Bank of England signals rate cuts to come in 2026
Today’s Bank of England decision to keep rates on hold at 3.75% was in line with expectations, but the tone of the minutes and press conference was not, indicating that the Bank rate was likely to be reduced further, and dropping the reference to gradual cuts. The Bank revised down it’s projection for UK GDP growth to 0.9% in 2026, CPI inflation to just 1.8% by end-2027 and the unemployment rate up to 5.3% on average this year. Governor Andrew Bailey refused to be drawn on whether 3.25% was a likely end-point for rates this year, but said the curve was in a ‘reasonable’ place. Sterling pushed through 87p against the euro, 3-swap rates fell to 3.55%, with options pricing in an 80% probability of two cuts in Bank rate to 3.25% by end-2026, following today’s decision.
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