The Bank of England may be inching closer to its first rate cut since the tightening cycle began, as economists forecast a further slowdown in UK inflation for March. The latest CPI report, due this week, is expected to show easing price pressures, potentially giving policymakers room to shift toward a more accommodative stance.
Annual headline inflation is projected to fall to around 3.1% in March, down from 3.4% the previous month, edging closer to the BoE’s 2% target. Core inflation, a key measure watched closely by the central bank, is also seen moderating. If confirmed, the data would reinforce growing expectations that the BoE could deliver a rate cut as early as May, marking a major policy pivot amid signs the UK economy is stabilizing.
Markets have already started pricing in a 25-basis-point cut, with short-term interest rate futures showing a nearly 60% probability of easing next month. The pound has come under mild pressure as a result, while gilts have rallied in anticipation of a more dovish turn from the central bank.
“There’s a clear shift in tone from the BoE,” said a London-based economist. “If inflation continues to decelerate and the labor market holds up, a May rate cut is very much in play. It’s about timing now, not if, but when.”
Despite lingering concerns about services inflation and wage growth, policymakers appear more confident that the worst of the inflation surge is over. Recent BoE commentary has emphasized a data-dependent approach, with Governor Andrew Bailey noting the importance of upcoming CPI releases in shaping policy decisions.
Investors will closely monitor this week’s inflation figures and any subsequent BoE remarks for signals on the path ahead. A meaningful downside surprise in the data could cement rate-cut expectations, potentially accelerating moves in currency and bond markets.
