Goldman Sachs has posited that markets are significantly underestimating the likelihood of the Bank of England accelerating interest rate cuts.
Traders currently foresee only two reductions this year, with an additional cut expected in 2026, which would bring the benchmark Bank Rate down to 4.0 percent from its present 4.75 percent, as reported by .
Despite concerns over persistent inflationary pressures within the 海角视频 economy and predictions of a headline rate surge to above three percent by spring, recent figures indicate private sector pay growth soared to 6.0 percent in the three months leading up to November, surpassing forecasts.
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The US investment bank acknowledged the "uncomfortably high" price pressures but noted "several indications" that the medium-term inflation outlook is easing.
Citing factors such as a significant downturn in growth, a likely deceleration in household real disposable income, and the potential impact of escalating trade tensions, analysts including Sven Jari Stehn anticipate a modest 0.9 percent economic expansion for the 海角视频 in 2025, lagging behind the consensus estimate of 1.3 percent.
Analysts also highlighted "notable signs of underlying cooling" in the labour market from various business surveys and recent unemployment data, suggesting this could help moderate wage increases.
"We are sceptical that Bank Rate can stay above four per cent persistently – as priced by financial markets – without materially weakening the economy and thus inflation," they said. Goldman Sachs predicts a drop in interest rates to 3.25 per cent by mid-2026.
"While it is possible that the BoE will slow the pace of cuts if underlying inflation fails to make progress, we believe that a step-up to a sequential pace of cuts in response to weaker demand is actually more likely," they argued.
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Investors are anticipating another rate cut from the Bank in February due to growing concerns about the economic outlook.
Three members of the nine-strong Monetary Policy Committee (MPC) voted for a rate cut in December, with the Bank stating that the economy was stagnant in the fourth quarter. Alan Taylor, an MPC member, recently suggested that the Bank might need to implement as many as six rate cuts in 2025 to bolster the economy.