Live Markets Bet on Spring Rate Cut as UK Inflation Falls to 3%

Published: 19 February 2026. The English Chronicle Desk. The English Chronicle Online

Financial markets in the United Kingdom are increasingly priced for an interest rate cut this spring after fresh inflation data reinforced hopes that price pressures are continuing to ease. Traders and investors reacted positively to new Consumer Prices Index (CPI) figures showing that annual inflation fell to 3.0% in January, the lowest level since March 2025, down from 3.4% in December. This sharper-than-expected decline has strengthened expectations that the Bank of England (BoE) will begin to reduce its base interest rate when policymakers next convene in March.

The slowdown in inflation was driven in part by lower petrol and airfare costs as well as softer food price growth, easing the cost-of-living pressures experienced by households over recent months. Core inflation — which strips out volatile food and energy prices — also edged lower, adding to the sense among economists that disinflationary forces are gaining traction. Although inflation remains above the BoE’s 2% target, the downward trend has encouraged markets to price in a high probability of at least a quarter-point rate cut in March, with many forecasting a move from 3.75% to 3.50%.

Market indicators reflect this shift in sentiment. UK government bond yields have fallen, the FTSE 100 index climbed to record levels, and sterling weakened slightly against major currencies — all classic reactions when traders anticipate easier monetary policy ahead. Analysts have pointed to a combination of inflation data and weaker labour market signals as key drivers behind the growing bets on rate cuts.

Despite the optimism, some economists caution that decisions at the BoE’s Monetary Policy Committee will remain data-dependent. Services inflation — often stickier than goods prices — still sits above desirable levels, and policymakers could hesitate to move too quickly if underlying price pressures prove resilient. Nonetheless, with inflation trending down and the economy showing signs of softening, markets are now widely expecting the BoE to deliver its first rate cut of the year in the spring, with the possibility of further cuts later in 2026 if disinflation continues.

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