Bank of England Expected to Hold Rates Steady Through 2024, Rabobank Says

Rabobank has forecast that the Bank of England will maintain its current interest rate level for the remainder of 2024, according to a recent analysis. The Dutch financial institution expects no change in the base rate, which currently stands at 5.25%, as the central bank navigates a delicate balance between persistent inflationary pressures and a slowing economy.

Why Rabobank Expects a Hold

Rabobank’s projection is based on the view that UK inflation, while having fallen from its peak of 11.1% in October 2022, remains above the Bank of England’s 2% target. Services inflation and wage growth, key domestic drivers of price pressures, are proving stickier than initially anticipated. The bank argues that the Monetary Policy Committee will require more sustained evidence that inflation is firmly under control before considering any rate cuts.

At the same time, the UK economy is showing signs of stagnation. GDP growth has been minimal, and business investment remains cautious. Rabobank’s analysts suggest that this weak economic backdrop will prevent the MPC from raising rates further, but not yet justify a loosening of policy. The result is a prolonged period of steady rates, likely extending through the end of the year.

Market Implications and GBP Outlook

For currency markets, a steady Bank of England policy could have mixed implications for the British pound. If the Federal Reserve and the European Central Bank begin cutting rates before the BoE, the relative interest rate differential could support the pound. However, if the UK economy underperforms more sharply than its peers, the pound may face headwinds regardless of rate decisions.

Rabobank’s analysis aligns with a broader consensus among economists that the first BoE rate cut is unlikely before the second quarter of 2025. Markets have already priced in a high probability of no change at the next several meetings, reducing the potential for major volatility in sterling or UK bond yields from the policy decision itself.

What This Means for Borrowers and Savers

For UK households, a steady base rate offers some predictability. Mortgage holders on fixed-rate deals will not face immediate changes, but those on variable-rate or tracker mortgages will continue to see elevated payments. Savers may benefit from continued competitive rates on fixed-term savings accounts, though easy-access rates could begin to edge lower if the market anticipates future cuts.

Businesses, particularly in sectors sensitive to borrowing costs like real estate and construction, will likely remain cautious. The extended period of high rates continues to weigh on investment decisions and consumer confidence.

Conclusion

Rabobank’s forecast of no Bank of England rate change in 2024 reflects a central bank in wait-and-see mode. With inflation still above target and the economy barely growing, the MPC is expected to hold its course. The key question for markets and the public remains when, not if, the BoE will begin to cut rates — a decision that likely rests on data in early 2025.

FAQs

Q1: Why does Rabobank expect no rate change from the Bank of England in 2024?
A1: Rabobank believes UK inflation, especially services inflation and wage growth, remains too high for the BoE to cut rates, while weak economic growth prevents further hikes. This creates a scenario where the base rate stays at 5.25% through the end of the year.

Q2: When is the first Bank of England rate cut expected?
A2: Most economists, including Rabobank, expect the first rate cut in the second quarter of 2025 at the earliest, contingent on inflation falling sustainably to the 2% target.

Q3: How would a steady BoE rate affect the British pound?
A3: If other central banks cut rates before the BoE, the pound could strengthen due to higher relative yields. However, if the UK economy weakens significantly, sterling could still decline regardless of the rate decision.