According to the IMF, interest rates will likely drop to pre-Covid levels

Due to poor productivity and ageing populations, interest rates in major economies are predicted to drop to pre-pandemic levels.

Increases in borrowing costs are anticipated to be “temporary,” according to the International Monetary Fund (IMF), once excessive inflation is brought under control.

Since December 2021, the Bank of England has gradually increased interest rates, bringing them from 0.1% to 4.25%.

As a result, many homeowners now have higher mortgage payments.

In order to slow the rate of price increases, sometimes known as inflation, central banks in the US, the UK, Europe, and other countries have raised interest rates.

The UK’s inflation rate has reached its highest level in almost 40 years as a result of rising energy and food prices. Inflation is being fueled by a number of factors, including the invasion of Ukraine by Russia, which has increased energy prices.

The IMF, however, stated that “recent increases in real interest rates are likely to be temporary” in a blog post.

The statement said, “When inflation is brought under control, central banks of advanced economies are likely to ease monetary policy and bring real interest rates back to pre-pandemic levels.”

However, the precise date that interest rates will return to lower levels was not provided by the IMF.

The banking company based in Washington claimed that one factor that will probably cut inflation would be an older population.

George Godber, a portfolio manager at Polar Capital, explained that elderly individuals have an impact on inflation since they often spend less.

In his words, “The amount that you spend relative to your income is highest when you’re in your 20s, 30s, and 40s – often that’s maybe young families, when you’ve got households forming, you’ve got couples coming together, they tend to spend the most when they decorate and buy a car or whatever, and you as you get older in life you slow down your consumption.”

Because fewer people are going to Glastonbury and having evenings out, more people are staying in and watching Antiques Roadshow. As a result, spending habits tend to change and more people conserve money.

The Bank of England governor, Andrew Bailey, recently stated that the percentage of adults in the UK between the ages of 20 and 59 has decreased to below 65% over the past ten years and “is set to decline further in the coming years.”

In addition to individuals living longer, he claimed that this has been caused by a fall in birth rates.

Low productivity, which is a measure of how many goods and services are created, would lower inflation, according to the IMF.

In a speech last month, Mr. Bailey claimed that the UK’s industrial sector had increased productivity before the financial crisis of 2008 hit.

“However, manufacturing productivity growth dramatically slowed down after the financial crisis. The fundamental reason behind the slowdown, according to him, is this decline in manufacturing productivity.

The UK’s interest rate was 0.75% just before the Covid epidemic, but the Bank of England reduced it twice to 0.1% in March 2020 as the nation went into lockdown.

Over the previous two years, inflation has increased gradually and reached 10.4% in February, which is more than five times the Bank of England’s 2% target.

The Bank of England declared that it anticipated inflation “to fall sharply over the rest of the year” after the decision to increase UK interest rates once more in March.

This is because wholesale petrol prices are declining and the government continues to provide assistance with residential heating bills through the Energy Price Guarantee programme.