What will happen to interest rates once they peak?

As the battle of the economic forecasts rages on, it’s useful to note that (right now, anyway), the predictions aren’t all that different. The more optimistic scenarios, like the one published by EY ITEM Club today, suggest the UK will see minuscule growth this year but avoid technical recession. The pessimistic scenarios, like the IMF’s latest forecast, are being revised upwards but still show the UK economy experiencing a short and shallow contraction. 

The good and bad scenarios are, therefore, both largely within the margin of error –  and all are pretty lousy at that (albeit better than previously expected). Regardless of which proves right, this is shaping up to be another difficult year for economic growth: one that leaves us all feeling a bit worse off.

Perhaps the more disputed question, then, is another raised by EY today: what might happen to interest rates once they peak? 

There is growing speculation that the Bank of England, which predicts the rate of inflation will fall below 4 per cent by the end of the year, might start bringing the base rate down as soon as it thinks it has the scope to do so.