The governor of the Bank of England has predicted that interest rates will fall “gradually”. In an interview with KentOnline, just published, Andrew Bailey said that “inflation has come down a long way” – it was 2.2% in August, just above the BoE’s target, having fallen from over 11% in autumn 2022. Last week, the Bank left interest rates on hold at 5% – but Bailey says he is “very encouraged” that inflation will fall, leading to lower borrowing costs. He says:“We still have to get it sustainably at the target and we have quite an unbalanced mix of components of inflation at the moment. But I’m very encouraged that the path is downwards therefore I do think the path for interest rates will be downwards, gradually.” Bailey also cautions that interest rates are unlikely to fall back to the record low (just 0.1%) we saw in the Covid-19 pandemic, before the inflation shock of the Ukraine war. He told KentOnline:“Where it will settle is a good question. Simple answer is I can’t tell you with any great accuracy. What I would say is ‘will we go back to the very low near zero interest rates that we had until not that long ago’? “My answer is I would not expect that because what caused interest rates to go that way it was, amongst other things, two very big shocks to the economy." The financial markets predict UK interest rates could fall to 4.5% by the end of this year, and to 3.5% or lower by the end of 2025. Meanwhile, China’s central bank has launched a blitz of stimulus measures to support its economy, as policymakers strive to hit Beijing’s growth targets. Faced with a spluttering economy. the People’s Bank of China has pulled out its bazooka. First, it is cutting the amount of cash banks must hold on their books (known as the reserve requirements ratio) by half a percentage point (50 basis points). That should free up more money to be lent to customers. Second, it is lowering several key interest rates. The seven-day repo rate, PBoC’s new benchmark, by 0.2 percentage points to 1.5%. The interest rate on the medium-term lending facility will drop by about 30 basis points, and loan prime rates by 20-25 bps. Third, there’s more support for the property market. PBoC says it will encourage commercial banks to lower existing mortgage interest rates, which will cut costs for both current and new borrowers. It is also lowering the down-payment requirements for both first and second homes – to help people get onto the property ladder, and keep sales moving. The agenda • 9am BST: IFO survey of German business confidence • 2pm BST: Case-Shiller index of US house prices for July • 3pm BST: US consumer confidence report for August We’ll be tracking all the main events throughout the day ...
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