UK borrowing costs are set to be cut next month in what could be the first of multiple interest rate cuts in 2025.
Pressure is growing on the Bank of England to resume cutting interest rates next month after official data revealed weaker inflation and low economic growth.
Economic output grew by just 0.1% in November, the latest Office for National Statistics revealed yesterday, missing forecasts of 0.2% but marking a return to growth after two consecutive months of contraction.
Growth was fuelled by the services and construction industries, which offset a third consecutive monthly decline in manufacturing output.
Expectations for the pace and scale of BoE base rate cuts were gradually revised ever lower in the second half of last year as ss the bank failed to return the consumer price index to its target of 2%.
CPI, which has remained above target for several months, fell from 2.6% in November to 2.5% in December, prompting fresh calls for the Bank of England to lower the base rate from its existing level of 4.75%.
Luke Bartholomew, deputy chief economist at abrdn, told the press: “With inflation coming in softer yesterday, the ongoing weakness in growth will further tip the Bank of England towards easing again at its next meeting in February.”
Thomas Pugh, UK economist at RSM UK, concurred that the combination of weaker-than-expected inflation and economic growth “means an interest rate cut in February is now a sure bet”.
However, Pugh cautioned the economic outlook for this year remains precarious.
He said: “There are still good reasons to expect growth to pick up this year.
“The increase in government spending and investment announced in the Budget should start to flow through and the early signs of a revival in consumer spending should continue.
“But the lack of momentum going into the year raises the risks that 2025 under performs expectations.”
The most recently available forecasts published by HM Treasury shows the City expects inflation and GDP growth to average 2.5% and 1.3% respectively this year.
Traders now expect to see between two and three quarter-point cuts in 2025, taking base rate at low as 4% by year-end.
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