Goldman Sachs Raises ECB Rate Hike Forecast Amid Persistent Energy-Driven Inflation

Goldman Sachs has revised its euro area economic outlook, now anticipating two interest rate increases from the European Central Bank as stubbornly high energy-driven inflation continues to overshadow slowing regional growth. The revision reflects mounting pressure from disruptions in the Middle East, which have significantly constrained oil flows through the Strait of Hormuz to roughly 5% of normal levels for an expected six-week period.

In response to these supply-side shocks, Goldman's commodities team lifted its Brent crude forecast to $80 per barrel for the fourth quarter of 2026, up from a prior estimate of $71. The sustained energy price environment has forced a broader reassessment of both growth and inflation trajectories across the eurozone. The bank trimmed its year-end GDP growth projection by an additional 0.3 percentage points, now targeting 0.7% growth, while estimating the peak drag on output relative to pre-conflict levels could reach 0.7%.

On the inflation front, Goldman now sees headline inflation cresting at 3.2% in the second quarter, with core inflation peaking at 2.5% in the third quarter. Economists led by Sven Jari Stehn noted that greater persistence in core price pressures reflects the scale of the energy shock. The team acknowledged that risks remain skewed toward weaker growth and higher inflation simultaneously.

In light of these developments, Goldman expects the ECB to raise its deposit rate by 25 basis points at both the April and June meetings, bringing it to a peak of 2.5%. Policymaker communication has turned increasingly hawkish, suggesting a relatively low barrier for further tightening. That said, Goldman anticipates the cycle will be brief, with rate cuts likely beginning in 2027 as conditions normalize toward a 2% neutral rate.

For the United Kingdom, Goldman similarly revised growth down to 0.6% year-over-year while lifting inflation forecasts, though it maintains a baseline view of no change to the Bank Rate for now, with risks tilted toward hikes if energy prices persist.