Inflation in the UK is forecast to end the year closer to 3%, according to a figure from the Bank of England (BoE), who also confirmed an interest rate cut is expected in November.

The BoE’s agent for Greater London, Rob Elder, acknowledged that while inflation had hit the central bank’s 2% target earlier this year, and currently still sits just above it at 2.2%, recently rising utility bills will see the headline inflation figure “creep back up again” in the final months of 2024.

Speaking at the Mortgage Business Expo in London yesterday (10 October), Elder told a room of mortgage industry professionals that the economy is “crawling out” of a recession, but service price inflation remains too high as a result of “higher than normal” wage growth.

“We’re very close to inflation settling sustainably at 2%, but we’re being very cautious,” he said.

Elder still reaffirmed expectations from the mortgage industry that an interest rate cut will happen in November.

He highlighted that the BoE’s Governor, Andrew Bailey, had recently stated that if the central bank received good news on inflation then “interest rates can come down more quickly”.

In August, the BoE announced its first cut to interest rates since the onset of the COVID pandemic in March 2020, bringing its base rate down to 5%. At its last meeting in September, the central bank’s Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain the base rate at 5%.

However, when the room was asked whether anyone was expecting interest rates to be cut by more than 0.25 percentage points before the end of the year, not a single person in the audience raised their hand.

“We know the policy is restrictive and that we would like to get interest rates down more,” Elder said.

“We think that rates will be coming down over the next year or two, but we can’t take them straight down to normal yet because underlying inflation is still higher than it needs to be.”

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