Markets are greatly underestimating the likelihood that the Bank of England will need to speed up the pace of interest rate cuts, Goldman Sachs has argued. They forecast that UK interest rates could drop to 3.

As the Bank of England scrambles to unwind the disastrous effects of quantitative easing, the hidden costs of this policy are becoming clear, says Damian Pudner Quantitative easing (QE) has long been the Bank of England’s monetary policy nuclear option.

Goldman Sachs has issued a new forecast that UK interest rates would fall from the current figure of 4.75 percent to 3.25 percent by spring of 2026.

Inflation in the U.K. unexpectedly fell in December, a move that will likely fuel pressure on the Bank of England to cut interest rates again next month

The Bank of England's Monetary Policy Committee (MPC) uses interest rates to put a brake on the nation's spending.

The Bank of England looks set to resume cutting interest rates next month after official data revealed weaker inflation and anaemic economic growth.

Latest data from the Office for National Statistics ( ONS) showed regular earnings up 5.6% in the quarter, up from, 5.2% in the previous three months. In real terms, after taking inflation into account, that means regular pay growth rose 2.5%, the highest rate since the summer of 2001.

Wage growth increased by 3.4% after taking into account inflation, driven by strong increases in the private sector.

Alan Taylor, the most recently appointed member of the Bank's monetary policy committee (MPC) said the UK is 'in the last half mile on inflation' and called for a pre-emptive cut

Markets are significantly underestimating the chance that the Bank of England will have to step up the pace of cutting interest rates.

Analysis: Milder inflation has brought hope that the Bank of England may lower interest rates, saving borrowers vast sums on loans and mortgages

The Bank of England should move quickly to bring down interest rates given signs of a slowdown in Britain's economy, Alan Taylor, the BoE's most recently appointed interest rate setter, said on Wednesday.