Goldman Sees BOE Keeping Rates Unchanged at 4.25% Until Mid-2027, Then Cutting Quarterly From Q4 2027 to a 3.25% Terminal Rate

Goldman Sachs projects that the Bank of England will hold its policy rate at 4.25% until mid-2027, then begin cutting quarterly from the fourth quarter of 2027, reaching a terminal rate of 3.25%. The forecast implies a prolonged period of restrictive policy relative to current market pricing, as the path embeds a sustained rate differential between sterling and other major currencies that remain on easier trajectories. Sterling and short-dated gilts are most exposed, since a later-than-expected start to easing would keep front-end yields elevated and support the currency through carry dynamics, while longer-dated gilts would reprice on the slower but steeper cumulative cut path. Goldman Sachs equities and its fixed-income franchise may also be sensitive to shifts in the rate-cut expectations embedded in trading and advisory revenue assumptions. The next catalyst for traders is the UK CPI release, where a sustained decline in services inflation would test whether the bank's projected timeline for the first cut can hold.

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