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Interest rates likely to come down in 2024: Here’s why it matters for investors

Karl 21st Mar 2024 No Comments

Reading Time: 5 minutes

While the Bank of England recently voted to keep interest rates at 5.25%, there are signs cuts may be coming later this year.

In this article we’re going to explore how soon interest rates are likely to fall and take a look at the likely impact of lower rates on investors.

Click on a link to head straight to a specific section, or scroll down for all of the details…

What is happening with interest rates?

On Thursday 21 March 2024, the Bank of England’s Monetary Policy Committee(MPC) voted to keep interest rates at 5.25%.

The decision to freeze interest rates was unsurprising, as markets had fully expected the central bank to hold rates at 5.25%.

The last time the UK saw a change in interest rates was in August last year after they were hiked from 5%.

And if you were wondering, the last time rates were cut was back in March 2020. This is when the Bank of England decided to slash interest rates to a rock-bottom 0.1% following the outbreak of Covid-19.

Why is an interest rate cut looking likely?

The UK hasn’t seen a cut in interest rates for over 4 years now and since the last cut, the Bank of England has raised rates on no fewer than 14 occasions.

However, there are now signs we’re likely to see a rate cut (or two) later this year. Here are 5 reasons why…

1. Rates have almost certainly peaked

Take a deeper dive into the Bank of England’s latest decision to hold interest rates and you’ll notice that the tide is seemingly turning with regards to the Bank’s attitude towards lower rates. That’s because on 21 March, no MPC member voted for a rate hike, whereas two members voted for one during the Bank’s previous meeting in February.

What this all means is that it’s now looking increasingly likely those MPC members voting against hikes will soon propose cuts.

2. The BoE Governor is talking up rate cuts

Like him or loathe him, Bank of England Governor, Andrew Bailey, is starting to speak positively about interest rate cuts. Following the MPC’s latest meeting Bailey commented: “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction”.

This latest quote is a far cry from Bailey’s tone after previous MPC meetings, where the 64-year old played down any suggestion of cuts. 

3. Investors are already pricing in cuts

Many investors now believe the BoE will cut rates in the third quarter of the year, potentially as early as June. This is down to a collectible belief that the global inflation monster has been defeated.

According to Reuters, investors now think there’s a 76% chance of a first cut in June, with a 75 basis points reduction ‘fully priced in’ by December. As we know, while inflation is still high, the latest Consumer Price Index suggests inflation fell to 3.4% in the 12 months to February 2024, down from 4% in January.

4. One country has already cut rates

Switzerland’s National Bank cut interest rates by 25 basis points to 1.5% on 21 March.

It can be argued that the decision suggests we’re on the cusp of seeing looser monetary policy across the European Continent, amid increasing confidence that the global inflation wave is easing.

5. ….and the US is signalling it may soon follow

While the Federal Reserve also kept rates unchanged on Thursday, the U.S. central bank announced it was on track for three interest rate cuts in 2024. Usually, the actions of the Federal Reserve has a massive influence on the Bank of England, so this is another reason why a rate cut is looking increasingly likely in the UK.

bank of england

What do lower interest rates mean for investors?

Given a cut in interest rates is looking increasingly likely during the latter half of 2024, what does this all mean for investors? From the impact on equities, house prices, to bonds, let’s take a closer look…

The impact of lower rates on equities

Lower interest rates means it becomes cheaper for businesses to borrow money. This is important as lower borrowing costs essentially reduces the risk of loaning cash for things like investing in new projects, expanding operations, and/or employing new staff.

In contrast, when interest rates rise, so does the risk of borrowing money for the purposes of growing the business. The reduced risk of borrowing money is a big reason why lower interest rates can be a boon for equities.

House prices

Lower interest rates leads to cheaper mortgage rates. Yet this is not necessarily good news for first time buyers. Because many wannabe homeowners will seek to ‘borrow the the max’, cheaper mortgage rates often adds fuel to the fire with regards to rising house prices.

While higher house prices may be desirable if you’ve a a few properties under your name, or you invest in REITs, it’s understandably a double-sided coin.


The price of gold typically decreases when interest rates go down. The reason for this is because lower interest rates can increase the attractiveness of equities (see above). This is why some investors will choose to dump gold in the midst of falling interest rates.

Despite this however, this rule isn’t set in stone. Inflation expectations also play a key role in the price of gold. For example, if there were concerns surrounding the direction of inflation, it’s likely there would be an upward pressure on the price of gold, regardless of interest rates.

The bond market

When interest rates decrease, the value of existing bonds typically increases. That’s because newer bonds will be issued with lower yields. To learn more about this see our article that describes the relationship between bond prices and yields.

In other words, when interest rates go down, existing higher-yield bonds become more attractive to investors. This is why when interest rates fall, it’s generally good news for holders of bonds.

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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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