Bank of England Interest Rate Cut Predictions Diverge as Goldman Sachs Takes Contrarian View

Strategic Insights -

Goldman Sachs has predicted that the Bank of England will cut interest rates next week, contradicting the broader market consensus. This change in stance is based on recent data showing services inflation below the monetary policy committee's forecasts, cooling private sector pay growth, and softer GDP data. However, other economists, including Matt Swannell from EY ITEM Club and UBS economist Anna Titareva, expect the MPC to keep rates unchanged, with potentially two or three dissenting members. The decision will likely be influenced by the need for additional evidence of disinflation, moderation in wage growth, and minimal impact from the Autumn Budget.

Key Takeaways:

  • Goldman Sachs has predicted a Bank of England interest rate cut next week, citing services inflation below MPC forecasts, cooling private sector pay growth, and softer GDP data.
  • Economists at EY ITEM Club and UBS are more cautious, expecting the MPC to keep rates unchanged, with potentially two or three dissenting members.
  • The MPC is divided, with some members likely to favor a cut and others opposed, citing disagreement on the committee and limited confidence in near-term forecasts.
  • Anna Titareva from UBS expects the next interest rate cut in February, but notes that recent data has increased the chances of a cut in December, with markets currently pricing in a cumulative 16.5 basis points of cuts by the end of the year.
  • Matt Swannell from EY ITEM Club disagrees with the prediction, stating that macro numbers over the last few weeks are "unlikely to move the needle".
  • The Bank of England's decision will be closely watched, particularly Governor Bailey's comments during the press conference next week.

Statistics:

  • 7.3 basis points: the amount of cuts priced in on swap rate markets for this coming meeting.
  • 16.5 basis points: the cumulative amount of cuts priced in by markets by the end of this year.
  • 2-3: the number of dissenting members on the MPC that economists predict.
  • 7-2: the predicted split on the MPC regarding the decision to cut or hold interest rates.

Sources:

  • [Goldman Sachs]
  • [EY ITEM Club]
  • [UBS]