Goldman Sachs has given households struggling with high mortgage rates a glimmer of hope, which predicts that the Bank of England will cut interest rates more rapidly than anticipated.
The Wall Street Bank forecasts that policymakers will start lowering borrowing costs in November and continue reducing rates at each meeting until they reach 3% by September next year.
The Bank of England raised rates to 5.25% in August last year, the highest level since 2008, in an effort to tackle inflation that peaked at 11.1% in October 2022. However, with inflation now down to 2.2%, close to the Bank’s 2% target, Goldman Sachs believes there are strong reasons for a quicker pace of rate cuts, following the recent reduction to 5% last month.
While money markets expect rates to fall to around 3.5% by August next year, Goldman Sachs anticipates a more substantial decline. The bank expects wage growth to slow significantly, which should help reduce services inflation—a major concern for the Bank of England. Goldman Sachs predicts services inflation will slow to 5% by the end of the year, slightly below the Bank’s August forecast, and to 3.8% by the end of 2025.
Goldman Sachs also expects that the Bank of England will likely accelerate its rate cuts as other central banks around the world lower borrowing costs more quickly. Analyst Sven Jari Stehn noted, “A continued quarterly pace through 2025 would make the Bank of England a significant outlier compared to other advanced economies, which is historically unusual.”
