UK CPI and Labour Market data point to March rate cut

Together, yesterday’s UK labour market data indicating the unemployment rate rose to 5.2% in Q4 2025 and this morning’s CPI data showing inflation falling to 3% in January, copperfasten the likelihood of a 25bp rate cut at the Bank of England’s March 19th meeting. However, we still believe the market is underpricing the likelihood of rates being cut to 3% by end-2026, such is the deterioration in the UK labour market. Notably, the ‘single-month’ measure of the unemployment rate rose to 5.4% in December, so the headline 3-month average rate should rise above 5.2% next month. Also, recent PMI and Recruitment Employer Confederation (REC) surveys paint a bleak view, pointing to further job cuts in early 2026.

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Bank of Ireland Economics Weekly February 13th 2026 Bank of Ireland Economics Weekly February 18th 2026