UK interest rates will drop to 2.75%, Goldman Sachs predicts

The Bank of England will cut interest rates from the existing level of 5% all the way down to 2.75%, according to Goldman Sachs.

The Wall Street investment bank expects monetary policy to catch up with lower inflation.

Goldman Sachs analysts said that interest rates are “notably restrictive” at the present level of 5% and will decline to 2.75% by November 2025.

The move is much faster than the pace priced in by money markets, which suggest the Bank Rate will drop to 3.5% over the next year.

Inflation in Britain fell faster than expected in September to 1.7%, following comments from governor Andrew Bailey that rate setters on the Monetary Policy Committee (MPC) would become “more aggressive” about reducing borrowing costs.

Goldman said interest rates would fall to lower than the levels priced in by money markets amid “rapidly falling inflation and dovish MPC commentary”. The news would be a welcome boost to mortgage borrowers, who have faced surging costs after interest rates were raised to 5.25$ in August last year to combat inflation which surged to 11.1% in October 2022.

If Goldman’s prediction is correct, it would mean the Bank of England would make consecutive quarter of a percentage point interest rate cuts at each of its next nine meetings.

Hopes of a double interest rate cut before Christmas boosted as inflation falls to 1.7%