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The Bank of England is expected to keep the Bank Rate unchanged at 3.75% in a 7-2 vote split. The central bank is likely to adopt a “wait and see” approach amid the US-Iran war and the energy price shock, but maintain an easing bias. The extent and timing for further rate cuts will likely hinge on the duration of the US-Iran war as the BoE should acknowledge that policy will need to remain restrictive to avoid second-round inflation risks.The UK labour market report today showed some welcome easing in wage growth with steady unemployment rate and much higher than expected jobs gain. The February PMIs were also positive with the S&P Global noting that business activity continued to pick up across the UK service economy, with growth holding close to the five-month high seen at the start of 2026. The latest UK inflation report saw the Headline CPI Y/Y easing to 3.0% and the Core CPI Y/Y to 3.1% in January (we will get the February report next week). The economic backdrop before the US-Iran war started wasn’t bad at all, we just had the usual labour market slack that kept putting downward pressure on inflation and justifying BoE rate cuts. In fact, just before the war started, the market was pricing more than 80% chance of a rate cut today given last meeting’s dovish hold.Now, traders are pricing in 36 bps of tightening by year-end, with a 50% chance of a rate hike in June. This is just due to the US-Iran war and the energy price shock. That’s why the BoE will feel more comfortable holding rates steady given the geopolitical uncertainty, but if the conflict and the disruption in the Strait of Hormuz was to last much longer and raise inflation expectations, the central bank might eventually need a rate hike.
This article was written by Giuseppe Dellamotta at investinglive.com.
💡 DMK Insight
The Bank of England’s decision to hold the Bank Rate at 3.75% signals a cautious stance amid geopolitical tensions and energy price volatility. With a 7-2 vote split, the central bank is clearly divided, reflecting uncertainty in the economic outlook. Traders should note that this ‘wait and see’ approach could lead to increased volatility in the GBP, especially if inflationary pressures persist or worsen due to external factors like the US-Iran conflict. The easing bias suggests that if conditions deteriorate, we might see rate cuts sooner than expected, which could weaken the pound further. Keep an eye on the 1.25 level for GBP/USD; a break below could trigger more selling pressure. Conversely, if inflation data surprises to the upside, we might see a rally back towards 1.30. Here’s the thing: while the mainstream narrative focuses on the rate hold, the real story is how external shocks could force the BoE’s hand. Watch for any comments from policymakers in the coming weeks, as they could provide clues on future monetary policy shifts.
📮 Takeaway
Monitor GBP/USD closely around the 1.25 level; a break could signal further downside as the BoE navigates geopolitical risks.
