The Bank of England's (BOE) rate cut decision on December 18 has reinforced market expectations that the central bank is entering a more sustained monetary easing cycle. Against the backdrop of weakening economic momentum, Goldman Sachs maintains its forecast for multiple rate cuts in 2026.
In a research note, Goldman Sachs projects the BOE will implement three 25-basis-point reductions in March, June, and September—a revision from its earlier tentative timeline of February, April, and July. This adjustment reflects the bank's view that the Monetary Policy Committee (MPC) will proceed cautiously with gradual easing as inflationary pressures subside and labor market deterioration becomes more evident.
Recent UK economic data increasingly points to growth risks skewed toward slowdown, Goldman analysts noted. The labor market shows signs of cooling: hiring has slowed, unemployment risks have risen, and wage growth pressures have moderated. Concurrently, the bank expects UK inflation to remain subdued in 2026, reducing the necessity for restrictive monetary policy.
While current market pricing suggests a gradual easing path, Goldman warns that stronger-than-anticipated rate cuts could materialize if incoming data confirms these trends. Weak economic indicators may embolden policymakers to adopt a more dovish stance, particularly with inflation expectations remaining anchored.
December's rate cut marks a narrative shift for the BOE, signaling its risk assessment has pivoted from combating persistent inflation to supporting growth. However, policymakers are expected to maintain data-dependent vigilance, closely monitoring wage dynamics, services inflation, and broader financial conditions.
From a market perspective, evolving BOE policy expectations will influence UK rate trajectories, sterling performance, and relative monetary policy differentials. A faster or deeper easing cycle could pressure the pound while supporting UK risk assets—especially as global central banks grow more cautious.
Goldman's updated forecast underscores growing market conviction that the BOE's tightening phase has conclusively ended, with the challenge now lying in calibrating the pace and magnitude of cuts to address Britain's economic slowdown.
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