Goldman Sachs economists are forecasting a significant cut to the Bank of England’s base rate, which could bring much-needed relief to homebuyers, businesses, and the broader economy. The investment bank predicts that the current base rate of 5 percent will be reduced to as low as 2.75 percent by November next year, offering some optimism to those affected by rising interest rates.
This prediction comes as a surprise to many, as previous expectations for base rate cuts were not nearly as drastic. Goldman Sachs’ forecast suggests that the Bank of England may take more aggressive action than previously anticipated, a move that would have a major impact on borrowing costs. Lower base rates typically translate to lower mortgage repayments for homeowners and reduced borrowing expenses for businesses, making this potential cut particularly significant.
For homebuyers, a drop in the base rate could mean substantial savings. Many homeowners have faced increasing financial pressure due to higher interest rates, and this predicted cut could ease the burden. On average, a reduction from 5 percent to 2.75 percent could save homeowners around £2,500 a year, depending on the size of their mortgage. This would provide a much-needed financial reprieve for many households currently struggling with rising living costs.
The wider economic impact could also be substantial, with lower interest rates likely to stimulate spending and investment. Businesses could benefit from cheaper borrowing costs, allowing for expansion and new ventures. While these predictions remain speculative, if the Bank of England follows through on these rate cuts, the move could mark a turning point for the UK economy, providing relief across several sectors.
If these predictions hold, the drop in fixed-rate interest rates for five-year mortgage deals to around 2.5 percent could provide significant financial relief for homebuyers, potentially saving them thousands of pounds a year. This reduction in mortgage repayments would be especially welcome for those who have seen their monthly costs rise in recent years due to higher interest rates.
For instance, a homeowner with a £200,000 mortgage, currently paying £1,111 per month based on an interest rate of 4.5 percent, could see their repayments fall to £897 a month if the rate drops to 2.5 percent. This would result in a monthly saving of £214, translating to £2,568 in annual savings. For many households, this kind of reduction could ease the strain on their finances, allowing them to allocate more towards other expenses or savings.
Goldman Sachs has pointed out that the current Bank of England base rate of 5 percent is “notably restrictive.” This elevated rate has been limiting the amount families and businesses are able to borrow, which has acted as a brake on UK economic growth. The high cost of borrowing has reduced the purchasing power of consumers and the ability of businesses to invest in expansion. A drop in the base rate could, therefore, lead to broader economic benefits, encouraging spending and investment across the country.
The economists at Goldman Sachs predict that the Bank of England could lower the base rate to 2.75 percent by November next year. If this happens, it would represent a significant shift in monetary policy, offering relief not only to homeowners but also to businesses and the wider economy. Lower interest rates could boost confidence in the housing market, potentially leading to increased activity as more buyers enter the market with the prospect of cheaper mortgages.
The UK’s CPI inflation rate dropped to 1.7 percent in September, which has led many to believe that the Bank of England will reduce the base rate by 0.25 percentage points in November, with another possible cut in December.
Goldman Sachs has predicted a series of rate cuts, estimating the base rate will fall to 2.75 percent by November 2025. This forecast is lower than current market expectations. Similarly, Deutsche Bank is projecting significant cuts, predicting the rate could drop to 3 percent by early 2026.
Both banks’ forecasts are below the consensus among City analysts, who generally expect the base rate to settle at around 3.5 percent. However, there is still a range of opinions within the Bank of England’s monetary policy committee on how persistent inflation might be and the speed at which rates should be adjusted. This nine-member panel meets every six weeks to review and set interest rates, weighing these factors carefully.
Andrew Bailey, the governor of the Bank of England, has suggested that the Monetary Policy Committee (MPC) might consider more aggressive interest rate cuts if inflation stabilises. On the other hand, Huw Pill, the Bank’s chief economist, has shown a preference for a more gradual approach to lowering rates.
Bailey, along with other MPC members, is set to attend panel discussions during this week’s meetings of global finance ministers at the International Monetary Fund in Washington. Their comments could provide insight into how much longer the current restrictive monetary policies will be in place.
Goldman Sachs noted that while factors like slow productivity growth and an ageing population have likely weighed on neutral interest rates in the UK, rising public debt and increased population growth are pushing in the opposite direction. This indicates that balancing these forces will be critical in future rate decisions.
Chancellor Rachel Reeves is expected to increase government borrowing during the budget announcement on 30 October to fund public investment. A lower interest rate environment could reduce the government’s debt repayment costs, providing some financial relief.