UK inflation rate could drop below two per cent by April, says economist

Consumer Price Index (CPI) rate of inflation peaked at 11.1 percent in October 2022, but has been easing this year amid the Bank of England (BoE) hiking then holding the base rate, now at a 15-year high of 5.25 per cent.

Inflation now seems to be heading towards the central bank’s desired two per cent target with the CPI rate for the 12 months to November 2023 rising by 3.9 per cent, down from 4.6 per cent in October.

Inflation for the 12 months to December, 2023 eased to 3.9 per cent

Goldman Sachs forecasts a 0.6 per cent growth in the country’s gross domestic product (GDP) this year.

This is a slight rise from the previous prediction of 0.5 percent and the bank has hiked its forecast to 1.3 per cent for 2025.

James Moberly, a Goldman Sachs economist, noted that the Bank of England’s estimates have changed in light of recent inflation data and softer sequential wage growth.

He said: “We expect that the BoE will begin to lower rates in May 2024 and then cut at a 25 basis points per meeting pace.”

According to Bloomberg economists Dan Hanson and Ana Andrade, the UK is in line for “modest, if not spectacular growth”.

In a recent report, falling inflation gives the central bank “ample ease to start easing” interest rates.

It sets up the UK for “modest, if unspectacular, growth” in the second half of the year, Dan Hanson and Ana Andrade at Bloomberg Economics wrote in a report published Thursday. Falling inflation gives the BOE “ample space to start easing.”

Deutsche Bank’s senior economist Sanjay Raja predicted these improvements in the economy could lead to less than two per cent inflation in the near future.

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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” interest rates could be cut by the end of 2024. According to Mr Raja, “a soft landing remains our base case” for the UK’s economy this year.

To mitigate the impact of rising inflation on the economy, the country’s central bank has increased the base rate to 5.25 per cent.

Despite inflation being estimated to drop, the Bank of England’s Decision Maker Panel has warned of how wage growth will factor in. Chief financial officers are preparing for wage hikes of 5.4 per cent throughout 2024 which would be the highest in eight months.

The Bank of England’s Monetary Policy Committee (MPC) will next make an interest rate announcement on February 2, 2024. CPI inflation figures for the 12 months to December 2023 from the Office for National Statistics ONS will be announced on January 17.