Interest rates ‘will fall to 2.75pc’ amid unemployment crisis

Core Viewpoint - The Bank of England is expected to reduce interest rates to 2.75%, the lowest in over three years, in response to a worsening unemployment crisis in Britain [1][2]. Economic Impact - A reduction in interest rates would benefit homeowners and businesses by enabling more borrowing for investment, driven by a decline in job vacancies and a rising unemployment rate [2]. - The unemployment rate has exceeded 5% in the three months leading to October, indicating a deteriorating jobs market [2][3]. Wage and Vacancy Trends - Private sector pay growth has decreased to 3.9% in the three months to October, marking the lowest level since early 2021 [3]. - Job vacancies have slightly increased to 729,000 in the three months to November, but this is significantly lower than the peak of 1.3 million observed between March and May 2022 [3]. Future Projections - The anticipated Bank Rate of 2.75% is considered close to "neutral," which would support economic growth without exacerbating inflation [4]. - Despite expectations for rate cuts, money markets suggest the Bank of England may only lower rates to 3.5% by mid-2024, indicating a more cautious approach [5]. Budget Considerations - The Chancellor's measures in the 2025 Budget, including fuel duty increases, are expected to slightly raise inflation in 2027 and 2028, potentially complicating the economic landscape [6].