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A sharp fall in the headline inflation rate to 1.7 percent means the Bank of England ‘must act now’ to cut the base rate at least once and possibly twice before Christmas, financial experts are predicting.
The fall in inflation to below the official target of 2 percent, plus more subdued increases in wages, could provide room for the Bank’s Monetary Policy Committee (MPC) to reduce the base rate from 5 percent, say many in the sector – with two or even three cuts by the New Year being urged.
Although inflation is likely to tip upwards in the coming weeks on the back of a rise in energy tariffs, many analysts believe the Bank has scope for two 0.25 percentage point reductions taking the base rate to 4.5 percent.
City experts and mortgage brokers insist this would be a huge shot in the arm for ordinary consumers, home buyers, businesses, the wider economy, and the government.
Ed Monk, associate director, Fidelity International, said: “The dip in inflation confirmed today suggests a November cut to interest rates is likely, with the question now whether borrowers can look forward to another one after that before the year is out.
“Ahead of the inflation numbers this morning, the bond market was pricing in three to four quarter-point cuts before the end of next year, but that timetable may accelerate if inflation continues to undershoot the Bank of England’s forecast, which is for inflation to tick higher again this year before falling back to target next year.
“Lower inflation is good news for household budgets but also for savers and investors, who will see a higher inflation-adjusted return.”
Rob Clarry, investment strategist at wealth management firm Evelyn Partners, said the money markets are betting on rate cuts in both November and December with the possibility of a third cut in the New year.
Isaac Stell, Investment Manager, Wealth Club, said: “The Bank of England can today breathe a sigh of relief as inflation, at long last, has fallen below its 2 percent target, vindicating the steady interest rate cut path they have been treading.
“The door has been swung wide open to the possibility of a rate cut at the November meeting, with perhaps a larger than expected cut not entirely off the cards.”
He pointed out that the governor of the Bank of England, Andrew Bailey recently, indicated that the organisation could be “a bit more aggressive” if the news on inflation continued to be good.
Mr Stell said: “With headline and core inflation tumbling, the BoE should feel confident about stepping up to the crease at its November meeting.
“With declining private sector wage growth, falling prices, and a Government focused on tax rises, an easing of the burden for the public will be welcome. Will the BoE play with a straight bat or will they look to go big and swing for the boundary? Today’s numbers suggest they could well do the latter.”
Chris Barry, Director at Thomas Legal, said: “The MPC will no doubt reduce interest rates by 25bps in November and are now more likely to repeat the reduction in December.”
Riz Malik, Independent Financial Adviser at R3 Wealth, told Newspage: “Given this latest inflation print we should still be due a 0.25 percent cut on 7th November and we may get a similar Christmas bonus in December.
“We should continue to see base rate reductions in the first quarter of 2025, which will be welcome relief for borrowers given the rollercoaster of the past two years.”
Ben Perks, Managing Director at Orchard Financial Advisers, said: “We have just smashed through the 2% inflation blockade and now all eyes turn to the Bank of England who are surely left with little choice but to cut the base rate next month. Borrowers are desperate and so the Monetary Policy Committee must act now.”
Michelle Lawson, Director at Lawson Financial, said there is a good case for two rate cuts.
“Wednesday’s below expectation inflation figures have pretty much secured an end-of-year borrower bonanza. Another base rate cut in November now looks baked in but this below consensus print has also improved the odds of a second Christmas special rate cut, too,” she said.
Craig Fish, Director at Lodestone Mortgages & Protection, said: “This news should and will be celebrated with a certain rate cut of 25 basis points in November, and very likely another in December, though there are still inflationary pressures sitting on the sidelines, so we are not out of the woods yet.”