Tag: Internation Monetary Fund

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IMF recommends UK interest rates should be cut to 3.5% by end of 2025

UK Charts

The International Monetary Fund (IMF) advises that the Bank of England should contemplate reducing its interest rates to 3.5% by the end of 2025.

This suggestion is made as the UK’s economy steadily recovers from the recession caused by the pandemic, while policymakers are dealing with inflationary challenges.

The ‘thinking’ behind the recommendation

Economic Recovery and Inflation Outlook

The IMF’s recommendation is grounded in its assessment of the UK’s economic trajectory.

Growth Forecast

The International Monetary Fund has upgraded its growth forecast for the UK in 2024, signaling a positive outlook. It anticipates growth of 0.7% this year and 1.5% in 2025.

Inflation

The IMF anticipates that UK inflation will decline to near the Bank of England’s target of 2% and stabilise at this rate in early 2025, indicating that inflationary pressures are within manageable limits.

Soft Landing

The UK economy is said to be approaching a ‘soft landing‘ following the mild recession of the previous year. Policymakers are focused on finding a balance between fostering growth and managing inflation.

Monetary Policy Considerations

The Bank of England’s Monetary Policy Committee (MPC) has been closely monitoring economic indicators and inflation trends. Here’s why the IMF’s recommendation matters:

Interest Rate Peaks

The Monetary Policy Committee has indicated that interest rates might have reached their peak. The current restrictive monetary policy is having an impact on the actual economy and the dynamics of inflation.

Market Expectations

Analysts anticipate the first interest rate cut by September 2024 at the latest. Market expectations align with this projection, with the base interest rate likely to be lowered to 4% by the end of 2025.

Balancing Act

Policymakers face the delicate task of supporting economic recovery while preventing runaway inflation. The IMF’s suggestion aims to strike this balance.

Implications for Borrowers and Savers

Mortgage Holders

Variable Rate Mortgages

If you have a variable rate mortgage, a rate cut could reduce your monthly payments. However, keep an eye on your lender’s response to any rate changes.

Fixed Rate Mortgages

Fixed-rate borrowers won’t immediately benefit from rate cuts, but they should still monitor the situation. If rates continue to fall, refinancing might become attractive.

Savers

Savings Accounts

Lower interest rates typically lead to diminished returns on savings accounts. It may be wise to diversify your investments to seek potentially higher yields in other areas.

Fixed-Term Deposit

Current fixed-term deposits will remain unaffected; however, new deposits might generate lower yields. It is advisable to carefully assess your alternatives.

Conclusion

The IMF’s recommendation highlights the intricate balance between fostering economic recovery and managing inflation. As the Bank of England considers its next steps, it is crucial for borrowers and savers to remain informed and adjust their financial strategies as needed.

For homeowners, investors, and savers alike, grasping the potential consequences of rate cuts is key to making well-informed choices in an ever-changing economic environment.

Disclaimer: The information provided here is based on current projections and should not be considered financial advice. It is not given as financial advice – it is for discussion and analysis only!

Consult a professional advisor for personalised recommendations.

Remember – always do your careful research first!

RESEARCH! RESEARCH! RESEARCH!

Update

The Bank of England has given its strongest hint yet that interest rates could be cut this summer. This comment was observed in a recent speech given by the deputy governor of the Bank of England.

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IMF says now is the time for central bank digital currencies

Central Bank digital money to replace cash

IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

But according to data from the Atlantic Council, only 11 countries have adopted CDBC’s thus far.

Alternative to cash

Central bank digital currencies (CBDC’s) have the potential to replace cash. But adoption could take time, said Kristalina Georgieva, managing director of the International Monetary Fund on Wednesday 15th November 2023.

‘CBDC’s can replace cash which is costly to distribute”, she is reported to have said at the Singapore FinTech event. ‘They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts’.

‘CBDC’s would offer a safe and low-cost alternative to cash. They would also offer a bridge between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks’, the IMF chief reportedly said.

Fiat currency

CBDC’s are the digital form of a country’s fiat currency, which are regulated by the country’s central bank. They are powered by blockchain technology, allowing central banks to channel government payments directly to households.

Central Bank digital money to replace cash. IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

The IMF has indicated that more than 100 countries are exploring CBDC’s – that’s approximately 60% of countries in the world.

‘The level of global interest in CBDCs is unprecedented. Several central banks have already launched pilots or even issued a CBDC’, the IMF said in a September 2023 report.

According to a 2022 survey conducted by the Bank for International Settlements, of the 86 central banks surveyed, 93% said they were exploring CBDCs, while 58% said they were likely to or may possibly issue a retail CBDC in either the short or medium term.

But as of June 2023, only 11 countries had adopted CBDC’s, with an additional 53 in advanced planning stages and 46 researching, according to data from the Atlantic Council.

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IMF and UK interest and inflation fears

6% UK interest rate IMFprediction

The International Monetary Fund (IMF) is an international organization that monitors the health of the global economy and provides financial assistance to countries in need.

UK interest rate warning from the IMF

  • The IMF has warned that the UK faces another five years of high interest rates to stem rising prices, which have been falling but remain stubbornly above target.
  • The IMF expects the UK to have the highest inflation and slowest growth next year of any G7 economies, which includes the US, France, Germany, Canada, Italy and Japan.
  • The IMF says the UK’s immediate prospects are being weighed down by the need to keep interest rates high to control inflation, which is partly caused by the terms-of-trade shock from high energy prices, the aftereffects of the global pandemic, Brexit fallout and the Russia/Ukraine war.

Peak at 6%!

The IMF believes Bank of England rates will peak at 6% and stay around 5% until 2028. Rates are currently 5.25%.