‘Four interest rate cuts in 2025’ not echoed by contractor advisers

UK interest rates will fall “four times” or more in 2025 -- to at least 3.75% by the end of the year.

A majority of economists made this two-fold forecast before UK long-term borrowing yesterday crept up to its highest level since 1998.

Made to The Times, the interest rate forecast of 3.75% means the base rate faces four quarter-point rate cuts in the coming 12 months.

The newspaper said its previous annual poll of economists was right to predict the BoE would act twice in 2024 to cut borrowing costs.

‘Financial markets too volatile to predict interest rate cut’

Only two reductions to the base rate are currently priced in by the financial markets for 2025.

Yesterday, Freelancer Financials said the global financial markets were still “too volatile to predict [interest] rate cuts in 2025.”

“Especially with swap rates rising due to inflationary pressures,” the contractor mortgage broker’s CEO John Yerou told ContractorUK.

“I’d be surprised if the BoE cut the base rate [let alone by four times], due to weak economic growth. It’s got to keep inflation under control.”

‘Goldman Sachs is being way too optimistic'

Yerou has called Goldman Sachs’ prediction of a 3% base rate by the end of 2025 (compared with today’s 4.25%) “way too optimistic.”

He yesterday cited supply chain risks and logistics in the Middle East as reasons he still thinks Goldman, and The Times poll, is overestimating the BoE’s appetite to cut interest rates.

The Times poll found that 15% of 51 economists predict the base rate to fall to 3.5%, and three respondents foresee 3.25% by Q4 2025.

‘Bank of England’s primary goal is to maintain price stability’

An increase in employer NICs from April 6th 2025 is widely expected to exert upward pressure on wage growth and inflationary pressure.

And the Bank of England’s “primary goal is to maintain price stability, which means keeping inflation at two per cent,” reminds Cleerly.

“The theory is that lower interest rates will stimulate economic activity by making borrowing cheaper, encouraging investment and consumption,” Cleerly’s Sat Singh said yesterday to ContractorUK.

“However, the pace of interest rate cuts will depend on various factors, including the strength of the economic recovery, the pace of inflation, and global economic conditions.”

‘UK interest rate of 4% is the reasonable prediction’

Cleerly’s CEO, Mr Singh added: “The BoE will carefully monitor these factors and adjust its monetary policy accordingly throughout 2025.

“But a prediction of 4% for the base rate, which is 0.75% lower than today, is [the] reasonable one -- based on what is known today.”

According to The Times poll, 22 of the 51 economists predict the base rate will be cut to between 4% and 4.25% over the course of the coming year.

‘Three economists foresee base rate of 3.25%’

Thirty-five per cent say the bank will go further -- cutting the rate to 3.75%.

Fifteen per cent said the Bank of England will go further still -- lowering the rate to 3.5%, and three said it would even fall as low as 3.25%.

But fears that the BoE will find it tricky to cut interest rates are behind the effective interest rate that investors demand to hold UK public debt peaking yesterday at 5.21%.

‘UK on course for recession’

Financial guidance consultancy LyndonX won’t be surprised at the new, gloomy record for UK long-term borrowing, partly as it comes after official GDP growth for the UK came in at just 0.1% in Q3, and projected economic growth for 2025 is only 1-2% (according to the poll of economists).

“Taxation, stagnation, inflation, uncertainty -- it’s no wonder the UK is heading for trouble,” the consultancy’s founder Lyndon Wood wrote in a social media post.

“The UK is on course for a recession in 2025, and the reasons [like flatlining GDP, and inflation creeping up again] are painfully clear. The recent budget [held in the autumn of 2024] plays a big role, but it’s just the tip of the iceberg.”

‘Costs from April 6th employer NIC hike will need to be recouped’

From Freelancer Financials’ offices last night, Yerou warned that all figures and forecasts will likely get ripped up and revised anyway, once president-elect Donald Trump takes office in the White House (again) on Monday January 20th.

An independent financial adviser to contractors, Angela James, says there are some certainties, regardless of Trump’s second term.

“With the increased costs to businesses implemented by Autumn Budget from the new tax year 2025-26, these costs will need to be recouped by businesses through, I expect, increases to costs and services.

“We know such increases impact inflation, and the theory is this could cause an increase in inflation throughout the year.

“Thus, the economists [polled by The Times] could be correct in predicting cuts to the BoE base rate, because a way to ease the inflation may be to reduce interest rates.”

‘Any base rate reduction will come at a cost to your contractor savings’

Both Yolo Wealth (where James is boss) and Cleerly believe any interest rate cut in 2025 would relieve contractors with mortgages.

“But any cut in the base rate will come at the cost of any cash savings you may have,” cautioned James, addressing ContractorUK readers.

“It would be prudent to review your savings and investments. And with tax year-end approaching [on April 5th 2025], now is generally a good time to take stock anyway.

“The certainty is UK interest rates WILL change. But make your monies work for you long-term using the right strategies and solutions. That goes too for reducing interest rates impacting savings’ returns, as these will always be troubled by inflation.”

James will tomorrow respond to queries from a contractor seeking the best investment for £20,000 “doing nothing” in a savings account, in an article exclusively on ContractorUK.