Experts at Goldman Sachs are predicting the Bank of England will slash the base rate by much more than previously expected in a huge boost to home buyers, businesses, and the wider economy.
The investment bank’s economists suggest the current base rate of 5 percent will come down to as low as 2.75 percent by November next year.
If it is correct, there is a chance that fixed rate interest rates on five-year mortgage deals could come down to around 2.5 percent, potentially saving home buyers thousands of pounds a year on repayments.
Someone with a £200,000 mortgage is currently repaying £1,111 a month based on an interest rate of 4.5 percent. This figure could come down to £897 a month based on a rate of 2.5 percent, which is a saving of £214 a month of £2,568 a year.
Goldman Sachs said the current Bank of England base rate of 5 percent is “notably restrictive” in terms of putting a cap on how much families and businesses can borrow, which – in turn – restrains UK economic growth.
The fall in the UK CPI inflation rate to 1.7 percent for September is thought to have cleared the way for the Bank to cut the base rate by 0.25 percentage points in November and, possibly, in December.
Goldman Sachs said: “We forecast sequential Bank rate cuts to a terminal rate of 2.75 per cent in November 2025… notably below current market pricing.”
Deutsche Bank is also predicting significant cuts in the base rates with a new forecast suggesting it will fall to as low as 3 percent by early 2026.
The forecasts from Goldman Sachs and Deutsche Bank are both well below the current consensus forecast among City analysts who favour the base rate will settle at around 3.5 per cent.
There are a range of views on the Bank of England’s monetary policy committee — the nine-strong panel that meets every six weeks to set interest rates — on the stubbornness of inflation and how quickly to loosen monetary policy.
Andrew Bailey, the Bank’s governor, has hinted that the MPC could be more “aggressive” in lowering rates if the data confirms inflation has stabilised, while Huw Pill, the Bank’s chief economist, has expressed his preference for a gradual lowering of interest rates.
Bailey and other MPC members will participate in several panel discussions at this week’s meetings of global finance ministers at the International Monetary Fund in Washington. Their remarks are likely to provide clues on how much longer monetary policy will remain restrictive.
Goldman Sachs said: “While slow productivity growth, falling prices of capital goods and population ageing likely continued to weigh on [neutral interest rates] in the UK, sharply rising public debt and a pick-up in population growth likely pushed the other way.”
The Chancellor Rachel Reeves is expected to increase borrowing at the budget on October 30 to fund a rise in public investment spending. A lower interest rate environment could help the government by reducing the size of debt repayments.
