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goldman sachs group inc. of the united states has recently predicted that the european central bank and the bank of england will cut interest rates faster than previously expected due to weak economic growth.

goldman sachs chief economist jan hatzius wrote in a report that the bank now expects the ecb to cut interest rates continuously starting in december this year, rather than cutting interest rates every other meeting. hatzius' team also lowered the ecb's terminal interest rate forecast by 0.25 percentage points to 2%.

for the bank of england, goldman sachs expects it to cut interest rates in succession starting in november, with a larger cut than previously expected. although hartchus maintained his terminal interest rate forecast at 3%, this was lower than the market's expectation of 3.25%.

“recent inflation data has been a bit stubborn, which seems to have strengthened the resolve of hawkish officials to move more slowly,” hartchus wrote. “but with inflation falling further and growth continuing to be weak, we now expect back-to-back rate cuts starting in december.”

hartsch said that due to the weak performance of the manufacturing industry (especially in germany), they lowered their growth expectations for the eurozone. the report released at the beginning of the month showed that the final value of the eurozone manufacturing pmi in august was 45.8, slightly higher than the preliminary statistics of 45.6, but far below the boom-bust watershed of 50.

eurozone manufacturing pmi & industrial output annual rate

analysts believe that inflation in europe and the uk has been more stubborn than expected, mainly due to stronger wage growth. this has curbed expectations for aggressive easing this year, and officials have taken a more cautious stance. but as evidence of economic weakness continues to emerge, that narrative appears to be changing.

data earlier this week showed british wage growth fell to its lowest level in two years and the economy stagnated for a second month as momentum for a rapid recovery from recession faded. in europe, economic growth is faltering, with manufacturing activity remaining sluggish and household demand not enough to pick up the slack.

it is worth mentioning that goldman sachs' forecast was released a few hours before the ecb announced its decision. hartchus expects the ecb to cut its deposit rate by 25 basis points to 3.5% today, which is consistent with the overall expectations of economists.

the bank of england's most recent meeting is on september 19, and economists expect policymakers to keep their key interest rate unchanged at 5% at this month's meeting after cutting it by 25 basis points last month.