Rates set to fall to 2.75% says major lender

HSBC has making waves in the UK’s mortgage market. Its grab for market share as Santander’s has slipped has been accompanied by some big senior staff changes, and now the big mortgage lender is making more headlines.

Analysts at the global bank say that the Bank of England could reduce interest rates to 2.75% next year, expressing increasing optimism that the peak of the UK’s inflation crisis has passed. Experts from HSBC predict that the Bank of England’s Monetary Policy Committee (MPC) will start cutting rates in November and continue doing so throughout 2024, starting with another reduction in February. Mortgage lenders are already cutting fixed rates as they anticipate more interest rate reductions.

This comes after the MPC's recent decision to maintain the current interest rate at 5%, following several increases over the past few years. At its highest, the Bank Rate reached 5.25% as policymakers attempted to control inflation. However, last month saw the first rate cut in four years, signalling a potential shift in monetary policy.

HSBC analysts commented: “Part of the slightly better medium-term growth outlook reflects monetary policy. With most indicators pointing to a cooling in the labour market, we and BoE have become more confident that the worst of the inflation pressures - and the risk of them becoming entrenched - is behind us. Given this, the current policy rate looks some way above neutral.”

Despite signs of easing inflationary pressures, the MPC’s recent communication suggests they are not inclined to act hastily. HSBC analysts noted: “The latest statement from the Monetary Policy Committee suggested that rate setters were not in ‘the mood to move quickly.’”

They also forecast that inflation will rise to 2.9% by January next year, which could prompt the Bank of England to hold off until February before initiating consecutive rate cuts. HSBC expects the Bank Rate to fall to 2.75% by December of next year and remain unchanged throughout 2026.