During the FT event, the governor added: "We emphasised in the report the word "gradual". We've been looking at a number of potential paths, some of them are better than others.
"So on the good end of the distribution is that this disinflation process is well embedded...and so inflation will come back down sustainably and in that world, we can be less restrictive with rates."
The governor also explored a middle-of-the-road option where the Bank of England may need to work harder to keep inflation on the right trajectory and therefore slow down interest rate cuts. That said, the prevailing message was that interest rate cuts would be coming in the new year, albeit at a gradual pace.
The news comes after the Monetary Policy Committee decided to cut the base rate for the second time in November 2024. The base rate currently stands at 4.75% while the inflation rate is 2.3% which is 0.3% above the BoE's inflation target of 2%. If the BoE makes the predicted cuts next year, we could see the base rate fall to 3.75%.
What happened to the base rate in 2024?
In 2024, the Bank of England cut interest rates twice. In August, rates were cut from 5.25% to 5% and in November, rates came down again to 4.75%. The November cut came despite a predicted rise in inflation to around 2.75% next year. The BoE predicted that inflation would then fall back to its 2% target and stressed that if inflation remains slow and stable, interest rates would be reduced further but not "too quickly or too much".
The MPC is going to meet again on December 19, 2024, but current predictions suggest it is unlikely that there will be another interest rate cut this year.
When will the MPC meet in 2025?
The MPC is due to meet again in 2025. The current confirmed dates are:
- Thursday, February 6, 2025
- Thursday, March 20, 2025
- Thursday, May 8, 2025
- Thursday, June 19, 2025
- Thursday, August 7, 2025
- Thursday, September 18, 2025
- Thursday, November 6, 2025
- Thursday, December 18, 2025
Based on forecasts, a base rate cut in December looks unlikely, so we may need to wait until February to see a further base rate cut.
What will happen to savings and mortgage rates if the base rate falls in 2025?
Typically, when the base rate falls, savings and mortgage rates fall too. This is good news for homeowners in the market for a new mortgage deal but will have no immediate effect on those on a fixed-rate mortgage deal. Fixed-rate mortgage deals remain fixed at the agreed-upon interest rate until the deal expires.
Interest rates on savings accounts are likely to fall if the base rate is cut further. As such, it might be a good idea to take a look at the best savings accounts on the market right now to make the most of higher savings rates while they're still available.
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