Goldman Sachs Delays Bank of England Rate Cut Forecast Amid Middle East Inflation Risks

Goldman Sachs has revised its outlook for Bank of England interest rate cuts, now pushing expectations back to 2027 after the central bank held rates steady and flagged growing inflation concerns tied to the ongoing Middle East conflict. The investment bank had previously anticipated the BoE would begin quarterly rate reductions starting in July, but has since shifted to a more cautious stance, projecting a slower path of cuts aimed at reaching a 3% terminal rate.

The Bank of England maintained its Bank Rate at 3.75% and warned that inflation could rise to approximately 3.5% over the coming two quarters. Policymakers emphasized their continued vigilance against the risk of elevated inflation expectations becoming entrenched in the broader economy, a concern that is shaping the BoE's more conservative approach to monetary easing.

Adding to the uncertainty, Goldman Sachs also highlighted a meaningful risk of a near-term rate hike, potentially as soon as April, should global energy prices continue their upward trajectory. The escalating Middle East conflict, compounded by the effective closure of the Strait of Hormuz, has triggered a sharp surge in oil prices — a development sending fresh inflationary shockwaves across Europe and prompting major financial institutions to reassess their monetary policy forecasts.

Goldman Sachs is not alone in adjusting its outlook. Other leading brokerages, including J.P. Morgan and Morgan Stanley, have similarly delayed their expectations for policy easing in response to mounting energy price pressures and heightened geopolitical risk. The situation underscores how global events can rapidly reshape central bank strategy, with inflation control remaining the dominant priority for the BoE as it navigates an increasingly complex and volatile economic landscape heading into the latter half of the decade.