Goldman Sachs predicts six interest rate cuts by mid-2026 as economy cools

The Bank of England could deliver as many as six interest rate cuts by the middle of next year, according to new projections from Goldman Sachs.

The American investment bank expects rates to drop to 3.25 per cent by the second quarter of 2026, citing weaker economic activity and lower inflationary pressures.

Markets are already factoring in two cuts this year, while many economists predict that the Bank will opt for a 25 basis-point reduction at its forthcoming meeting in February, kicking off what could become a steady pace of quarterly cuts through 2025. The Monetary Policy Committee lowered rates twice last year, moving from 5.25 per cent to 4.75 per cent, against a backdrop of faltering growth.

Goldman’s economists argue that markets are “pricing too few rate cuts”, predicting that sluggish demand and softer inflation will prompt a more decisive loosening. This view is bolstered by lower-than-expected GDP figures — November’s growth was only 0.1 per cent — and a sharp drop in services inflation to 4.4 per cent last month. Private sector surveys also show the labour market weakening, with unemployment at 4.4 per cent and job vacancies down to levels not seen since mid-2021.

Alan Taylor, a new member of the Bank of England’s monetary policy committee, signalled his openness to more aggressive easing. He remarked last week that five or six rate reductions could help guide the economy towards a “soft landing”.