Bank of England March Rate Cut Bets Surge After Weak Jobs Data
Financial markets have sharply increased expectations for a March rate cut from the Bank of England after fresh labor data signaled a clear slowdown in the UK economy.
Key Takeaways
- Markets price an 82.9% chance of a March rate cut by the Bank of England.
- UK unemployment rose to 5.2%, the highest in five years (ex-pandemic).
- Private wage growth slowed to 3.4%, easing inflation concerns.
- Traders expect total cuts of 50 bps in 2026, pushing rates toward 3.25%.
According to the latest report from the Office for National Statistics, unemployment climbed to 5.2% in the three months to December 2025, marking the highest level in five years outside the pandemic period. At the same time, private sector wage growth cooled to 3.4% annually – a level increasingly viewed as compatible with the central bank’s 2% inflation target.
The combination of rising joblessness and softer pay growth has dramatically shifted rate expectations.
Markets Move Aggressively Toward March Cut
Interest-rate futures now assign an 82.9% probability to a 25 basis point cut in March 2026, up from roughly 73% just days earlier. Traders are also fully pricing in a cumulative 50 basis points of easing by year-end, which would lower the benchmark Bank Rate to 3.25%.
Currency and bond markets reacted immediately. The British pound weakened against both the US dollar and the euro, while 10-year gilt yields declined as investors anticipated lower borrowing costs ahead.
The repricing suggests investors increasingly believe the Bank’s tightening cycle has run its course.
Labor Market Signals Turning Point
Several key data points reinforced the market’s dovish interpretation:
- Unemployment rose from 5.1% to 5.2%, confirming gradual labor market softening.
- Regular pay growth excluding bonuses slowed to 4.2% overall. Crucially, private sector pay growth eased further to 3.4%, down from 3.6% previously.
- Payroll employment declined by 130,000 throughout 2025, with preliminary estimates indicating continued weakness into January 2026.
- Youth unemployment climbed to 14%, the highest level in more than a decade outside pandemic distortions.
The steady deceleration in private wages is particularly important, as it has been one of the Bank’s primary inflation concerns.
Divided Interpretations Inside the Debate
Markets appear firmly in the “dovish” camp, arguing that labor market slack is building and wage pressures are fading. From this perspective, maintaining restrictive policy risks overtightening an already fragile economy.
However, more cautious voices highlight lingering risks. Public sector wage growth remains elevated at 7.2%, and minimum wage increases of up to 8.5% scheduled for April could reintroduce upward price pressures later in the year.
Business leaders, meanwhile, argue that rising unemployment reflects policy burdens, including higher National Insurance contributions and mandated wage hikes that have discouraged hiring.
On the fiscal side, some economists warn that additional government tightening and stagnant output – with GDP growth of just 0.1% in Q4 2025 – could force even deeper rate cuts, potentially toward 3% if conditions deteriorate further.
For now, markets are betting that March will mark the start of a new easing phase – a decisive shift from the inflation fight that has defined UK monetary policy for the past several years.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
