The Bank of England on Thursday looks set to delay an interest rate cut that seemed a sure bet before the war in the Middle East, and it will probably sound vague about its next steps while it waits to see the extent of the inflationary shock.
The BoE has cut borrowing costs more slowly than the European Central Bank since 2024 because of its worries about Britain’s stubbornly stronger price pressures.
Just when it looked like British inflation was going to drop to the BoE’s target of 2% and stay there, the jump in oil and gas prices threatens to push it back up to 3% or higher.
INVESTORS RETHINK THE OUTLOOK
That is still a far cry from the peak of 11.1% in 2022 after Russia’s full-scale invasion of Ukraine caused a much bigger spike in energy prices.
But investors have ditched bets that the BoE would cut rates twice this year. On Wednesday, they were pricing the chance of a hike by November as a strong probability.
Most economists think a pause in the BoE’s run of rate cuts is more likely than a full U-turn by the Monetary Policy Committee given the fragile state of the UK economy.
“We see a high hurdle for hikes,” James Moberly, senior UK economist at Goldman Sachs, said. “Unlike in 2022, the starting point for monetary policy is restrictive and the MPC faces a trade-off given that the unemployment rate is already elevated.”
Britain’s jobless rate rose to 5.2% in late 2025, its highest in nearly five years, but wage growth of 4.2% remains too strong for many BoE officials’ liking.
The MPC will have had an early view of new labour market data due for publication at 0700 GMT on Thursday.
Moberly said he expected the BoE would cut interest rates in July, assuming the disruption to shipping in the Strait of Hormuz is resolved soon.
Other major central banks meeting this week, including the ECB on Thursday, are also likely to tread warily due to the uncertainty caused by the war.
7-2 VOTE FOR A PAUSE SEEN AS MOST LIKELY
A Reuters poll of economists pointed to a 7-2 vote by the MPC’s nine members to keep Bank Rate on hold at 3.75% when the committee’s March decision is announced at 1200 GMT.
Before the conflict, Governor Andrew Bailey – who has been the swing voter in the MPC’s last three decisions – said he viewed a March rate cut as “a genuinely open question”.
With no press conference scheduled after the announcement and no new economic forecasts due to be published, investors will study individual committee members’ comments to get a sense of any changes in their views.
Analysts expect that most will not send clear signals about what they might do next and that the MPC statement will drop recent guidance that rates are likely to fall further.
(Writing by William Schomberg）
