VIEW CHANGE: Goldman Push Start Of Cutting Cycle To June, See Sharper Cuts Than Market

Goldman Sachs write “the BoE’s key indicators of inflation persistence have recently come out on the firmer side.”

• “We therefore push back our forecast for the first rate cut from May to June. A later start to the cutting cycle is also consistent with recent BoE commentary.”
• “That said, with fewer than three cuts now priced by December 2024, we continue to think that the BoE will ultimately loosen policy significantly faster than the market expects.”
• “The first reason is that we look for lower headline inflation to weaken wage growth in coming months, much of which now reflects catch-up effects from past high inflation.”
• “Second, we expect the sharp decline in energy prices to feed through to measures of underlying inflation in coming months, as clearly seen in other advanced economies.”
• “Third, the incoming hard activity data remain weak with the economy in technical recession in 2023H2, suggesting that the BoE’s policy stance is significantly restrictive.”
• “Our central scenario is for five back-to-back 25bp rate reductions this year and a terminal rate of 3% in June 2025.”