Interest rates could be cut as soon as February, economists at Goldman Sachs have said, as a rate setter at the Bank of England warned borrowing costs would remain higher for longer.
The prediction from the Wall Street giant came as Megan Greene, a member of the rate setting Monetary Policy Committee (MPC), said that inflation remains “persistent” and interest rates will have to remain “restrictive” for longer to keep a lid on price rises.
American economist Ms Greene described October’s big drop in inflation to 4.6pc as “good news”, but she warned that most of this was driven by falling energy costs, with underlying measures of price pressures still too high.
“There are still reasons to worry about the persistence of inflation in the UK,” she told Bloomberg TV, adding that markets had so far failed to “clock on” to the fact that rates were likely to stay higher for longer.
It comes as economists at Goldman Sachs said in a note to clients that the Bank of England could cut interest rates as soon as February or March if the economy falls into a full recession.
Among a host of scenarios outlined, economists put a 15pc probability on the first interest rate cut coming in the first three months of next year. It puts a 30pc probability on the first rate cut coming in the third quarter.
The research note read: “The MPC is very likely to hold bank rate again at the December meeting... That said, earlier cuts are possible if the economy turns out weaker than expected.”