Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more

Where next for interest rates?

Triodos Investment Management, the fund management arm of Triodos Bank, has been active in the sustainable investment sector for over 30 years. As pioneers in impact investing, the team holds expertise in using money to drive the transition to a more sustainable world, alongside in-depth knowledge of macroeconomic conditions. Adam Robbins, Investor Relations Manager, shares his view on the current market and where interest rates will go from here.  


 - 9 December 2022

Hindsight is a wonderful thing. It seems scarcely believable that it was only last year that banks were preparing for the possibility of negative interest rates, as our economy struggled to get back on its feet in the aftermath of the Covid-19 pandemic. However, in the last 12 months, the Bank of England (BoE) base rate has increased to 3%, in a bid to curb soaring inflation. Many savers and investors will be wondering where interest rates could go from here.  

During its latest policy meeting in November, the BoE raised its policy interest rate by 0.75% to 3%. This was the largest increase in 30 years, signalling that the BoE remains deeply concerned about the continuing surge in inflation. However, BoE governor Andrew Bailey also signalled that the rate is likely to go up by less than financial markets have priced in, because the UK is set for a prolonged recession. On top of that, the central bank said that its forecasts did not account for the Government’s latest plans for saving £50 billion, through spending cuts and tax rises, which would have the effect of putting downward pressure on prices due to reducing demand.  

October’s inflation figures supported the BoE’s choice for another aggressive rate hike, as the annual rise in inflation reached a new 40-year high of 11.1%. We expect UK inflation to remain elevated for a prolonged period, although this will be driven mainly by higher wage growth going forward.  

We expect the recession in the UK, which has already started in Q3, to continue until the fourth quarter of 2023. 

Currently, markets are pricing in another 1.5% of interest rate hikes. We think this is too excessive given the gloomy economic outlook. We do however expect rises of a more modest 1%-point, with a 0.5%-point hike in December and two 0.25%-point hikes in Q1 2023, with the base rate peaking at 4.0%. We expect that the BoE will increasingly focus on slowing economic activity and potentially rising unemployment, which should mean rates don’t rise any further for the rest of 2023.  

So, in summary, it’s fair to say we don’t expect 2023 to be a repeat of 2022. Interest rates will rise further, and remain elevated, but we don’t expect such large and sudden increases as we saw in 2022.  

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Whitni Thomas, Head of Corporate Finance at Triodos Bank UK, explains what the changing interest rate environment means for investment offers on the Triodos Crowdfunding platform:  

“When we work with organisations seeking to raise capital, we advise on what terms we think are appropriate, balancing a fair return to investors for the risk with what is affordable for the company. As inflation has soared over the last 12 months, investors are currently expecting higher rates of financial return on their investment. With this significant rise in borrowing costs, many SMEs and charities are choosing to pause expansion plans given the adverse impact on the financial viability of their plans. Based on the current outlook, we expect the interest rate for investment offers on the platform to be higher in 2023 than they were in 2022, but given our impact-led approach not as sharp a rise as it has been for the BoE base rate.”