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The governor of the Bank of England, Andrew Bailey, has said he expects interest rates to fall, albeit gradually, which will be welcome news for thousands of mortgage borrowers.
Bailey said he was “very encouraged” by falling inflation and “therefore I do think the path for interest rates will be downwards, gradually”.
Bailey told the Kent Messenger he did not expect rates to return to the historic lows close to zero last seen four years ago, and his “best guess” was that it would settle “at a neutral rate”, widely tipped to be around 3% over the next decade, barring a financial crisis.
Bailey said: “Will we go back to the very low near-zero interest rates that we had until not that long ago?
“My answer is I would not expect that because what caused interest rates to go that way it was, among other things, two very big shocks to the economy.”
UK banks are actively engaging in a mortgage price war, with Barclays today launching a new low five-year fix rate, while Nationwide announced earlier this week that it plans to let first-time buyers borrow up to six times their earnings.
The central bank reduced UK interest rates by 0.25% in August to 5% and financial markets expect a further cut in November.
Almost 80% of economists, 49 of 65, polled by Reuters earlier this month, expected one more rate cut this year. While 48 predicted it in November, one said December. The other 16 economists saw two more rate cuts this year.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation,” said IEA Economics Fellow, Julian Jessop, at the free market think tank, the Institute of Economic Affairs.
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