ING analysts Benjamin Schroeder and Michiel Tukker say Bank of England expectations have shifted notably as markets reassess inflation risks from Middle East tensions. Where traders once saw an 80% chance of a March rate cut and two cuts fully priced for year-end, they now see only a 20% chance this month and just a slim probability of a second cut in 2026.

Cut odds reduced on inflation risk

"That is still a clear hiking bias versus a cutting bias before the turmoil. The inflation scare is still prevalent, and it is not too difficult to construe a scenario where energy supply remains disrupted for longer."

"But central banks' reaction functions will differ, not just given the different exposures to the Middle East energy supply."

"The Bank of England appears more sensitive to the inflationary impact stemming from Middle East turmoil, as our economists point out."

"What had looked like an 80% probability of a cut this month from the market's perspective has now been pared back to a 20% probability."

"Two cuts were fully priced by the end of the year."

"Now, there is only a slim chance of a second cut being priced this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)