Bank of England Rates Set to Drop Sharply in 2024

UK Economy: A Breather After Years of “What’s the Point?”

Warming Up as Inflation Takes a North‑East Turn

According to EY ITEM Club’s fresh winter forecast, the UK’s long‑standing economic slump is finally looking like a story with a happy ending. Charting a new path forward, the report says inflation will cool off, interest rates may finally drop, and a touch of tax relief could spark a boost in growth for 2024 and 2025.

GDP – Slow, but Steady

2024: EY raised the outlook from 0.7% to 0.9% – a small but meaningful lift.
2025: Forecast jumps to 1.8% from the 1.7% target set in October.

Last year, the UK’s GDP chugged along at a mere 0.3% growth – down from the 0.6% predicted a year ago. In other words, 2023 was smoother than expected, but it still earned the “keep your eyes on us” label.

Inflation: The Balloon is Going Down

By May, CPI inflation is projected to hit the Bank of England’s 2% sweet spot.
Average rate across 2024 sits around 2.4%, a comfortable decline from the former 2.9% prediction.

Lower inflation means households can keep more of their hard‑earned cash, which is great news for families and a sign that real incomes might improve.

Bank Rate: The Cuts Are on the Horizon

EY now expects 100‑125 basis points of cuts in 2024 – an upswing from the 100 bps in October.
These rate cuts are slated to kick off in May.

Smaller rates should help lend money, reduce borrowing costs, and give businesses the green light for greener, wave‑riding — or at least newly funded — capital spending.

Expert Take: Hywel Ball on the Turning Point

“While challenges linger, the forecast hints that the UK’s economic lull is waneing,” says Hywel Ball, EY UK Chair. He explains that the slow‑roll effect of earlier rate hikes continues to cast a shadow in 2024. Yet, slowing inflation coupled with coming bank‑rate cuts should build momentum and forge a more upbeat path ahead.

Ball adds, “Business investment has shown a bit of a dead‑end lately – but it’s set to rise again in the medium term.” He predicts that a mild slump in 2024 will be followed by a bounce in capital expenditure in the years that follow.

Bottom Line

Growth steadied into 2024 and 2025.
Inflation cooling out to the 2% target by spring.
Bank Rate cuts likely on the way, sparking a possible rebound in spending.
The UK may just be in the midst of an economic “good‑night” shot toward a brighter future.

Stick around – the next chapter of the UK’s fiscal tale is already unfolding, complete with a bit of sunshine, a dash of lower rates, and a hopeful note for businesses and families alike.

Outlook improves for house prices and consumer spending

EY ITEM Club Winter Forecast: A Bright Outlook for Homeowners

Picture this: mortgage rates dropping like a hot soufflé, and the housing market holding steady with a touch of optimism. The EY ITEM Club Winter Forecast is painting a pretty picture for prospective buyers and seasoned homeowners alike.

House Prices Will Level Off, Not Plunge

Unlike last autumn’s 4% price drop prediction, the latest forecast says prices will stick around in 2024.
Low unemployment and solid household finances are the secret sauce keeping demand alive and preventing a wave of forced sales.

Employment and Economic Sentiment: The Good News

Economic confidence is on the rise, and the labor market’s flexibility should cap unemployment at a peak of 4.7%.
Everyone loves a job, so expect a stable workforce to support the housing boom.

Mortgage Messiness: The Hidden Challenge

Last year’s interest rate hikes are still chilling the economy in full effect, which could trigger some home repossessions.
About 1.5 million families with fixed-rate mortgages will roll over to pricier rates this year—yes, that’s a real growth hiccup.

Consumer Spending Takes a Positive Turn

Revised GDP forecasts now predict consumer spending growth of 0.9% in 2024 (up from 0.7% earlier).
This boost comes from household incomes outpacing inflation and the tug-of-war ending on lower energy prices.

Martin Beck’s Take: Optimism Amid Caution

Chief Economic Advisor Martin Beck says:

“The UK might have slipped into a technical recession back in Q4 2023, but the mood around the economy is coming up for a major lift.”

High inflation and costly borrowing were the main roadblocks, but both are showing signs of easing.
There’s still a chance that geopolitical tensions could push energy prices higher, slowing inflation’s decline.
While the Bank of England is expected to cut rates this year, the timing and extent remain uncertain—keeping financial strain alive.