Morgan Stanley has updated its forecast for the Bank of England’s (BoE) next interest rate cut, now expecting a 25 basis point reduction in March 2026 instead of the previously anticipated February move, following data showing U.K. inflation rose more than expected in December. The shift mirrors a similar revision by UBS Global Research and underscores persistent price pressures in the British economy, despite sluggish growth and ongoing cost pressures on households.
The global brokerage also projects additional 25 basis point cuts in July and November 2026, diverging from its earlier forecast timeline. Analysts highlighted that while headline inflation remains elevated relative to the BoE’s 2% target, the pace of inflation is expected to slow materially in the coming months as utility and government-controlled tariff effects drop out of year-over-year comparisons. With the BoE widely expected to hold rates at 3.75% at its upcoming policy meeting, markets are now pricing in roughly 42 basis points of total rate cuts by year-end, according to LSEG data.
The timing adjustment reflects the interplay between inflation dynamics and the central bank’s cautious approach to balancing price stability and economic growth. While consumer price data surprised to the upside for the first time in months, labor market indicators and other macroeconomic metrics suggest a moderation in underlying demand pressures. Morgan Stanley’s revised forecast signals that policymakers may opt for a more gradual approach to easing monetary policy, contingent on inflation trending toward the BoE’s target and broader economic conditions stabilizing.
Market reactions were mixed, with sterling edging slightly higher against major currencies on the data surprise, while fixed income markets adjusted expectations for future monetary policy easing. Investors will be watching upcoming economic releases closely, as further data on wage growth, retail sales, and producer prices could influence the central bank’s policy deliberations and shape broader market sentiment in the months ahead.