Goldman Sachs has predicted that the Bank of England will cut interest rates next week – providing relief for millions of borrowers.
Analysts at the investment banking giant argue that fading inflation pressures and sluggish growth will open the door to a move sooner than most other analysts and traders expect.
In a note to clients, Goldman’s experts said they had changed their minds after latest data amounted to a ‘convincing case for a cut next week’.
It came as the Federal Reserve cut US interest rates for the second meeting in a row last night, even though inflation has climbed to 3 per cent for the first time since June 2024.
Concerns about inflation in the US are being outweighed by worries about the fragility of the jobs market amid economic uncertainty.
In the UK, predictions that inflation is on the rise have in recent months kept a lid on hopes of an interest rate cut, which many now expect will not take place until next year.
Prediction: Goldman Sachs analysts believe the Bank of England may be forced to cut interest rates sooner than expected
However, the economic data over the past couple of weeks has started to turn the tide. Notably, figures last week showed that inflation remained at a lower-than-expected 3.8 per cent in September.
Forecasts had pointed to an increase to 4 per cent. Markets now see around a one-in-three chance of a rate cut, from 4 per cent to 3.75 per cent, when the Bank of England’s Monetary Policy Committee (MPC) meets next Thursday.
And the betting that a cut will come by December is at around 50-50.
Goldman said inflation had ‘surprised meaningfully to the downside’ while pay growth was also cooling, unemployment rising, and growth was sluggish.
And the bank’s experts added that Chancellor Rachel Reeves’s expected grim Budget next month – when major tax rises and spending cuts are on the cards – is likely to deliver a ‘large, contractionary impact to the economy’.
They also pointed to recent language from Bank of England Governor Andrew Bailey about the weakness of the jobs market, though other MPC members have taken a more hawkish stance, emphasising the need to guard against inflation.
‘Taken together, we believe that the data makes a convincing case for a cut next week, as key indicators have turned out significantly weaker since the September meeting,’ Goldman said.
It added that it expected a narrow 5-4 vote for a quarter-point cut from the nine-member MPC.
‘Looking further ahead, we maintain our view that the MPC will lower Bank Rate in quarterly steps to 3 per cent next year,’ it said.
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