City economists doubt Bank of England will lift rates to 4.75% by summer
Markets expect the Bank of England to raise its rate at least four times over the next year, but City economists believe that forecast is too aggressive and say cuts could come by the end of 2027.
Financial markets are wrong to expect the Bank of England to raise UK interest rates by a full percentage point or more by next summer, according to City economists. Their view runs against the pricing in markets, which currently points to a sustained run of increases.
Market-implied expectations suggest the Bank is likely to raise rates at least four times over the coming year. That would lift the bank rate from 3.75% today to 4.75% by the end of July, and possibly to 5% by December 2027, meaning five rises in total. Economists consulted for the assessment argue that such a path is unlikely to materialise.
Instead, they expect the Bank to move far more cautiously. Rather than tightening further, some of the economists believe the central bank could lower rates again by the end of 2027. The disagreement between markets and economists centres on how quickly inflationary pressures will ease and how much the Bank will need to respond to them.
The gap matters for households and businesses across the UK. Borrowing costs on mortgages, business loans and savings products all track the direction of the bank rate, so expectations about its path shape decisions on spending, investment and hiring. A smaller number of rises would ease pressure on borrowers compared with the scenario priced into markets.
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