Two of the world’s largest investment banks, Goldman Sachs Group Inc (NYSE:GS, ETR:GOS) and JPMorgan Chase & Co (NYSE:JPM, ETR:CMC), have raised the prospect of high UK inflation following Labour Chancellor Rachel Reeves’ Autumn Statement.
“The rise in public spending is not just large, but is also front loaded and dominated by non-investment spending. We expected a slower rise.” said JPM analysts.
Inflation, therefore, will be higher than expected over the next two years, which in turn “indeed may increase the risk of a pause” on interest rate cuts, they added.
JPM raised the UK’s gross domestic product (GDP) forecast by half a percentage point, implying a 1.3% forecast given the bank’s 0.8% forecast outlined in May.
Fellow investment bank Goldman Sachs published a similar forecast.
Goldman analysts cancelled their expectation of a December rate cut, but they still expect to see one in November.
"Prospects for stronger 2025 growth are likely to reduce the urgency for sequential cuts in the near term," they said. "While a cut remains possible with large downside surprises to the data between now and December - particularly on inflation - we now believe that a pause is more likely."
Goldman increased its 2025 UK GDP forecast from 1.5% to 1.6%.
Inflation anxieties have also rattled the fixed-income market.
Yields on the UK 10-year gilt soared to a 12-month high following the Budget. Bond yields have an inverse relationship to their value.