Goldman Sachs expects prolonged BoE pause, sees next rate cut in 2027

March 20 (Reuters) - Goldman Sachs (GS) has pushed back its forecast for Bank of England interest rate cuts to 2027, after the central bank kept rates steady and flagged inflation risks from the war in the Middle East.

Goldman had earlier expected the BoE to begin cutting rates on a quarterly basis starting in July, but now anticipates a slower pace of reductions from next year to reach a 3% terminal rate, it said in a note on Thursday.

The BoE kept the Bank Rate steady at 3.75% on Thursday and said inflation could climb to around 3.5% over the next two quarters, adding it remains vigilant to the risk of higher inflation expectations becoming embedded in the economy.

The brokerage reiterated a significant risk of a near-term rate hike - potentially as early as the April meeting - if global energy prices continue to climb.

The Middle East war and the effective closure of the Strait of Hormuz have led to a surge in oil prices, raising fresh inflation risks across Europe and prompting major brokerages, including J.P.Morgan and Morgan Stanley, to delay their expectations for policy easing.

(Reporting by Joel Jose in Bengaluru; Editing by Sonia Cheema)