Deutsche Bank’s Sanjay Raja expects the Bank of England (BoE) to keep Bank Rate at 3.75% in March, abandoning earlier expectations for an imminent cut as the Iran-related energy shock lifts inflation risks. The bank still projects two cuts in 2026, likely in June and November, but stresses that timing is highly uncertain and contingent on energy prices, core inflation and labour market dynamics.

BoE delays cuts as risks shift

"The MPC won't be rushed into a rate cut on 19 March.Geopolitical events have clouded the economic outlook. Barring an imminent resolution to the Iran shock, the effects on the economy will be meaningful, with GDP lower, unemployment higher, and inflation pushing well above the BoE's February projections."

"No rate cut in March. We recently changed our BoE call. A couple of weeks ago, a March rate cut seemed to us inevitable. Fast forward to today, however, geopolitical events have raised some serious upside risks to inflation."

"The decision. While we previously expected a rate cut in March, higher uncertainty in the inflation outlook will likely push back the prospect of further easing. We expect the MPC to keep Bank Rate steady at 3.75%. Put simply, the MPC won't be in any rush to cut Bank Rate."

"Our call. We still expect two rate cuts this year. But recent events have thrown off our previously expected course. The next rate cut, we think, will come in Q2-26 (June), when the MPC sees more evidence of falling core inflation (likely following the publication of the April CPI report) alongside a likely resolution of the Iran conflict."

"Risk to our call are tilting one way at this stage: to one or no further rate cuts this year. Indeed, should the energy shock result in a large and sustained increase in price pressures, the MPC may be minded to put any further rate cuts on the backburner. This could see terminal rate expectations for the MPC rise."

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