Goldman Sachs has moved back its forecast for when the Bank of England will begin cutting interest rates, now expecting policy easing to start in 2027. The change in outlook was published in a note on Thursday, after the BoE chose to maintain the Bank Rate at 3.75% and signalled a heightened risk that inflation could increase over the near term.
Previously, Goldman anticipated a quarterly series of rate reductions beginning in July. The firm now projects a more gradual pace of cuts beginning next year, with policy gradually easing toward a 3% terminal rate, according to its note.
At its most recent meeting, the Bank of England held rates steady and said inflation could climb to roughly 3.5% across the next two quarters. The central bank stressed that it remains watchful of the possibility that higher inflation expectations could become entrenched in the economy.
Goldman Sachs also highlighted the non-trivial possibility of a near-term rate increase - potentially as soon as the April policy meeting - if global energy prices continue to move higher. That assessment mirrors broader concern about commodity-driven inflation pressures.
The war in the Middle East and what the note described as the effective closure of the Strait of Hormuz have been linked to a notable rise in oil prices. That uptick in energy costs has intensified inflationary risks across Europe, prompting other major brokerages to revise their outlooks. The note cites that institutions including J.P. Morgan and Morgan Stanley have delayed their expectations for policy easing in response to these developments.
The updated Goldman view reduces the near-term probability of an imminent rate-cut cycle in the UK and shifts the timing materially later than the firm had forecast previously. The Bank of England's guidance on potential upside inflation and the recent energy-price dynamics are central to that reassessment.
Contextual note: The projections and policy signals referenced here are drawn from Goldman Sachs's published note and the Bank of England's statement following its rate decision to hold the Bank Rate at 3.75%.