Goldman Sachs recently updated its forecasts for UK monetary policy, indicating that the Bank of England is likely to start lowering interest rates gradually from November. According to the analysis of Sven Jari Stehn, a Goldman Sachs economist based in London, the Bank of England may cut interest rates consecutively, with the terminal rate expected to be 3%, which is lower than market pricing expectations. Stehn further noted that there is a 40% chance of consecutive rate cuts and a 30% chance of a rate cut once every quarter.
This forecast differs from the market's previous view that the pace of rate cuts would slow down, indicating a more conservative assessment of the UK's economic trajectory by Goldman Sachs. The market is closely watching the UK interest rate decisions in September, November, and December.
Goldman Sachs predicts that inflation in the UK's service sector will gradually decrease, potentially falling to 3.8% by 2025, slightly lower than the Bank of England's previous expectations. This will provide more room for adjustments in the Bank of England's monetary policy. The slowdown in wage growth is also one of the key factors accelerating rate cuts.
For the foreign exchange market, the expectation of rate cuts may lead to a weaker pound, especially compared to economies that are raising or maintaining high interest rates, putting more downward pressure on the pound. Additionally, the decline in UK bond yields will impact the attractiveness of financial products, and mortgage holders may benefit from lower loan costs.
With increasing global economic uncertainty, the direction of UK monetary policy will receive more attention. Investors need to closely follow the latest analyses from Goldman Sachs and other institutions to adjust their investment strategies.
