Base rate will fall to 2.75% in 2026, according to respected financial expert

In what could provide a huge boost to the housing market, Swiss private banking and wealth management firm Lombard Odier has forecasted that the Bank of England will slash the base rate to 2.75% by the end of 2026.

The firm says the forecast is based on a sharp deterioration in the labour market, with rising unemployment and falling vacancies expected to reduce wage pressure and ease services inflation, bringing the Bank closer to its 2% inflation target.

Weak employment

Bill Papadakis (pictured), Senior Macro Strategist at Lombard Odier, has told The Telegraph that policymakers will be forced to respond as employment conditions weaken, noting that wage growth has already slowed “meaningfully” alongside a decline in job vacancies.

Official figures show unemployment was above 5% in the three months to October, while private sector pay growth slowed to 3.9% over the same period. In addition, although vacancies are slightly higher in the latest data, they remain well below both their 2022 peak and their pre-pandemic levels.

The market has taken a similar view.”

According to Lombard, “The market has taken a similar view.” They are, though, expecting a shallower easing cycle. Capital Economics has forecast the Bank Rate to fall to around 3%, Deutsche Bank is forecasting two further cuts, taking rates to 3.25% in March and June, whilst Pantheon Macroeconomics has warned there is little reason for the Bank to accelerate cuts, citing inflation risks linked to Budget measures.

If the rate did come down to 2.75%, it would provide a major boost to the housing market. Not only would it substantially reduce the cost of financing a new home, it would also provide greater confidence in the future direction of both the base rate and the housing market.

Source: The Negotiator