UK inflation could fall below 2 per cent in April for the first time in years, an economist has suggested following new analysis from Goldman Sachs and Bloomberg Economics.
Financial institutions have revised their economic growth forecasts and expect the Bank of England to begin cutting interest rates in the spring of 2024.
Consumer Price Index (CPI) inflation peaked at 11.1 percent in October 2022, but has eased this year amid the Bank of England (BoE) raising interest rates and then holding the base rate, which is now at a 15-year high of 5.25 in The hundred.
Inflation now appears to be heading towards the central bank’s 2 per cent target, with the CPI rate for the 12 months to November 2023 at 3.9 per cent, down from 4.6 per cent in October.
Inflation in the 12 months to December 2023 fell to 3.9 percent
Goldman Sachs expects 0.6 percent growth in the country’s gross domestic product this year.
This represents a slight increase from the previous forecast of 0.5 percent, and the bank has raised its forecast to 1.3 percent for 2025.
James Moberly, an economist at Goldman Sachs, noted that the Bank of England’s estimates had changed in light of recent inflation data and sequentially weaker wage growth.
“We expect the Bank of England to start cutting interest rates in May 2024 and then reduce them by 25 basis points at each meeting pace,” he said.
According to Bloomberg economists Dan Hanson and Ana Andrade, the UK is on track to achieve “modest, if not spectacular, growth.”
In a recent report, lower inflation gives the central bank “great ease to start easing” interest rates.
It sets the UK up for modest, if unspectacular, growth in the second half of the year, Dan Hanson and Ana Andrade of Bloomberg Economics wrote in a report published Thursday. Low inflation gives the Bank of England “enough room to start easing.”
Sanjay Raja, chief economist at Deutsche Bank, expects these improvements in the economy to lead to inflation of less than 2 percent in the near future.
The British had to deal with high prices due to inflation
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The economist expects the Bank of England’s target to be met in either April or May, and said it is possible to cut interest rates by the end of 2024. According to Mr. Raja, “a soft landing remains our base case” for the economy. UK economy this year.
To mitigate the impact of rising inflation on the economy, the country’s central bank increased the key interest rate to 5.25 percent.
Despite expectations of lower inflation, a committee of policymakers at the Bank of England has warned about how wage growth will be affected. Chief financial officers are preparing for a 5.4 per cent pay rise throughout 2024 which would be the highest in eight months.
The Bank of England’s Monetary Policy Committee (MPC) will then make an interest rate announcement on 2 February 2024. CPI inflation figures for the 12 months to December 2023 from the ONS will be announced on 17 January.