Feb 20 (Reuters) - Goldman Sachs said on Tuesday that it now expects the Bank of England to deliver an interest rate cut in June, revising its prior forecast of May, citing a resilient labor market and mounting pressures from wage growth.
British
wages
grew at the weakest pace in more than a year at the end of 2023, data showed last week. However, the slowdown was probably not significant enough to prompt the Bank of England (BoE) to take swift action towards cutting interest rates.
Despite data showing signs of cooling in inflation, the central bank remains cautious in its approach due to persistent wage increases and a tight labor market.
"We see a 25% risk that the BoE ends up waiting longer before starting to cut rates and then proceeding more gradually, given the possibility of continued stickiness in wage growth and underlying services inflation," the brokerage warned.
Earlier this month, the
central bank
kept rates unchanged at a 15-year high of 5.25%.
"Our central scenario is for five back-to-back 25 bp (basis point) rate reductions this year and a terminal bank rate of 3% in June 2025," economists at Goldman Sachs said.
The BoE
expects
inflation to fall to its 2% target in the second quarter of this year from 4% last month. However, it is expected to increase towards 3% at the end of 2024 as the disinflationary impact of lower natural gas prices fades.
(Reporting by Reshma Rockie George; Editing by Rashmi Aich and Dhanya Ann Thoppil)
