Market participants foresee Bank Rate cuts to 3.0 percent by year-end

Market participants anticipate a gradual reduction in Bank Rate, with the median expectation pointing to 3.50 percent by April 2026 and 3.25 percent by November 2026. By the first quarter of 2027, the median forecast suggests Bank Rate will reach 3.00 percent, aligning with the median expectation for the neutral rate.

For the 5 February 2026 meeting, 88.9 percent of respondents expected Bank Rate to remain at 3.75 percent.

However, for the 19 March 2026 meeting, the probability of 3.75 percent drops to 54.1 percent, with 42.3 percent expecting 3.50 percent.

The most likely trough rate for this cycle is seen at 3.25 percent (24.5 percent probability) or 3.00 percent (23.2 percent probability).

Respondents weighted their own perceptions of the UK outlook (45.3 percent) and MPC communications (30.8 percent) as the most important factors influencing near-term Bank Rate expectations.

Within the UK outlook, inflation outcomes (30.5 percent) and labour cost indicators (20.1 percent) were key subfactors.

Market participants expect CPI inflation to return to the Bank of England's 2.0 percent target by the second quarter of 2026, with the median forecast at 2.2 percent.

This expectation holds for one and two years ahead, reaching 2.0 percent three years ahead.

UK GDP growth is projected to remain modest, with median expectations of 1.10 percent for 2026 and 1.30 percent for 2027. Risks around the Bank Rate path over the next 12 months are seen as having a small upside from inflation expectations (51 respondents) and a small downside from consumption and labour demand (52 respondents).

Regarding the balance sheet, respondents foresee an annual reduction of £50 billion in gilts held in the Asset Purchase Facility for the October 2026–September 2027 cycle.

The median expectation for the 10-year gilt yield is 4.30 percent by end-June 2026, falling slightly to 4.25 percent by end-December 2026.