Goldman Sachs has updated its forecast for the Bank of England (BoE), now anticipating that it will maintain its benchmark interest rate in December, contrary to its earlier expectation of consecutive rate cuts. This revision follows a more expansive UK budget stance than previously expected.
The latest data show an increased likelihood that the US Federal Reserve will pause its rate cuts in December. Strong employment figures and rising consumer spending in the US have led some traders to bet against further rate cuts, with a few even predicting a pause in November.
The British government's announcement of significant tax hikes—the largest in thirty years—aims to address public service deficits, further influencing economic projections. Meanwhile, the UK's Debt Management Office plans to issue £297 billion in government bonds for the 2024-2025 fiscal year, surpassing previous estimates.
Goldman Sachs still anticipates a 25-basis-point cut by the BoE in November, with a potential pause in December, resuming cuts in February next year. It projects that the BoE's interest rate might reach 3% by next November. Additionally, the UK's GDP growth forecast for 2025 has been slightly increased from 1.5% to 1.6%, suggesting potential inflationary pressures due to heightened demand.
Confidence in the Fed's continued rate cuts is diminishing, with more traders betting on a December pause. Despite strong ADP employment data, many traders still expect a 25-basis-point cut in November, but the probability of no cut in December has risen significantly. The robust non-farm employment market and resilient consumer spending have dampened expectations of further rate cuts.
