In a note to clients, the investment bank said it had reassessed its position after recent data provided a “convincing case” for a reduction. Analysts argue that a combination of fading inflationary pressures, cooling wage growth, rising unemployment, and sluggish economic growth has opened the door for a move sooner than anticipated.

The forecast follows official figures showing inflation remained at a lower-than-expected 3.8% in September, against forecasts of 4%. Goldman Sachs also pointed to the expected “large, contractionary impact” of Chancellor Rachel Reeves’s upcoming Budget and recent comments from Governor Andrew Bailey on the weakness of the labour market.

This view is notably more dovish than current market sentiment. Traders are pricing in only a one-in-three chance of a cut from 4% to 3.75% when the Monetary Policy Committee (MPC) meets, with the odds of a reduction by December standing at 50-50. Some MPC members have also maintained a more hawkish stance, emphasising the need to guard against inflation.

Goldman expects the nine-member committee to approve a quarter-point cut via a narrow 5-4 vote. Looking further ahead, the bank forecasts that the Bank Rate will be lowered in quarterly steps to 3% next year.

The prediction comes as the US Federal Reserve enacted its second consecutive rate cut to support a fragile jobs market, despite American inflation rising.