FinanceMonday, November 2, 20261 min read

Goldman Sachs expects Bank of England to raise rates again in February

By Economic Times Markets · Published by Everything Blog

In short

Financial markets are heavily anticipating a 25-basis-point increase at the November 5 meeting, which would represent the central bank's first rate increase since 2023. Following a projected pause in December, Goldman Sachs anticipates another rate rise will materialize early next year. Policy rates are expected to hold steady at 4.25% through the middle of next year before gradual reductions commence much later.

Key points

Persistent inflationary pressures alongside high energy costs continue to prompt expectat…: Persistent inflationary pressures alongside high energy costs continue to prompt expectations of monetary tightening from UK policymakers.
Official interest rate reductions are projected to begin on a quarterly schedule starting…: Official interest rate reductions are projected to begin on a quarterly schedule starting in the fourth quarter of 2027.
The central bank's terminal interest rate is ultimately expected to settle at a target of…: The central bank's terminal interest rate is ultimately expected to settle at a target of 3.25%.

Sources checked by our analysis pipeline: 1

The central bank is scheduled to announce its monetary policy decision on November 5, with financial markets widely anticipating a 25-basis-point rate hike. Money markets are currently pricing in an approximately 92% probability of such a move, according to LSEG data.

Read more: Goldman Sachs raises oil price forecasts, warns Brent could hit $140 in 2027

A rate increase would mark the Bank of England's first interest rate hike since 2023, as policymakers remain concerned about persistent inflationary pressures. The central bank is keen to avoid repeating its earlier misjudgment of inflation risks, particularly as energy prices remain elevated.

However, the current inflation environment differs from the previous inflation shock, with the US Federal Reserve and European Central Bank having already moved ahead with interest rate increases.

According to Reuters, Goldman Sachsexpects the Bank of England to leave its policy guidance unchanged at the upcoming meeting, reiterating that policymakers remain prepared to act if necessary to bring inflation back to its target.

Read more: Japan's Nikkei slips as Kioxia tumbles 13%; Tokyo Electron, Panasonic limit losses

The brokerage continues to…

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Key Points

Persistent inflationary pressures alongside high energy costs continue to prompt expectat…: Persistent inflationary pressures alongside high energy costs continue to prompt expectations of monetary tightening from UK policymakers.
Official interest rate reductions are projected to begin on a quarterly schedule starting…: Official interest rate reductions are projected to begin on a quarterly schedule starting in the fourth quarter of 2027.
The central bank's terminal interest rate is ultimately expected to settle at a target of…: The central bank's terminal interest rate is ultimately expected to settle at a target of 3.25%.

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AI Analysis

Tone

Neutral

In short

Key Points

Persistent inflationary pressures alongside high energy costs continue to prompt expectat…: Persistent inflationary pressures alongside high energy costs continue to prompt expectations of monetary tightening from UK policymakers.
Official interest rate reductions are projected to begin on a quarterly schedule starting…: Official interest rate reductions are projected to begin on a quarterly schedule starting in the fourth quarter of 2027.
The central bank's terminal interest rate is ultimately expected to settle at a target of…: The central bank's terminal interest rate is ultimately expected to settle at a target of 3.25%.

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Goldman Sachs expects Bank of England to raise rates again in February

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