Financial markets now expect an interest rate cut in March, rather than April, following the Bank of England meeting that saw no change to interest rates on Feb. 6. The BoE governor hinted at possible rate cuts in the near future and noted falling inflation as “good news” amid market volatility and political scandal in the UK.

Futures markets now give a 65% chance of a rate cut on March 19, with the odds highest for another cut in June. November’s prediction of hitting the 2% inflation target in Q2 has shifted to April, but swaps markets still foresee just one rate cut in 2026, bringing the bank rate down to 3.5%.

The monetary policy meeting highlighted the terminal rate of interest, marking the end of a cutting cycle that started in August 2024. Dr. Catherine L. Mann emphasized the significance of the neutral rate, which influences decisions on mortgages and credit. Uncertainty remains about the terminal rate, but swaps markets indicate a 50 basis point decrease by the end of 2026.

Bank Governor Andrew Bailey expressed confidence in the Bank of England’s ability to maintain financial stability amidst volatile asset markets and political uncertainty in the UK. Despite mixed reactions from economists and investment banks, some analysts predict rate cuts in March and June, emphasizing the cautious stance of the Bank and the division within the Monetary Policy Committee.

Read more at Morningstar: Markets Bet on March Rate Cut as BoE Governor Focuses on ‘Good News’