Goldman Sachs predicts UK interest rates to drop to 3% in 2024

Goldman Sachs has forecasted a significant reduction in UK interest rates, predicting they will drop to 3% by September 2025. This forecast comes as the Bank of England has recently adopted a cautious approach to rate cuts, primarily due to concerns over high pay growth and inflation in the services sector. However, Goldman Sachs believes these concerns are easing, suggesting that the Monetary Policy Committee (MPC) should accelerate the pace of rate cuts as wage pressures moderate. The investment bank anticipates that the Bank of England will begin cutting rates in November, with a quarter percentage point reduction at each meeting. In contrast, the wider market expects a slower decline, with rates projected to be at 3.5% by next September and 3.25% by the end of 2025. Deutsche Bank predicts that rates will reach 3% by the summer of 2026, indicating a more conservative outlook compared to Goldman Sachs. Recent surveys indicate that public expectations for inflation have decreased, with the latest figures showing expectations at 2.7%, the lowest in three years. Current inflation stands at 2.2%, and the Bank of England is closely monitoring these expectations, as they can influence wage demands and potentially lead to further inflation. In the broader context, the Federal Reserve in the US is also expected to cut rates soon, while the European Central Bank has already made two cuts this year. This trend of rate reductions is likely to intensify competition among lenders, as they seek to attract new borrowers through aggressive pricing strategies.