A major investment bank has predicted that interest rates are expected to fall to 2.75% by next autumn as the Bank of England lowers borrowing costs at its next nine meetings.
Economists at Goldman Sachs say the market is in line with expectations from Threadneedle Street's nine-strong Monetary Policy Committee (MPC), based on their assessment of the level of long-term interest rates commensurate with achieving the government's 2% inflation target. He said he underestimated the scope of his actions. .
“Our findings suggest that central bank interest rates remain significantly restrictive and, together with the rapidly declining inflation and dovish MPC comments, suggest that the Bank of England will eventually raise interest rates above prices. This confirms our view that rates will decline,” the US financial institution said in a research note.
“We remain satisfied with our forecast for a sequential 0.25 percentage point reduction and have lowered our November 2025 final bank rate forecast to 2.75% (from 3% in September 2025), particularly below current market prices. .”
Financial markets believe there is a 98% chance that the central bank will cut interest rates from 5% to 4.75% next month, and that borrowing costs will continue to fall below 3.75% by November 2025.
Central Bank Governor Andrew Bailey told the Guardian earlier this month that a more “aggressive” approach was possible, fueling speculation that the MPC would accelerate the pace of rate cuts.
Goldmans bases its view on future interest rate trends on estimates of r*, the neutral real interest rate that is neither expansionary nor contractionary while the economy is at full employment and inflation is on target. He said that
The analysis concluded that r* has been declining significantly in recent decades, and has been rising slowly since the start of the COVID-19 pandemic. Goldman's estimates suggest that r* is about 0.75%, which means that with inflation targeted at 2%, the nominal neutral interest rate is about 2.75%.
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A separate study by Deutsche Bank economists said policy is currently restrictive, with Deutsche Bank expected to cut interest rates at each of five MPC meetings from next month to May 2025 to slow the economy and raise wages. We expect this to correspond to a slowdown in rates and moderation in service sector inflation. It will be 3.75%.
