Bank of England: A spring cut is likely, but will it come in March or April?

After a close decision not to cut rates at the February meeting, hopes had been high that a rate cut was coming in March. However, after Bank of England members Andrew Bailey, Megan Greene and Huw Pill, appeared at the Treasury Select Committee on Tuesday, a seed of doubt has been cast on the timing and extent of future BOE rate cuts for this year.

Service price inflation keeps governor on edge

The Governor is expected to cast the deciding vote when the BOE next meets on 19^th March, and on Tuesday he sounded more worried about service price inflation than had been expected. Bailey said that service price inflation has been higher than expected. It  is rising at a 4.4% annual rate, and has been above 4% for close to 4 years. When spelled out like this, it is clear that service prices are still a major hurdle to future rate cuts, and March’s decision could be a closer call than some expect.

Hawks stick to their guns

Huw Pil and Megan Greene are noted hawks, and both sounded concerned about inflation and the pace of rate cuts. However, Pill did say that he was somewhat comforted by stable medium term inflation expectations. Greene, unsurprisingly, said that cutting rates too quickly could damage the BOE’s credibility and by slowing the pace of cuts, it gives the BOE room to respond effectively to a future demand shock, i.e. a recession.

This Treasury Select Committee hearing was dominated by the hawks at the committee, so it is not entirely representative of the rate setting board. The market reaction was muted, the interest rate probability market is still pricing in a 75% chance of a cut next month, down from 80%. There are still less than 2 cuts priced in for 2026 as a whole. After today’s Select Committee hearing, the chance of more ambitious cuts are less likely as sticky service price inflation puts the prospect of significant loosening of policy in the UK on hold.

Will Bailey wait to vote for a cut in April?

If Bailey is worried about service price inflation dynamics and is the committee member most likely to sway the balance at the BOE, then he may choose to wait until the BOE rate decision in April before he decides to cut rates.

In April, household bills will rise and the national living wage and minimum wage will also increase. All of these could change consumer behavior and impact long term inflation expectations. While a rising unemployment rate could mute some of the impact from minimum wage increases, there is a concern that this may not be enough to bring down certain aspects of inflation that are problematic.

Although the immediate market impact was muted, the 2-year Gilt yield rose 2bps, and underperformed the rest of Europe. Added to this, sterling was given a boost and ended up being the second-best performer in the G10 FX space on Tuesday.

Hearing increases tension before March meeting

Overall, today’s hearing increases the tension as we lead up to the March BOE meeting, and while a spring cut is still extremely likely, those hoping for an earlier cut could be disappointed.  

Chart 1: UK rate cut expectations for March 2026

 

Source: XTB and Bloomberg