The Bank of England is set to slash interest rates much faster than had been expected by investors in the coming year, Goldman Sachs has predicted.
The UK's underlying interest rate has increased 2.75% since the beginning of the coronavirus pandemic, according to data from the Wall Street investment bank, which is well above the negative real-terms level experienced in the decade in the wake of the global financial crisis.
The Times reports that, accounting for inflation, Goldman Sachs estimates the real "neutral interest rate" is now 0.8% which is in line with the historical average calculated since 1870.
With the current UK base rate sitting at 5%, it "remains notably restrictive", Goldman Sachs noted.
It predicted the Bank of England “will ultimately lower rates more than priced by financial markets given continued progress on disinflation and recent dovish commentary”.
It went on: “We forecast sequential Bank rate cuts to a terminal rate of 2.75% in November 2025 … notably below current market pricing.”
German investment bank Deutsche Bank this week made a similar, although more conservative, prediction, forecasting the Bank of England would cut base rates to 3% by February 2026.