Traders no longer price second BoE interest-rate cut this year

Traders no longer price second BoE interest-rate cut this year

Traders Scale Back Expectations for Further BoE Rate Cuts Amid Inflation Uncertainty

Following the Bank of England's (BoE) 25-basis-point rate cut in December 2025, which reduced the Bank Rate to 3.75%—its lowest level since 2022—market participants have tempered expectations for additional reductions this year. The decision, the first cut since August 2024, reflected easing inflation and signs of economic strain, though a divided Monetary Policy Committee signaled lingering uncertainty about the path forward.

The MPC voted 5–4 in favor of the cut, with four policymakers preferring to maintain rates. This split has led traders to reduce forecasts for further easing, as concerns persist about inflation's trajectory. While UK inflation fell to 3.2% in November 2025—the lowest in eight months— it rebounded in February, with food price inflation rising to 4.3%. This uptick, driven by higher grocery spending and seasonal demand, has raised alarms among inflation hawks at the BoE, complicating the case for additional cuts.

Policymaker Alan Taylor highlighted risks of "deficient demand," noting weaker-than-expected inflation, higher unemployment, and cooling wage growth over 2025–2026. He warned that the BoE could soon face a scenario where inflation undershoots the 2% target, necessitating a shift in policy. However, recent geopolitical tensions, including Middle East instability and potential energy price spikes, have added volatility to inflation projections.

The BoE's next rate decision is scheduled for March 19, 2026, with officials emphasizing that future moves will depend on evolving inflation data and economic conditions. While the central bank anticipates inflation returning to 2% by spring 2026, persistent cost pressures and global uncertainties suggest a cautious approach to rate cuts.

For now, traders are pricing in a lower probability of a second cut in 2026, reflecting the BoE's balancing act between inflation control and economic resilience. As Taylor noted, the MPC remains vigilant against both inflationary and deflationary risks, underscoring the complexity of navigating a fragile recovery.