The Bank of England is expected to reduce interest rates significantly faster than financial markets currently anticipate, according to new forecasts from Goldman Sachs.
The Wall Street investment bank projects that the UK’s base rate could drop to 2.75% by November 2025, driven by continued progress on disinflation and dovish signals from policymakers.
At present, the UK base rate stands at 5%, which Goldman Sachs described as “notably restrictive.” The investment bank’s researchers believe that the Bank of England will lower rates more aggressively than is priced in by markets, as inflation continues to ease. In contrast, market consensus suggests a slower decline, with rates expected to settle at around 3.5%.
Differing views on rate cuts
Goldman Sachs’ predictions align with those from Deutsche Bank, which also expects faster-than-anticipated cuts, albeit at a slower pace. Deutsche Bank forecasts the base rate to fall to 3% by February 2026. Meanwhile, financial markets currently expect two 25 basis point reductions by the Bank of England in November and December this year, bringing the base rate down to 4.5%.
The projections follow a faster-than-expected drop in UK inflation, which fell to an annual rate of 1.7% in September from 2.2% in August. This has raised expectations that the Bank of England will ease monetary policy, although views within the Bank’s Monetary Policy Committee (MPC) differ on how quickly to act.
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