Fears of an economic slowdown are expected to prompt a Bank of England rate cut next week – with more to follow – leading to potentially big savings for millions of mortgage borrowers
The Bank of England is forecast to slash interest rates five more times this year in a massive boost to millions of borrowers.
Wall Street giant Morgan Stanley joined others in predicting the Bank’s Monetary Policy Committee will cut its base rate from 4.5% to 4.25% next Thursday. It thinks two of the MPC’s nine members could go even further and vote to chop rates to 4% in one fell swoop.
And it thinks rates could even crash to closer 2% at some stage if the global economy suffers a worse-than-expected downturn.
The chances of multiple rate cuts this year were looking unlikely until US President Donald Trump’s ratcheted-up his tariff war, sparking fears of an economic slump. Central banks are expected to react by reducing borrowing to costs to put more money back into the pockets of households and businesses, and to boost spending.
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In a note, Morgan Stanley said it thought the Bank of England would ditch its “gradual and careful” wording when it came to future rate reductions, to “leave itself space to accelerate cuts if needed”. It expects back-to-back cuts through to November – meaning 25 basis points reductions in May, June, August, September and November – leaving the base rate at 3.75% by the end of 2025. And it won’t stop there, Morgan Stanley believes, as it forecast rates could tumble to 2.75% in the first half of next year.
Bruna Skarica, its chief UK economist, added: “More adverse global growth scenarios could take this terminal rate to closer to 2%, in our view.”
A series of big rate cuts would be cheered by millions of mortgage borrowers, especially those coming off cheaper fixed rate deals and who need to bag a new loan.
Central banks were previously forced to hike rates in the face of soaring inflation, fuelled by Russia’s war in Ukraine. But easing inflation, and now the threat of an economic go-slow, has prompted them to begin cutting rates instead.
A mini price-war among mortgage lenders has already broken out, with a growing number of two-year fixed rate home loans on offer for under 4%. More could follow in anticipation of a wave of base rate cuts in the months ahead. The flipside is that rates for savers are expected to fall.
Banking and wealth management firm Investec called a Bank of England rate cut next week “an easy one”. It added: “There is very little to lose by cutting the Bank rate now. Conversely there is very much to lose”.
Edward Allenby, of forecasting firm Oxford Economics, said: “May’s meeting is an opportunity for the MPC to explain how recent tariff developments have shaped its outlook”, adding it believes the Bank will likely downgrade its near-term economic growth and inflation forecasts.
It came as separate Bank of England figures revealed a fall in mortgage lending for the third month running, fuelled by the end of a stamp duty holiday. About 64,300 mortgages for house purchases were given the green light for in March. However, the amount of remortgaging increased.
Further evidence of the impact of President Trump’s tariffs emerged with UK factories suffering the biggest drop in export orders since the start of the Covid pandemic.. The S&P Global UK manufacturing PMI survey, watched closely by economists, showed a reading of 45.4 in April, up from 44.9 in March.
Any reading above 50.0 indicates that activity is growing while any score below means it is contracting. Rob Dobson, director at S&P Global Market Intelligence, said: “Surveyed manufacturers noted that US tariff announcements were having a noticeable impact on global markets as trading partners adapt to increased trade volatility.”
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