Goldman notes that the combination of deteriorating employment indicators and the disinflationary impact of the latest budget has shifted the balance of risks toward a more accommodative policy stance. Analysts emphasise that a growing range of indicators points to a deepening softness in labour market conditions.
While budget measures may provide a temporary boost to economic growth, the bank argues that their key effect will be a reduction in inflationary pressure over the medium term, strengthening the case for an initial rate cut. The decision is expected to be passed by a 6–3 vote, although the final split within the Monetary Policy Committee will depend on upcoming inflation and labour market data.
The central bank’s tone is likely to remain cautious. In its accompanying materials, the Bank of England is expected to reiterate that interest rates could gradually drift lower if the disinflation trend persists. Governor Andrew Bailey is also expected to acknowledge labour market weakness, while avoiding firm commitments on the timing of further moves, including the February meeting.
Looking further ahead, Goldman Sachs expects three additional rate cuts during 2025, which could bring the policy rate to around 3%. However, the pace of easing will remain data-dependent: a more resilient economic backdrop could slow the cycle, while further deterioration in employment figures could accelerate it.