Goldman Sachs revises Bank of England interest rate cut forecast: a 25 basis point cut in November and a benchmark rate of 3% by July next year.

Goldman Sachs said on Tuesday that the bank currently expects the Bank of England to cut rates by 25 basis points in November. This forecast has been adjusted from its expectations in September. At that time, Goldman Sachs believed that the Bank of England would keep rates unchanged until the end of 2025, and only start cutting rates in 2026. Goldman Sachs also predicts that the Bank of England will cut rates on a quarterly basis, bringing the benchmark rate from the current 4% to 3% by July 2026, earlier than the bank's previous prediction of November 2026. The reason for Goldman Sachs' revision is that UK inflation stubbornly remains high and the labor market is weakening. Data released last week showed that UK CPI rose by 3.8% year on year in September, consistent with the previous value, but below the market's expectation of 4%; core CPI in September rose by 3.5% year on year, lower than the previous 3.6% and market expectation of 3.7%. The unexpected stability of inflation in September has increased traders' bets on a rate cut by the Bank of England. In addition to stable inflation, the weak labor market is another important factor supporting the market's expectations of a rate cut by the Bank of England. Data released earlier this month showed that the UK unemployment rate in August rose to 4.8%, the highest level since May 2021, while economists had expected it to remain unchanged. In the three months ending in August, the growth rate of private sector wages in the UK slowed to 4.4%, which is not only lower than market expectations but also the lowest level since the end of 2021although the data is still well above the Bank of England's target of around 3% to match 2% inflation. Bank of England Governor Bailey also pointed out that the UK economy is operating "below potential levels" and expressed concerns about the persistently weak labor market. While Bailey acknowledges that high inflation remains a threat, he also notes that economic weakness could potentially constrain price increases in the future.