It is no secret that sustained high interest rates over an extended period caused no end of challenges, with spikes in the cost of borrowing, knock-on impacts on markets and real estate transactions, and the looming and persistent threat of recession damaging investor and consumer confidence.
Into the start of the new year, and to much relief, interest rates in most of the leading global economies have begun to fall, albeit gradually, in a steady pattern that has already helped to stimulate sluggish markets. This applies not least in property, where commercial borrowing and housebuilding have rebounded swiftly in line with better financing availability.
The financial advisory and wealth management specialists at Chase Buchanan look at how the pattern of interest volatility played out and what this means in real-world terms for everyday expatriates living in some of the world's most popular destinations.
Understanding the Backdrop and Culmination of a Period of High Interest
In late 2021, when we were just emerging from the chaos and crisis of the pandemic, interest rates in the UK started to creep up. The Bank of England (BoE) raised the base rate to try to tame inflation. This trend continued until the following October, when we hit a peak base rate of 11.1%.
Part of the reason high interest rates caused such a shock to the market is that they came after a long period of time during which we were happily used to very low base rates—as low as 0.1% in March 2020, as the central bank slashed rates to record lows to try and stimulate economic recovery.
This picture was far from isolated to the UK and was, in almost every case, instigated by the pandemic. Europe had a very similar experience. Cheap borrowing was widely available as part of the European Central Bank’s pandemic response, followed by 20-year-high rates in the latter half of 2023.
North America followed a comparable cycle, with substantial changes to the Canadian base rate between 2020 and 2024. Three policy rate increases were introduced in 2023, hitting 7.2% in July before falling back in 2024.
America’s Federal Reserve mimicked the trajectory, with a 0.33% federal funds rate in April 2022 that started rising to reach 5.33% in August 2023. The rate remained high until the rate cut in September 2024—the first drop in base rates in four years.
Having recapped very briefly the highs and lows of global inflation, the question is, where does this leave us now? What impacts has this period had on living costs, and can we expect a similar period of upheaval and volatility to come?
The Effects of Inflation and Interest Rates on Costs of Living
One of the natural side effects of high interest rates is that borrowing costs more, savings and investments return less, and consumers have less spending power—especially where goods and services also climb in price as businesses attempt to remain viable.
Higher consumer costs don't just impact financing, though. They have numerous outcomes, from larger debt burdens to slower economic growth, fewer jobs, stretched household budgets, and less commercial activity.
While the impacts vary to a degree between jurisdictions, the overwhelming outcome has been the cost-of-living crisis. This generalised term refers to a still-ongoing period when people struggle to cover the basic necessities and outgoings they need to live and when normal spending habits are overturned by financial pressures.
Although most economies have shown positive signs of easing inflation, stabilisation, and tentative recovery, it would be false to perceive this as a full turnaround from the cost-of-living crisis since the costs of many essentials remain high, alongside housing shortages.
In context, in May 2024, global average inflation stood at 6.8%, which means food, utilities, and housing costs were continuing to climb almost everywhere. After hitting 8.63% in 2022, today, global inflation sits at around 4.32%, which, in turn, means prices continue to increase by this percentage every 12 months.
Just as the news about reducing inflation is welcome, we're also seeing healthier predictions for the years ahead.
The latest indications are that global inflation will drop to 3.63% next year and further to 3.26% by 2028. However, in the interim, living costs are likely to remain higher than most central banks would like, with an almost universal target of 2%.
An Overview of Current and Projected Interest Rates for 2025
When the US Federal Bank finally cut its base rate in September, many breathed a sigh of relief, seeing this as a turning point away from aggressive monetary policy and back to an environment of growth and stability.
Like most decision-makers, the central bank doesn't solely rely on metrics but chooses when and if to change interest rates based on its confidence in growth, inflation control and labour markets.
For now, living costs remain significantly higher than pre-pandemic, and while we've seen plenty of signs that interest rates will continue to fall, although gradually and in a controlled manner, this doesn’t necessarily mean that we’ll see any meaningful changes in general living costs.
As a team of wealth managers working with expatriate clients, families, and businesses around the world, we know this impacts a wide range of aspects, from investment portfolio management to tax planning, the timings of asset restructures and relocations, and the levels of risk deemed acceptable in economies that remain exposed to potential fluctuation.
From a wealth and financial perspective, the priority is to be aware of the current economic situation and its direct impacts on markets, investments, and returns while keeping an eye on the horizon to avoid complacency or making uninformed decisions that could be unwise if the current trends shift backward.
The takeaway is that most economies, including those in Europe, North America, and the UK, are certainly in a better place than they were a year ago, and sharp rises in consumer costs are less likely—but caution, due diligence, and proper financial management remain essential.
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About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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