City AM suggests a potential drop in interest rates to 3%, as predicted by Shadow MPC.
The Bank of England held interest rates at 4% on Thursday, but the outlook for the future remains uncertain. Economists and forecasters have offered a range of predictions for where interest rates will settle in the coming months.
Anna Leach, Chief Economist of the Institute of Directors, forecasts that settlement interest rates will be around 3.5-3.75% by the end of next year. This prediction is shared by Jonathan Haskel, Jack Meaning, and Katharine Neiss. However, Kallum Pickering predicts a slightly higher rate of 3.75%, while Ben Ramanauskas of Policy Exchange believes interest rates will settle at 3%.
Julian Jessop, on the other hand, believes that interest rates will settle at 3.5% based on key economic metrics. This view is also supported by Markets and investors, who believe interest rates will come down to around 3.5%.
However, some forecasters believe the Bank will not make any further cuts. This view is held by four members of City AM's Shadow MPC, who predict interest rates will fall to 3% by the end of next year. Peel Hunt's Kallum Pickering and the Institute of Directors' Anna Leach are two members who believe interest rates could be cut once more.
The debate about "neutral" interest rates, the level at which monetary policy neither stimulates nor restricts price growth, is likely to continue. Some economists argue that higher rates may be necessary for the UK economy due to its struggles. A modest uptick in productivity growth due to AI could mean interest rates stay slightly higher, according to Jonathan Haskel.
Inflation for August remained at 3.8%, but a slowdown in inflation could allow interest rates to fall lower than markets assumed, according to Vicky Pryce. This could potentially bring interest rates down to the 3% range predicted by four members of City AM's Shadow MPC.
In conclusion, while there is a general consensus that interest rates will settle around 3.5-3.75%, there is still a significant range of opinions among economists and forecasters. The Bank of England will need to carefully consider these predictions and the state of the UK economy before making any decisions about interest rates.
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