Bank of England to Cut Rates in March, Timing of Further Cuts Unclear

• The Bank of England is expected to cut its policy rate in March, according to a majority of economists surveyed in a Reuters poll. At its February meeting, the Bank held the Bank Rate at 3.75% in a narrow 5–4 vote, marking the third consecutive closely split decision. Governor Andrew Bailey voted to keep rates unchanged. However, 41 of 63 economists now expect a 25-basis-point cut on March 19, which would bring the policy rate down to 3.50%.
• While a March cut is increasingly viewed as the base case, economists remain divided on the timing of any additional easing. Many anticipate a second rate reduction later in 2026, but uncertainty persists over whether it will occur in the second quarter or in the second half of the year. Median forecasts suggest Bank Rate will end 2026 at 3.25%, implying two total cuts this year.
• Market participants are similarly split. Among Gilt-Edged Market Makers surveyed, projections for year-end rates ranged widely from 3.75% to as low as 3.00%. When asked about the likely number of reductions this year, economists were nearly evenly divided between expecting one to two cuts and two to three cuts, reflecting ongoing uncertainty about inflation dynamics.
• Inflation remains the central risk factor shaping policy expectations. Although January consumer price inflation is expected to ease to 3.0% from 3.4%, it remains well above the Bank’s 2% target. A majority of economists expect second-quarter inflation to exceed the BoE’s own forecast of 2.1%. Underlying inflation is estimated at around 2.5%, and some analysts believe both headline and core inflation could remain near that level through year-end, potentially limiting the scope for aggressive easing.
• The Bank of England expects inflation to move closer to target by April or May due to temporary effects from regulated prices and fiscal measures. Wage growth is forecast to slow to 3.3% by year-end, consistent with inflation returning sustainably to target. However, some strategists have expressed surprise at the Bank’s relatively low 2026 inflation projections.
• The broader economic backdrop is modestly weak. Britain’s economy barely expanded in the fourth quarter of 2025, and growth is projected at 1.0% this year and 1.4% next year, largely unchanged from previous estimates. While this sluggish growth supports the case for rate cuts, persistent inflation pressures are keeping policymakers cautious.

(Source: Reuters)