July 12, 2024

Goldman Sachs Predicts Bolder Bank of England Rate Cuts: What It Means for Your Wallet

Image Credits: Mike Kemp/ In Pictures/ Getty Images

The Bank of England is gearing up for a monetary maneuver that could shake up your finances more than expected; according to fresh insights from Goldman Sachs, the central bank is poised to keep interest rates steady for a longer stretch before taking the scissors to them with more enthusiasm than previously thought.

In a recent research note, the Wall Street titan nudged its forecast for rate cuts a month further down the line, citing some surprisingly robust inflation indicators. However, they anticipate the Bank will then unleash a flurry of rate slashes, reacting swiftly to signs of cooling inflation.

Goldman’s crystal ball reveals a series of five successive 25 basis point rate reductions throughout the year, aiming to drop rates from the current 5.25% to a 4% mark. And it doesn’t stop there. They envision the Bank ultimately landing at a terminal rate of 3% in June 2025.

These projections starkly contrast to more conservative market expectations, which hover around just three cuts by the end of 2024. “We continue to think that the BoE will ultimately loosen policy significantly faster than the market expects,” the note boldly declares.

Bank of England Governor Andrew Bailey hasn’t pinpointed the exact timing of these moves but acknowledged that market bets on rate cuts this year are “not unreasonable.” He emphasized the importance of market sentiment, hinting that the Bank is paying close attention to investor expectations.

Goldman Sachs analysts attribute the delay in rate cuts to the persistent strength of the British labor market and ongoing wage growth. Yet, they anticipate these pressures to ease in the latter half of the year, signaling a “cooling” in the economic landscape.

While U.K. inflation held steady at 4% year-on-year in January, specific sectors witnessed palpable price pressures. However, the tide might be turning, as the headline consumer price index dipped to -0.6% month-on-month in a surprising reversal from December’s uptick.

Goldman Sachs offers a mixed outlook, suggesting a 25% chance of the Bank delaying rate cuts beyond June if specific economic indicators remain stubbornly high. Conversely, they also foresee a 50 basis point slash if the economy slides into a full-blown recession—a scenario not entirely out of the picture, given the U.K.’s recent brush with a technical recession.

Despite this, Governor Bailey remains cautiously optimistic, highlighting positive indicators in the labor market and household incomes. Yet, he asserts that the Bank isn’t waiting for inflation to hit its 2% target before moving.

As Bailey’s words reverberated, U.K. government bond yields dipped, reflecting heightened investor expectations of imminent rate cuts. It’s a sign that the financial landscape could be in for a shake-up sooner rather than later. So, keep an eye on your wallet—change might be around the corner.

Share the Post:

Related Posts