How far will interest rates fall?

This guide to interest rates is updated each week or as markets move. If you sign up to our Pulse alerts, you'll be the first to know when forecasts move.

We have written previously about the likely effects on your investments if interest rates fall - you can read that here. 

The Bank of England cut interest rates at the July 31 meeting of the Monetary Policy Committee (MPC). Members voted 5-4 to cut rates to 5% from 5.25%, the first cut in rates since April 2020.

A statement from the Bank accompanying the decision said: "Over the past couple of years we have raised interest rates to slow down price rises. It's working. Inflation has fallen a lot over the past 18 months. Inflation in the UK fell back to our 2% target in May and June. In part due to the fading impacts of global shocks like the war in Ukraine and Covid. In part due to higher interest rates.

"Inflationary pressures have now eased enough that we've been able to cut interest rates today. But this decision was finely balanced. The risks of higher inflation remain. We need to make sure inflation stays low. So we have to be careful not to cut interest rates too much or too quickly."

The Bank added that it expects inflation to rise again this year, to around 2.75%, before coming back down next year. 

The next central bank meeting is scheduled for 19 September followed by meetings on:

• 7 November
• 19 December
• 6 February (2025)

What are the latest forecasts?

The Bank will be wary of cutting rates too quickly and the concensus appears to be that just one more rate cut will follow this year. Lowering rates tends to increase demand in the economy which can feed through to higher prices. The Bank has been watching wage data closely because pay has been rising strongly, threatening to rekindle demand and higher inflation. 

Recent wages data (on 18 July) showed pay growing at 5.7% a year in the three months to May, down from 6% a month before. This remains a high level but the Bank appears optimistic that wage inflation will ease from here. 

How forward market interest rates have changed

The path ahead for interest rates, as implied by market prices, has been moving lower. The chart below shows the implied level of interest rates from the start of July, the end of July and then on 5 August. The implied rate in 18 months' time is now 4.2%. The Bank operates in quarter point changes so this rate is only indicative.  

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity's money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of  Fidelity’s advisers or an authorised financial adviser of your choice.