Following figures that showed inflation holding annually at 4%, economist Professor Trevor Williams has predicted that Bank of England rate cuts will follow in “just a matter of months.”
This followed the news this morning that the UK had entered a technical recession at the end of 2023, with a GDP fall of 0.3%, which led numerous commentators to question whether the central bank would drop rates sooner than expected in order to manage the economic situation.
Williams said: “Key economic figures released this week in the UK show that it’s just a matter of months before interest rates are cut.
“Unemployment data showed that job vacancies dropped as wage inflation slowed further. This is consistent with an economy growing well below its trend rate.
“Even if UK long-run growth lies between 1 and 1.5% a year, the current growth rate of around 0.5% indicates spare capacity and, therefore, exerts a disinflationary effect, pointing towards lower inflation and hence lower interest rates.
“On that basis, the actual inflation figures for January released yesterday, showing that the annual rate held at 4% as the month-on-month rate fell by 0.6%, with core inflation lower and food prices down, are clear indications that consumer price inflation is heading significantly lower this year.
“My forecast for the February inflation rate, to be released on 20th March, is likely to show a fall of nearly 1% to just over 3% from the current 4%.
“The annual consumer price inflation rate for April, released on 17th May, will be below 2% according to official forecasts.
“That means financial markets will price in a cut in the Bank rate at the April and May meetings. At that time, with inflation below the 2% target, the financial market pressure will be for a cut in interest rates of more than 0.25%, perhaps even 0.5%, especially if GDP data in the interim disappoint.”
