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Feb 22 - 12:55 PM

Goldman Sachs: Revising BoE Rate Cut Forecast & UK GDP Projection

By eFXdata  —  Feb 22 - 10:45 AM

Synopsis:

Goldman Sachs has adjusted its forecasts regarding the Bank of England's monetary policy and the UK's economic outlook. Anticipating a delay in the Bank of England's initial rate cut, Goldman Sachs now expects the first rate reduction to occur in June, a shift from the previous May prediction. This adjustment reflects recent data indicating that inflation persistence within the UK economy remains stronger than anticipated. Concurrently, Goldman Sachs has revised its 2024 UK GDP growth forecast downward to 0.4% year-on-year, from an initial estimate of 0.6%, attributing this adjustment to the weaker-than-expected GDP growth observed in the fourth quarter of 2023.

Key Insights:

  • BoE Rate Cut Delay: The revision of the first BoE rate cut to June stems from persistent inflation indicators outperforming earlier expectations, suggesting the BoE may adopt a more cautious approach before initiating rate cuts.
  • UK GDP Growth Downgrade: The downgrade in the 2024 GDP growth forecast to 0.4% year-on-year is a response to disappointing GDP performance in the last quarter of 2023, indicating a slower recovery trajectory for the UK economy.

Conclusion:

Goldman Sachs' adjustments in its monetary policy and economic growth forecasts for the UK reflect a cautious stance towards inflation persistence and economic performance. The delayed rate cut forecast underscores the challenges the Bank of England faces in balancing inflation control with economic stimulation. Additionally, the lowered GDP growth projection highlights the ongoing hurdles in the UK's economic recovery, necessitating a close watch on forthcoming economic indicators and BoE policy decisions.

Source:
Goldman Sachs Research/Market Commentary

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