The Bank of England will begin a series of rate cuts that will lead the base rate to hit 3% in September 2025, according to Goldman Sachs.
The US investment bank says wage growth and services inflation are set to ease over the coming months, which will spark a round of rate cutting from the central bank’s rate-setting Monetary Policy Committee.
Goldman Sachs chief European economist Sven Jari Stehn says: “With Bank Rate currently well above our terminal rate forecast, we see compelling reasons for the MPC to accelerate the pace of easing as wage pressures moderate and underlying services inflation falls back.
“We therefore expect the Bank to cut sequentially from November until Bank rate reaches 3% in September 2025.”
Markets are betting that the MPC will keep rates on hold when they meet on Thursday – but are still looking towards two cuts by the end of the year.
The Monetary Policy Committee cut rates from a 16-year high by 0.25% to 5% in August, the first rate cut in four years.
But forecasters expect the body will keep a close watch on inflation and wage growth, which will inform their decisions.
General prices ticked up to 2.2% in July, according to the last set of official statistics, from the 2% target it hit in May and June.
The consumer prices services index rose by 5.7% in the 12 months to July 2024, down from 6.0% in June.
However, average wages, excluding bonuses, ran at 5.1% from May to July, higher than April to June 2022, when it was 4.7%.
At Thursday’s MPC meeting, Goldman Sachs expects a 7-2 vote in favour of holding rates, with external member Swati Dhingra and deputy governor Dave Ramsden pushing for an immediate cut.
The US bank adds: “We expect the formal guidance to remain non-committal, with the minutes likely to simply reiterate that the committee will continue to monitor risks of inflation persistence and decide the appropriate degree of restriction at each meeting.”
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