Bank Rate cuts expected from 2027, inflation outlook stable

Market participants anticipate the Bank Rate to remain at 3.75 percent until the November 2026 Monetary Policy Committee (MPC) meeting, according to the latest Bank of England survey.

The median expectation for the Bank Rate then falls to 3.5 percent by February 2027, 3.25 percent by March 2027, and 3.0 percent by the third quarter of 2027.

For the upcoming April 2026 MPC meeting, respondents assigned an 89 percent mean probability to the Bank Rate holding at 3.75 percent, with a 9.8 percent probability for a 4.00 percent rate.

Looking further ahead, the median expectation for CPI inflation is 2.8 percent one year ahead, and 2.2 percent two years ahead, indicating a return towards the 2 percent target.

This suggests a market view of sustained price stability following the initial period of rate maintenance.

Factors influencing Bank Rate expectations are primarily the direct impact of rising energy costs and indirect price pass-through, accounting for 37.9 percent of mean weighting.

Perceived risks of second-round effects in wage and price setting also contribute significantly.

UK GDP growth is projected at a median of 0.8 percent for 2026 and 1.1 percent for 2027, with long-run potential growth at 1.4 percent.

On inflation risks, a majority of respondents (34) believe upward pressure from second-round effects poses a greater risk than downward pressure from weakening economic activity, compared to 27 who hold the opposite view.

Market participants interpret the MPC's reaction function almost equally from collective and individual communications.