The American investment bank expects rates to drop to 3.25 per cent by the second quarter of 2026, citing weaker economic activity and lower inflationary pressures.
Markets are already factoring in two cuts this year, while many economists predict that the Bank will opt for a 25 basis-point reduction at its forthcoming meeting in February, kicking off what could become a steady pace of quarterly cuts through 2025. The Monetary Policy Committee lowered rates twice last year, moving from 5.25 per cent to 4.75 per cent, against a backdrop of faltering growth.
Goldman’s economists argue that markets are “pricing too few rate cuts”, predicting that sluggish demand and softer inflation will prompt a more decisive loosening. This view is bolstered by lower-than-expected GDP figures — November’s growth was only 0.1 per cent — and a sharp drop in services inflation to 4.4 per cent last month. Private sector surveys also show the labour market weakening, with unemployment at 4.4 per cent and job vacancies down to levels not seen since mid-2021.
Alan Taylor, a new member of the Bank of England’s monetary policy committee, signalled his openness to more aggressive easing. He remarked last week that five or six rate reductions could help guide the economy towards a “soft landing”.
Jamie Young
Jamie Young is Senior Reporter at Business Matters, covering SME finance, employment law and Westminster policy since 2016. He has reported on every Budget and Autumn Statement since 2018, helped make sense of the 'covid era' and the bounce-back loan scheme from launch through the fraud investigations, and broke the magazine's coverage of the 2024 late-payment reforms. He joined Business Matters straight from completing his BA in Administration from Exeter University and is NCTJ-qualified. Reach him at jyoung@cbmeg.co.uk
