According to a Wall Street investment bank, the Bank of England is expected to reduce interest rates much more quickly than markets anticipate over the next year as monetary policy adjusts to declining inflation.
Goldman Sachs analysts indicated that the current 5% interest rate is “notably restrictive” and forecast a decrease to 2.75% by November 2025.
This projected pace is significantly faster than what is currently priced in by money markets, which anticipate the Bank Rate will drop to 3.5% over the next year. The outlook comes as inflation in the UK fell more sharply than expected in September, reaching 1.7%, following comments from Governor Andrew Bailey that the Monetary Policy Committee (MPC) would adopt a “more aggressive” approach to lowering borrowing costs.
Goldman Sachs noted that interest rates are likely to fall below market expectations amid “rapidly falling inflation and dovish MPC commentary.” This development would provide relief for mortgage borrowers who have faced rising costs since rates were raised to 5.25% in August last year, as part of efforts to tackle inflation, which peaked at 11.1% in October 2022.
If Goldman’s forecast is accurate, the Bank of England would implement consecutive quarter-point rate cuts at each of its next nine meetings.
