The Bank of England “must” slash the base rate substantially to three per cent if the UK is “to avoid a recession next year”, according to experts.
Interest rates have been raised and held to 5.25 per cent since August 2023 in the central bank’s fight against inflation.
With the Consumer Price Index (CPI) rate easing to 2.3 per cent for the 12 months to April, analysts are pricing in a rate cut in the latter half of the year.
However, so far, the Bank has been cautious to change trajectory when it makes its base rate decision despite the economy improving.
Experts are sounding the alarm that this approach could be counterproductive and trigger a recession in 2024.
A recession is defined as happening when a country experiences two quarters of consecutive negative growth with the UK only recently pulling itself out of a downturn.
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The UK economy has only just pulled itself out of a "technical recession"
PAIn the six months following the Bank’s initial decision to pause hikes to interest rates, the mortgage market has experienced a small price war.
The average rate for a two-year fixed deal dropped to 5.76 per cent from a height of 6.86 per cent.
However, figures from the Office for National Statistics (ONS) revealed the rate of price increases has dropped to under 3.2 per cent for the first time in two years.
In response to this, Cornerstone Tax’s chairman David Hannah has claimed the Bank of England needs to reduce the base rate by the end of 2024.
He claims this is to stop a collapse in demand among consumers and encourage high-street mortgage lenders to cut interest rates further.
Hannah explained: “March’s inflation figures and mortgage approvals should indicate an overall cooling off of the UK economy which, if we are to avoid a recession next year, must be acknowledged by the Bank of England.
“In an effort to avoid a sudden crash of inflation, will increase pressure on the Monetary Policy Committee (MPC) to start reducing interest rates sooner rather than later.
“Economies have momentum, with the rate of inflation continuing its downward trajectory towards the Bank of England’s threshold of two per cent - the MPC must look ahead to the new year and start thinking about the optimum time to cut rates.
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Interest rates have increased over the past couple of years after 14 consecutive base rate hikes GB NEWSCornerstone’s chairman gave a recommendation for how far the base rate should fall to stop a recession from taking place.
The tax expert added: “Recent forecasts from Halifax have predicted that housing prices are tipped to continue falling by the end of the new year, implying that prospective buyers will still be put off by high mortgage rates.
“I’d urge the MPC to seriously consider cutting the interest rate in their next meeting, even a reduction by a quarter percentage point would signal optimism within the UK economy.
“A target base rate of three to 3.5 per cent being the overall goal if the BoE wants to truly prioritise prospective buyers in the new year.”
