bearing on mortgages<\/a>, generally go higher when inflation is above the BoE\u2019s target.<\/p>\nNew FeatureIn ShortQuick Stories. Same trusted journalism.<\/p>\n
The BoE tends to lower the rate when inflation approaches its target, because higher interest rates are a tool to make borrowing more expensive and slow the rate of price rises.<\/p>\n
Interest rates currently sit at 3.75 per cent after being lowered in December \u2013 but with inflation expected to fall, further reductions could be on the way.<\/p>\n
What will happen to inflation this year?<\/p>\n
Economic consensus is that the consumer prices index (CPI) measure of inflation will fall this year, partly as a result of November\u2019s Budget, which raised taxes.<\/p>\n
Some taxes can lower inflation because they put pressure on people\u2019s disposable income, which means they have less money to spend on goods and services.<\/p>\n
The BoE said in December: \u201cFollowing the Budget announcements on administered prices and indirect taxes, headline inflation was now expected to fall back more quickly in April, to closer to 2 per cent.\u201d<\/p>\n
Raj Badiani, economics director at S&P Global Market Intelligence, said he expected inflation to end the year at 2.1 per cent.<\/p>\n
\u201cWe expect the headline rate to stand at 2.1 per cent at the end of 2026 and be around the BoE\u2019s 2 per cent target during the second half of 2026. We argue that the risks to inflation in the coming year are now on the downside,\u201d he said.<\/p>\n
Thomas Pugh, partner at RSM UK, said he thought inflation would reach a low point of 2.2 per cent next year.<\/p>\n
But other forecasters do not expect inflation to get this low.<\/p>\n
Pantheon Macroeconomics has forecast inflation to hit a low of 2.3 per cent in June, but end the year at 2.9 per cent.<\/p>\n
What will happen to interest rates this year?<\/p>\n
Most economists expect there to be at least one interest rate cut in 2026, taking rates to at least 3.5 per cent.<\/p>\n
But some predict that there are multiple cuts ahead.<\/p>\n
Sanjay Raja, chief UK economist at Deutsche Bank Research, said: \u201cBig picture, the bank rate remains on a downward trajectory. We expected three things heading into the BoE\u2019s final meeting of the year: one, a quarter-point rate cut; two, a 5-4 vote split and three, the MPC raising the bar for further rate cuts.<\/p>\n
\u201cImportantly, we expect the precipitous drop in CPI next year alongside a deteriorating labour market to keep quarterly rate cuts in play next year.<\/p>\n
\u201cWe stick to our long-standing call of two more rate cuts in 2026: one in March, and one in June, taking bank rate to 3.25 per cent. Risks are skewed to a slower but deeper easing cycle.\u201d<\/p>\n
Below is what major economic forecasters are predicting for 2026.<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"Most economists expect further cuts to rates this year with inflation set to fall Inflation and interest rates…\n","protected":false},"author":2,"featured_media":348046,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,1431,814,56,54,55],"class_list":["post-348045","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-inflation","tag-interest-rates","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/348045","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=348045"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/348045\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/348046"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=348045"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=348045"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=348045"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}