At the Treasury Select Committee (TSC) hearing following the February Monetary Policy Report, Bank of England (BoE) Governor Andrew Bailey struck a cautiously dovish tone, suggesting that with inflation returning to target, there should be scope for further monetary policy easing. He said he would head into upcoming meetings asking whether a cut was justified, stressing that a move at the next meeting was "a genuinely open question." While he expects inflation to return close to target in April and broadly sees room for cuts over the course of this year, he was careful not to pre-commit.

On the latest data, Bailey noted that headline inflation had come in broadly as expected. Goods price inflation was softer than anticipated, possibly reflecting developments in China, but services inflation had not eased as much as the Bank had hoped, a reminder that domestic price pressures remain sticky.

Chief Economist Huw Pill sounded more guarded. He acknowledged that in the past, the Bank may have placed too much weight on inflation being at the target at a point in time rather than focusing on future risks. In his view, the job of bearing down on inflationary pressures is not yet complete, implying that caution is still warranted even as the discussion shifts towards potential easing.

Taken together, the message was that cuts are clearly on the table for 2026, but not on autopilot. The direction of travel may be towards gradual easing, yet the pace will depend heavily on how services inflation and broader domestic pressures evolve in the months ahead.

Market reaction

The British Pound (GBP) now manages to gather fresh steam, prompting GBP/USD to advance to daily highs north of 1.3500 as investors continue to assess comments from BoE rate setters, while the US Dollar (USD) is also giving up some of its earlier gains.