Goldman Sachs expects BoE to deliver 25 bp interest rate cuts each in April, July and November 2026 vs prior forecast of cuts in March, June and Septe...

Goldman Sachs expects BoE to deliver 25 bp interest rate cuts each in April, July and November 2026 vs prior forecast of cuts in March, June and September

Goldman Sachs Revises BoE Rate Cut Timeline Amid Weaker UK Labor Market

Goldman Sachs Research has updated its forecast for Bank of England (BoE) interest rate cuts in 2026, shifting the expected timing from March, June, and September to April, July, and November. The adjustment reflects evolving economic conditions, including a weaker labor market and slower wage growth, which are easing inflationary pressures more quickly than previously anticipated according to Goldman Sachs analysis.

The BoE's Monetary Policy Committee (MPC) has signaled a cautious approach, with recent data showing core inflation at 3.7% in June 2025 and a narrowing labor market. Goldman Sachs notes that employment indicators, including declining job vacancies and slowing private-sector pay growth (down to 4.8% year-on-year in June 2025), suggest increasing slack in the economy. These trends align with the firm's projection that underlying services inflation will cool steadily in the second half of 2025, with headline inflation peaking at 3.8% in September before declining to 2.3% by mid-2026.

The revised timeline also accounts for the UK's autumn budget, which introduced fiscal measures likely to influence monetary policy. While the budget's impact on growth is modest—Goldman Sachs forecasts 1.1% GDP expansion in 2026—the fiscal adjustments have increased government borrowing and shifted market focus to economic resilience. The firm expects the BoE to cut rates by 25 basis points in December 2025, followed by three additional cuts in early 2026, reducing the policy rate to 3% by summer 2026.

The terminal rate of 3% remains below market expectations of 3.5%, reflecting Goldman Sachs' view that inflation will moderate faster than priced into financial markets. However, the firm cautions that fiscal tightening—potentially including tax increases in the Autumn Budget—could constrain growth and necessitate further rate cuts if inflationary risks persist.

For markets, the revised timeline implies continued downward pressure on gilt yields. Goldman Sachs projects 10-year gilt yields to fall to 4% by year-end 2026, supported by the BoE's accommodative stance and improved risk sentiment post-budget according to market analysis. UK equities, particularly mid-cap and sector-specific stocks, may also benefit from lower borrowing costs and a narrowing yield gap relative to international peers as projected by Goldman Sachs.

Overall, the BoE's rate-cutting trajectory hinges on sustained labor market weakness and inflation progress, with Goldman Sachs maintaining a dovish outlook for UK monetary policy in 2026.