A cut to interest rates in February is now a “sure bet” after the economy grew by less than expected in data released on Thursday, experts have said.
The Office for National Statistics (ONS) estimated the UK economy grew in November by 0.1 per cent but most economists were expecting gross domestic product (GDP) to rebound by 0.2 per cent.
Inflation figures for the year to December also came in lower than predicted at 2.5 per cent on Wednesday.
Experts have said the two factors combined make an interest rate cut by the Bank of England a near certainty at the start of February.
“The combination of weaker-than-expected inflation and economic growth means an interest rate cut in February is now a sure bet”, said Thomas Pugh, an economist at RSM UK.
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Read MoreThe Bank’s primary target is to get inflation to 2 per cent, and so lower inflation makes a rate cut – from the current level of 4.75 per cent – more likely, but the state of the economy can also play a part in the decision.
Higher interest rates can weigh down on an economy because they mean people generally have less money to spend, as borrowing costs are more expensive.
So the bank’s Monetary Policy Committee (MPC) can cut rates to stimulate spending and economic activity.
“The MPC will now certainly cut rates in February,” said Robert Wood of Pantheon Macroeconomics.
“Together with December’s softer-than-expected CPI inflation print, today’s release revealed that the economy continued to have little momentum towards the end of last year, leaving us content with our view that the Bank will cut interest rates to 4.5 per cent in February,” said Ashley Webb of Capital Economics.
Yael Selfin, chief economist at KPMG UK, is expecting three cuts this year – in February, May and November.
She said: “We expect the MPC to continue easing policy over 2025, taking base rates down to 4 per cent by the end of the year.”
The economy figures, released by the ONS, come after a difficult past couple of weeks for the Chancellor Rachel Reeves, after government borrowing costs surged and the value of the pound slumped amid worries over the economy and UK debt levels.
Despite the slight rise in Thursday’s data, there are mounting fears the economy is heading for a period of so-called stagflation, where there is little or no economic growth combined with persistent inflation.
While figures on Wednesday showed inflation edging back to 2.5 per cent last month from 2.6 per cent in November, some economists believe it will rise above 3 per cent later this year.
The November GDP figures take in the period after Ms Reeves’ first Budget on 30 October, which saw her announce £40bn of tax rises including a hike in employers’ national insurance.
An interest rate cut at the next MPC meeting on 6 February would be good news for Reeves, as it would cut some people’s mortgage rates.
Those on standard variable and tracker deals would see their costs drop immediately.
Those on fixed deals would not see an immediate price change, but those coming to renew deals might get lower prices than otherwise if the drop in interest rates affected swap rates.
But some mortgage experts have warned that rates aren’t certain to fall even if interest rates do.
David Hollingworth of brokers L&C told The i Paper: “There’s no room for cuts below 4 per cent at the moment and I think that it’s currently more likely that we will see more rates stabilise or even continue to edge very slightly higher as the market adjusts to the volatility.
“That could change over time but too early to expect a return of sub-4 per cent rates in the current climate.”
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