Goldman Sachs base rate forecasts and how it affects the Richmond property market

Goldman Sachs has this week offered its expert prediction that the Bank of England Base Rate will be 2.75% by the end of next year.

Now, those particular boys and girls do have their finger very much on the pulse… so this is news.

It is news because money markets listen to players like Goldman Sachs, and the rates at which they then lend, borrow and buy money to and from each other can change accordingly, almost like a Futures marketplace. That determines the rates at which mortgage lenders then offer product rates to the general consumer. 

Again: 2.75%; that is the rate they are talking about. The current base rate sits at 5% - so that means an almost 50% cut to interest rates over the next 14 months if this comes to pass – with the knock on effect being felt be mortgaged homeowners as a result. A definite easing of the pressure. 

The Monetary Policy Committee of the Bank of England meets every few weeks throughout the year to discuss the state of economy – and not just inflation but other factors too. It then votes on how the Bank of England’s base rate should be set, the purpose being to maintain a stable economic environment (to aid an ideally growing economy).

During 2025 they are due to meet eight times, plus twice more this year. 

It’s easy maths when you consider that the average cut or increase is 25 points (i.e. 0.25%). Going from the 5% that it is now, to 2.75% as it is predicted to be, over the course of the 10 meetings scheduled between now and the end of next year, means that the expectation of Goldman Sachs is that the Bank of England will cut rates every single time bar once when they meet between now and throughout the course of 2025. 

The reason that economists and analysts are predicting significant rate cuts next year – and that is not only Goldman Sachs – is due in part to inflation, but also due to the shape of the economy right now. 

Inflation seems to be back under control – if anything, it is falling faster than expected. The Governor himself, Andrew Bailey, has said that we are now seeing signs of ‘disinflation’.

Nevertheless, falling inflation alone does not a market make. 

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It can look positive on the one hand, but other factors do come into play, and in this case these are somewhat negative factors – and perhaps those factors have in part been caused by the high inflation we have seen over the last few months. For example, wage growth; this has slowed to a near stop this year. Another is manufacturing output; that has been struggling upwards since April this year, true, but it follows two hard years of contraction in the manufacturing sector and the loss of over 2000 manufacturers since 2022.

GDP last quarter was estimated to be just 0.6%, so it was even more disappointing when the ONS number-crunched figures revealed that quarterly growth, mediocre as it had seemed to be even at 0.6%, was in fact only 0.5% after revision.

The economy at large is simply not in the best place. Certainly not where we want it to be. 

Therefore, forecasts may point to cut after cut to base rates to come, but perhaps – given the above observations – that is as much to do with the need for some economic stimulus as it is to having finally gained some measure of control over inflation (in fact, many critics would argue that cuts have been overly delayed, with falling inflation clearly running ahead of what the ‘experts’ had predicted). 

A lower base rate can certainly provoke that sort of economic stimulus.

One way or another – and this I suppose is the point, coming from a Richmond Estate Agent –, the housing market will benefit from it.

Mortgage lenders are not racing to bring rates down currently, as things stand in late October 2024. We saw a flurry of cuts to product rates in August and September, but lenders have started to inch their rates upwards again over the past few weeks – a little nervy perhaps about the upcoming fiscal event. The average two-year fixed rate is now 5.09%.

Price in this predicted number of base rate cuts though, over this sort of relatively short timescale, and of course assuming that Goldman Sachs knows its onions, one might reasonably predict that we can expect to see inclinational drops to mortgage rates alongside those drops to base rates as the next fourteen months progress – thus benefiting mortgage holders on both tracker/variable rates as well as fixed rates. As it happens, the wider prediction is that average two-year products will look a lot more like 3% (or in many cases lower) by this time next year. 

The reality is that, in Richmond Borough as much as everywhere else, life will go on – because life wants to go on. The Great British public does not enjoy being dictated to or pigeonholed; no matter your political persuasion – and in fact typically strengthened by it, whichever it leans – we tend to all want to push forwards. That means that whilst there has been a good amount of ‘hold on and see’ this year, things are finally starting to change.

The Budget, though…

I hear you. 

And, indeed, we don’t yet know for sure what will come of it. 

But, if Capital Gains Tax does go up, from 28% to 45% even, for some people, is that really going to stop the property investor selling at the end of a property’s useful investment life? An extra £17,000 loss on every £100,000 gain, compared to what it would have been if they had sold the property a year earlier, probably for £30,000 less, the way things are heading?

Is increased Inheritance Tax really going to stop a family selling the property of their deceased family member? No. It is uncomfortable and a little cold to look at it this way, but in economic terms, those sales will happen regardless – because by and large, in the case of a probate sale, they must. 

The hard reality is, that for sellers affected by increased Capital Gains or Inheritance Tax, it might well be really, really unfortunate, and many would say ‘unfair’ – but realistically, those properties (in most cases) will still need to be sold. Capital Gains affected sales are rarely on a whim, after all – and inheritance tax affected sales, as I have said – very sadly – can’t be helped. 

And that means that the Richmond property market, including Twickenham and Teddington, and alongside London in general and indeed the UK as a whole, will continue bumping along, because as we move through 2025 it looks like we will only be hearing ever-better news about an improving economy and improving mortgage rates. 

If that Goldman Sachs forecast is anything to go by, at any rate…

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