Barclays predicts four interest rate decreases in UK and discloses its most pessimistic tariff outlook
Barclays expects four more Bank of England interest rate cuts, responding to a 'gradually slowing' economy. In its new 'baseline scenario,' Barclays predicts three cuts in 2025, one more in 2026, and a lowered base rate to 3.5% by the end of 2026.
The financial giant anticipates the UK economy to grow by a lackluster 1% in 2023, followed by 1.4% growth over the next four years. Barclays states that 'gradual slowing' of the economy is observed compared to consensus at FY2024, despite ongoing restrictive monetary policy.
But caution is looming. Barclays voiced concerns about its 'downside' scenarios, worrying over Trump's 'liberation day' tariffs causing concerns for the global economy's health. Under these pessimistic assumptions, the UK economy may shrink 1.3% in 2023 and contract by 2.8% in 2026.
Barclays reported a 19% increase in pre-tax profits to £2.72 billion for the first quarter ending March 31. The bank also increased loan loss provisions to £643 million, with £74 million set aside for U.S. macroeconomic uncertainty.
Under the worst-case 'downside' forecasts, the economic slowdown could lead to an unemployment rate of 8.4% in the UK and 7.5% in the U.S. Barclays keeps a close watch on the mounting uncertainty in the near-term macroeconomic outlook, particularly in the U.S.
Barclays shares rose 1.64% in early trading to 302.9p, having grown 48% over the past year. From a Bank of England rate cut standpoint, lower interest rates could help lower mortgage rates, making home ownership more affordable and potentially boosting housing activity. However, the looming trade tensions sparked by Trump's tariffs could cause increased competition, intensifying pressure on domestic producers and potentially suppressing wage growth.
Sources:1: The Economic Times2: Hargreaves Lansdown
- Barclays, in response to a seemingly gradually slowing UK economy, anticipates four more Bank of England interest rate cuts, as outlined in their 'baseline scenario', expecting three cuts in 2025, one more in 2026, and a lowered base rate to 3.5% by the end of 2026.
- Despite Barclays' predictions for UK economy growth of only 1% in 2023, followed by 1.4% growth over the next four years, the banking giant states that this growth is observed to be slower compared to consensus at FY2024, despite the ongoing restrictive monetary policy.
- In an attempt to mitigate potential risks and uncertainties, Barclays has set aside £74 million for U.S. macroeconomic uncertainty in its recent financial quarter, among other provisions.
- In the event of the worst-case 'downside' forecasts, the economic slowdown could potentially lead to an unemployment rate of 8.4% in the UK and 7.5% in the U.S., according to Barclays.
- While lower interest rates, stemming from Bank of England rate cuts, could help reduce mortgage rates and make home ownership more affordable, they could also lead to increased competition, intensifying pressure on domestic producers and potentially suppressing wage growth, as suggested by Barclays' analysis.
