Bank of England will cut interest rates five times in 2025 - Forecast Wall Street Banks.

The Bank of England’s (BOE) Monitory Policy Committee will meet for the first time this year on Thursday, February 6th next week. The committee will meet for the first time since its last meeting on December 19th, when it chose to keep interest rates on hold. However, this time, it is different; most analysts predict that the Bank will lower its base rate by 0.25% next week. This is largely attributed to inflation dropping to 2.5% in December, with core service inflation—which excludes volatile items like energy and fuel—declining from 5% to 4.4%, creating room for the Bank of England to consider an interest rate cut on February 6th. The Bank will likely cut its base rate by 0.25% next Thursday, but what about the rest of the year? 

How many Base Rate cuts can you expect in 2025? 

In its latest forecast this week, Morgan Stanley said that it expects the BOE to lower its base rate five times, bringing the base rate to 3.5% by the end of this year. The base rate currently stands at 4.75%. Goldman Sachs, another Wall Street Bank, forecast that the BOE will cut its base rate six times, bringing it to 3.25% by the middle of next year, and economists polled by Reuters forecast that the BOE will cut interest rates four times this year, bringing the base rate to 3.75% by the end of the year. All these forecasts show the lack of economic growth in the UK economy for 2025 as the primary reason that the BOE will be forced to be more aggressive in cutting its base rate. 

But here is the problem for the Bank - High Inflation, Rising Unemployment and a Stagnant Economy: 

The Chancellor of the Exchequer, Racheal Reeves, said this week that “Britain can learn from Trumps positivity to increase economic growth”. Her remarks came as the jobs data from the ONS (Office for National Statistics) showed that companies are cutting jobs at their fastest pace since the global financial crisis, barring the pandemic, following the £40billion of tax rises in Labour’s first budget in October.

This is where the problem lies for the BOE; the primary function of the BOE is to control inflation and support economic growth and employment. All of which has been threatened by the Labour Party’s first budget in office. The £25 billion National Insurance increase will likely fuel inflation as businesses pass on the costs to consumers, balancing this with job cuts to ensure they can afford the huge tax rises. This will likely result in slower growth, as businesses aim to reduce costs rather than increase investment

Unemployment rate rising:

Data from ONS shows that unemployment increased from 3.8% in December 2023 to 4.4% in December 2024, with the number of payrolled employees estimated to have dropped by 47,000 during December to 30.3 million — the biggest fall since November 2020.

This is already a sign of what is to come because of higher taxes on business. Confederation of Business Industry (CBI) has warned that businesses are already planning job cuts and raising prices further. Sainsbury announced that it was cutting 3,000 jobs, saying that the rise in National Insurance would cost it £140 million. 

Economic growth stagnant:

UK’s economy flat-lined in the July-September quarter of last year, and the Central Bank estimates zero growth in the last three months of 2024. This means that the UK economy was broadly flat last year with no growth. Forecasts for this year are not too optimistic either, with most forecasts for growth being under 1% and the most optimistic being 2% by Office for Budget Responsibility (OBR) 

The lack of growth in the UK economy will be of growing concern at the BOE. With unemployment and inflation likely to rise, economic growth remains broadly stagnant. Business confidence has plunged to historic lows, taxes are at their highest since World War II, and disposable incomes continue to shrink. Amid this challenging backdrop, questions loom over where future growth in the UK economy will come from and whether monetary easing can help kickstart a stagnant economy.

This is precisely why Morgan Stanley and Goldman Sachs forecast more aggressive base rate cuts from the Bank of England. They argue that the Bank will be forced to prioritise economic growth over inflation, prompting policymakers to lower borrowing costs. I share their assessment, as there are few remaining options to stimulate growth without triggering market instability. With the economy under pressure, targeted rate cuts may be the only viable tool to support recovery while maintaining investor confidence.