Self-directed investors expect the Bank of England to slash interest rates to 2.7% by summer 2026. That’s according to research from Charles Stanley Direct, part of Raymond James Wealth Management.
Following the Bank of England’s rate cut to 3.75% in December, reaching the 2.7% level would require four quarter-point cuts over the next six months. This does seem a little ambitious, but should it come to pass, it will certainly be bullish for UK stocks.
However, not all DIY investors share this optimism. Some 14% expect rates to settle between 3.1% and 3.5% by June 2026. One in ten anticipate rates remaining as high as 3.6% to 4.0%, suggesting concerns about the UK economy’s strength.
Inflation Outlook
A key driver of the expectation of lower interest rates is a fall in inflation. DIY investors also predict inflation will ease to 2.45% by June 2026, down sharply from the current 3.6%. Again, this does seem optimistic. It is, however, an interesting insight into retail investor thinking.
Just 7% believe inflation will persist at current levels. Around one in seven (15%) expect it to fall to between 2.1% and 2.5%. More optimistic investors, some 12%, anticipate inflation dropping to 1.6%-2.0%, below the government’s 2% target.
Overall, 36% of DIY investors expect inflation to reach the official target of 2% or lower within six months.
“The nation has been on quite a journey with both interest rates and inflation figures in the past few years, especially with rising costs for businesses driving higher prices paired with sluggish GDP figures,” said Rob Morgan, Chief Investment Analyst at Charles Stanley Direct.
“A rate cut from the BoE is widely anticipated and will bring a much-needed boost to the economy, as well as relief for DIY investors grappling with difficult conditions. While this could spell good news, investors must remember that investing is for the long-term; investment strategies should be built on the premise that a certain level of risk is always involved, and nobody has a crystal ball. Making decisions which are overly optimistic could result in bad outcomes – in this, professional advice can prove invaluable.”
Morgan offered some tips for investors to deal with interest rate fluctuations and changes in expectations, including diversification and a long time horizon.