Forecasting Bank of England Interest Rates in 2024
If you are a homeowner or a homebuyer in the UK, you may be wondering how the interest rate forecast for 2024 will affect your mortgage options.
Interest rates are set by the Bank of England (BoE), the central bank of the United Kingdom, and they influence many other interest rates in the UK, such as those for mortgages, loans, and savings, contributing to the country’s financial stability.
In this blog, we will explain how the BoE’s recent decisions have affected the outlook for interest rates and what they mean for your mortgage options. We will also provide some tips on how to stay informed and seek professional advice from us.
Why are interest rates important?
Interest rates are important because they affect the cost of borrowing and saving money.
Higher interest rates make borrowing more expensive and saving more attractive, while lower interest rates make borrowing cheaper and saving less rewarding.
Interest rates also affect inflation.
Inflation is the rate at which prices for goods and services rise. Inflation affects the cost of living and the value of money. The BoE’s main goal is to keep inflation close to its 2% target.
What has happened to interest rates in the past year?
In the past year, inflation has been very high in the UK, reaching over 11% in October 2022. This was mainly due to three factors:
- The Covid pandemic, which disrupted global supply chains and increased demand for goods
- The Russia-Ukraine conflict, which caused a surge in gas prices and affected food production
- A labour shortage, which has forced employers to raise wages to attract workers
These factors pushed up the prices of many goods and services, making them more expensive for consumers.
To prevent inflation from getting out of control and damaging the economy, the BoE has been raising the Bank Rate, which is the official interest rate, since December 2021.
It has increased it 14 times in a row, from 0.1% to 5.25%
What did the BoE decide in September 2023?
In September 2023, the BoE decided to pause its rate hikes and keep the Base Rate at 5.25%. This was because inflation had started to fall slightly, from 6.8% in July to 6.7% in August.
The BoE also expected inflation to fall further to around 5% by the end of 2023, as gas prices have dropped significantly and some of the supply and demand imbalances have eased.
The BoE’s decision was not unanimous, five members of its Monetary Policy Committee (MPC) voted to keep Bank Rate at 5.25%, while four members voted to raise it to 5.5%. The MPC said that further rate increases would be needed if there are signs of inflation pressure.
What does this mean for your mortgage options?
The impact of interest rates on your mortgage options depends on what type of mortgage you have or are looking for.
Fixed-rate mortgages
If you have a fixed-rate mortgage, your interest rate will not change until your fixed term ends, regardless of what happens to Bank Rate.
This gives you certainty and stability over your monthly payments. However, you may be paying more than the current market rate, especially if you locked in your rate when it was higher.
Variable-rate mortgages
If you have a variable-rate mortgage, your interest rate will change according to the Base Rate. This means your monthly payments will go up or down depending on how interest rates move.
This gives you flexibility and potential savings if interest rates fall. However, you also face the risk of higher payments if interest rates rise.
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What is the forecast for interest rates in 2024?
There’s no way of knowing for certain what the coming months and years hold for interest rates. But until inflation comes down significantly it’s unlikely that the Bank of England will lower the base rate.
The Bank of England expects inflation to ease in the rest of 2023, it is forecast an inflation rate of 4.9% in the final quarter of 2023.
With falling inflation, price rises will continue to slow down in the next few months, which will ease the cost of living for many.
According to forecasts, Base Rate could stay at 5.25% until at least July 2024, before falling down to 3.8% by June 2025.
This suggests that interest rates may have reached their peak in this cycle and could start to decline in the next year or two.
However, it is important to be aware that these forecasts are not certain and could change depending on how the economy performs and how inflation evolves.
How to stay informed and where to seek advice?
It is important that you keep an eye on the news and updates from the BoE about interest rates and inflation. You should also review your mortgage options regularly and seek professional advice from a broker.
We are expert mortgage advisors who specialise in helping you find the most suitable mortgage deal. We have access to a wide range of lenders and products, and we can tailor our service to your individual needs and circumstances. We can also help you with protection products.
If you want to find out more about how we can help you, please contact us today. We are always happy to hear from you and answer any questions you may have.
