Chris Arcari, Head of Capital Markets, Hymans Robertson says: “As predicted, the Bank of England (BoE) have chosen to leave the final base rate for 2024 unchanged at 4.75% during its last meeting of the year. Looking forward to 2025, we expect the BoE to begin to reduce rates to less restrictive levels in 2025 as the labour market slowly loosens. We expect between two and three rate cuts in 2025 – not too dissimilar to swap markets’ expectations. Disinflationary factors such as demographics, technological innovation and globalisation are expected to temper inflation over the medium to long term. However, the risk of a switch to a regime of permanently higher inflation remains elevated. While we believe inflation, and interest rates, will decline from current levels and conceivably undershoot their targets, we don’t foresee a longer-term return to the ultra-low-rate environment we saw after the global financial crisis. We expect nominal interest rates to bear a closer relationship to real growth and inflation, and volatility to remain higher, in the coming decade than they did in the last.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “The Bank of England has decided against giving us a Christmas surprise, holding interest rates at 4.75% in the context of rising inflation and wage growth. This will come as a mixed signal for savers – on the one hand, rates are still significantly higher than we became accustomed to in the 2010’s and into the pandemic years, putting pressure on household budgets and adding further complexity to the trade-off between managing short term expenses and saving for the future. Our recent research found that 48% of Millennials, a group likely exposed to mortgage costs, say that higher interest rates have made it harder for them to save for retirement. Conversely, people with cash-based savings will welcome a continued opportunity to benefit from decent returns, if they shop around and make sure they’re getting the best deal. For those with a greater appetite for risk, investment products like stocks and shares ISA’s have increased potential to outpace inflation, but the value can of course go down as well as up. If you’re able to take a longer-term view, pensions can benefit from compound investment growth over the years, as well as tax efficiency and offer a strong real return at retirement.”
Simeon Willis, Chief Investment Officer at XPS Group: “The MPC deciding to take it easy on reducing rates isn’t surprising in an environment where inflation is above target and rising. Inflation has been picking up over the last six months. This was expected as energy price falls during the latter half of 2023 fell out of the calculation, but recent price rises in October were higher than trend levels. At the other end of the yield curve, longer-dated gilt yields have been rising. Nominal and real gilt yields are now back at levels previously seen at the height of the gilts’ crisis and this years’ Budget. This is generally good news for pension schemes and has boosted funding levels to new highs”
Anais Caldwell-Jones, Principal in LCP’s investment team, commented: "The pick-up in wage growth reported by the ONS on Tuesday made the already slim possibility of a rate cut slimmer still. The rise in the consumer price index for November to 2.6% announced on Wednesday killed it off. Services-driven inflation remains a particular concern. Given what appears to be persistent domestic pricing pressures, and the potentially globally inflationary impact of at least some of US President-elect Donald Trump’s proposed policy measures, those hoping for a series of rapid UK rate cuts in 2025 may be disappointed.”
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