‘Multiple cuts’ as Bank of England ‘could slash base rate to 2.75%’ | Personal Finance | Finance

Millions of homeowners could be in line for a major boost as experts forecast dramatic interest rate cuts that could send borrowing costs tumbling.

Wall Street giant Morgan Stanley predicts the Bank of England will slash its base rate to 2.75% by next summer, in an aggressive attempt to shield Britain’s fragile economy from a looming global slump – fuelled in part by Donald Trump’s trade changes.

The rate currently stands at 4.5%, but economists believe five cuts are on the cards this year alone, starting with a likely quarter-point reduction next week. Further reductions are expected through the autumn, pushing the rate to 3.25% by the end of 2025.

In a stark warning, the bank added that if the international picture deteriorates further, rates could plunge even closer to 2%.

“The chance of a larger 50 basis point cut in June or August is quite elevated unless trade tensions are resolved,” said Bruna Skarica, an economist at Morgan Stanley.

She added that the Bank is expected to abandon its usual cautious tone to make way for faster and deeper cuts.

The prediction is echoed by Barclays, which expects four consecutive reductions beginning next week, taking the rate to 3.5% by September. Money markets have also priced in four cuts by the end of the year, pointing to a shift in sentiment among investors.

The cuts would mark the sharpest decline in borrowing costs since the 2008 financial crash, when rates plummeted from 4.5% to 0.5% in just six months.

And households are already seeing the benefit. Big lenders, including Barclays, HSBC and NatWest, have trimmed fixed mortgage rates by up to 0.25 percentage points. The cheapest two-year fix has now dropped to 3.79%, down from 4.22% in December – potentially saving borrowers over £500 a year on a typical £200,000 mortgage.

However, the silver lining for homeowners comes with a dark cloud: growing fears that the global economy could tip into recession.

Trump’s sweeping tariffs – including a 145% levy on Chinese goods and a blanket 10 per cent charge on all imports – have rattled markets and dented trade.

The IMF has slashed its UK growth forecast for 2025 from 1.6% to just 1.1%, while Britain’s independent watchdog warns a full-blown trade war could wipe out tens of billions from the economy.

“Trade does support growth… fragmenting the global economy would be bad for growth,” said Bank of England Governor Andrew Bailey, in a swipe at Trump’s protectionist stance.

Fellow policymaker Clare Lombardelli warned last month that tariffs have the potential to “depress” UK growth, underlining the urgent need for a domestic stimulus.

That pressure is pushing the Bank towards its fastest rate-cutting cycle in over a decade. A research note from Morgan Stanley urged the Bank to act fast, saying: “The sooner the Bank speeds up rate cuts, the better.”

Jack Meaning, chief UK economist at Barclays, added: “We expect the Bank to vote for cuts at each of its next four meetings.”

There is also mounting speculation that the Bank will downgrade both its growth and inflation forecasts alongside next Thursday’s decision, with inflation now expected to peak at 3.75%, far above the 2 per cent target.

Matt Swannell, economic adviser to the EY Item Club, said: “The Bank will want to show it’s ready to respond if the outlook deteriorates sharply.”

Despite the relief it offers for households, some analysts are warning that rate cuts are no magic bullet. Growth remains sluggish and government finances are under strain.