Bank of England Poised for March Rate Cut as Labour Market Deterioration Accelerates

5 predicted events · 5 source articles analyzed · Model: claude-sonnet-4-5-20250929

Current Situation: Labour Market Weakness Creates Window for Easing

The UK labour market has shown significant deterioration, with unemployment climbing to 5.2% in the fourth quarter of 2025—the highest level since the pandemic era and a five-year peak. As reported across multiple Bloomberg sources on February 17, 2026, this development has fundamentally shifted market expectations around Bank of England monetary policy, with traders now cementing bets on at least two interest rate cuts during 2026. According to Article 3, the Office for National Statistics data reveals not only rising unemployment but also easing wage growth, presenting a dual signal that inflationary pressures from the labour market are subsiding. This combination of factors has given monetary policymakers the clearest justification for resuming their easing cycle since the BOE began raising rates to combat inflation.

Key Trends and Market Signals

Several critical trends emerge from the recent data: **Labour Market Cooling**: The 5.2% unemployment rate represents a significant deterioration from previous quarters, suggesting that economic activity has slowed more than anticipated. The simultaneous easing in wage growth indicates that workers' bargaining power has diminished, reducing one of the key transmission channels for inflation. **Market Positioning**: Article 4 notes that traders have increased their bets on BOE rate cuts following the jobs data, while Article 5 confirms market expectations have solidified around two cuts for 2026. This rapid repricing of expectations suggests the data came in weaker than consensus forecasts, catching some market participants off-guard. **Policy Window Opening**: Article 2 explicitly states the jobs data gives "green light" to a March BOE cut, reflecting analyst consensus that the Monetary Policy Committee now has sufficient justification to act at its next meeting.

Predictions: What Happens Next

### 1. March Rate Cut Highly Likely (90%+ Probability) The Bank of England will almost certainly cut interest rates by 25 basis points at its March 2026 policy meeting. The convergence of rising unemployment and cooling wage growth provides the dual mandate justification the BOE needs. With inflation pressures easing from the labour market and economic growth showing weakness, the central bank has limited reason to maintain its current restrictive stance. The timing is particularly significant: waiting until May or beyond risks allowing labour market conditions to deteriorate further, potentially necessitating more aggressive action later. Governor Andrew Bailey and the MPC have historically preferred gradual, data-dependent adjustments rather than playing catch-up to economic conditions. ### 2. Second Cut in Q2 or Q3 2026 As Article 4 indicates, traders are now cementing expectations for two cuts in 2026. The second cut will likely materialize in either May or June, depending on subsequent data releases. If unemployment continues rising or remains elevated above 5%, and wage growth continues its downward trajectory, the BOE will have clear justification for continued easing. However, the timing and certainty of this second cut will depend heavily on: - Inflation trajectory over the next quarter - Consumer spending and retail sales data - Business investment figures - Any external shocks from global trade or geopolitics ### 3. Sterling Weakness Against Major Currencies The prospect of two rate cuts in 2026 will put downward pressure on the British pound, particularly against currencies where central banks are maintaining higher rates or cutting more slowly. Expect GBP/USD to test lower levels as interest rate differentials narrow. This currency weakness may actually provide some offset to economic weakness by supporting export competitiveness. ### 4. Potential for More Aggressive Easing if Conditions Deteriorate While current market pricing suggests two cuts, there's a realistic scenario where the BOE needs to cut three or even four times if the labour market continues weakening at the current pace. A 5.2% unemployment rate, while concerning, is not yet in crisis territory. However, if this rises to 5.5% or 6% by mid-year, the BOE may need to accelerate its easing cycle.

Risk Factors and Alternative Scenarios

Several factors could alter this baseline prediction: **Inflation Resurgence**: If services inflation proves stickier than expected or commodity prices spike, the BOE may need to pause after an initial cut, creating a one-and-done scenario for the first half of 2026. **Global Economic Shock**: Any major disruption to global trade, financial markets, or geopolitical stability could either accelerate easing (if it creates recession risks) or constrain it (if it triggers inflation). **Fiscal Policy Response**: The UK government may respond to labour market weakness with fiscal stimulus, potentially reducing the need for aggressive monetary easing.

Conclusion

The February 17 jobs data has fundamentally reset the trajectory for UK monetary policy. The combination of five-year high unemployment and easing wage pressures has created a clear path for the Bank of England to resume cutting interest rates, with a March move now appearing inevitable and a second cut later in 2026 highly probable. Market participants who failed to price in this deterioration have rapidly adjusted positions, and this repricing is likely to continue as the March meeting approaches. The key question is no longer whether the BOE will cut, but whether two cuts will prove sufficient or if further labour market deterioration necessitates more aggressive action.