Interest rate path is tricky to navigate in tougher economy

Let’s start with the simple bit: interest rates have been cut – down by another quarter percentage point to 4.5%. But what happens next?

Not long ago, the answer was quite simple: the Bank of England would carry on cutting borrowing costs, one quarter point cut every three months, until they reached, say, 3.5%.

That, at least, was the expectation this time last year.

Money latest: First-time buyers warned over auctions

But things have become more complex, more unpredictable in recent months.

Instead there are two paths ahead of us. One of them, let’s call it the high road, sees those borrowing costs being cut only gradually, down to 4% in a couple of years’ time.

Down the other road, the low road, the outlook is quite different: rates will be cut faster and more. They go down below 4%, perhaps as low as 3.5%, perhaps even lower.

The funny thing about today’s splurge of information and forecasts from the Bank of England is that it’s not entirely clear whether we’re on the high road or the low road anymore.

Now, strictly speaking, the forecasts and fan charts produced by the Bank’s staff tend towards the former, more conservative view – the two cuts.

But then look at the voting patterns on the monetary policy committee (MPC), where two members, Swati Dhingra and Catherine Mann just voted for a full half percentage point cut, and you’re left with a different impression. That rates will go lower, and quickly.