Rates to rise to 5% to offset loose fiscal plans and low pound

In response to the government’s loose fiscal plans and the resulting weakening in the pound, we now think that interest rates will rise from 2.25% now to a peak of 5.00% (4.00% previously). Rates at those levels make the housing market look very vulnerable. That’s one reason why we doubt interest rates will rise to the peak of 6.00% priced into the market, although it could also mean that the Bank of England pivots to interest rate cuts before our current forecast of sometime in 2024.