Australia's gross domestic product (GDP) growth of 0.8% in the fourth quarter of 2025 was in line with expectations, but household consumption was softer than expected, said Bank of America (BofA) in a Thursday report.

BofA expects household consumption growth to moderate in 2026 as higher interest rates constrain spending, with nearly 95% of mortgages currently on variable rates.

Higher energy prices should also weigh on sentiment and pose a headwind, BofA added.

Solid domestic demand in Q4, 2025, coupled with upside risks to inflation from energy prices, reinforces that risks are skewed towards the cash rate rising above 4.1% in 2026, the report said.

BofA maintained its expectation that the Reserve Bank of Australia will hold rates in March amid elevated geopolitical uncertainty.