Swindon-based Mather and Murray Financial, warned that the bank is taking a blinkered approach and does not realise the financial pressures facing families.

He said: “Members of the Bank’s Monetary Policy Committee seem completely unable to see the pain being inflicted on homeowners and businesses by higher rates.

“They are obsessed with inflation and getting it down. The first rate cut won’t come until August, at the next big meeting. When cuts do arrive, they might come quick as they also won’t want to suck deflation.

“The risk is a yo-yo effect as the bank is so backwards-looking that they don’t anticipate, which leads to over-corrections in policy.”

Economist Julian Jessop previously told Express.co.uk there is a risk of deflation if the central Bank doesn’t start to drop the base rate soon.

He said: “The inflation target is two percent, not zero, for a reason. Inflation can be too low, and there are a number of problems with that. One is you need a little bit of inflation in the economy just to make it easy for relative prices to adjust.

“A little bit of inflation with some prices rising faster than others is a good way for people to decide what to buy and what to make. There’s also a problem with falling prices when people have high levels of debt because falling prices tend to be associated with falling incomes as well.

“Debts are fixed in nominal terms. During periods of deflation, it becomes much harder for people to service their debts because their incomes are probably falling as well as prices. Interest payments and debt servicing takes up a bigger proportion of your income.”

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