Rabobank no longer expects any BoE rate cuts this year

4th Mar 2026 14:42

(Sharecast News) - Rabobank said on Wednesday that it no longer expects the Bank of England to cut rates this year, citing the surge in natural gas and oil prices in the wake of the Iran conflict.

The Dutch bank had previously forecast cuts in March and June, based on the view that domestic demand growth was weak enough for the risk of further labour market weakness to outweigh the risk of persistent inflation.

"The surge in natural gas and oil prices has now put that expectation into question," it said in a note. "Unless the situation in the Middle East resolves quickly, the UK economy faces a negative supply shock."

Rabobank said higher oil prices will feed through quickly in UK inflation, and - if sustained - higher natural gas prices will push inflation higher from July onward. "We have therefore decided to remove the rate cuts from our 2026 forecast. If the energy market stabilises earlier than we expect, we will re-evaluate," it said.

Rabobank said the energy shock could easily add around 65 basis points to UK inflation by mid-year, pushing it back toward 2.7% instead of the 2% previously forecast.

Separately, ING said it now expects the BoE to cut rates in April, although March is "still a distinct possibility" if Middle Eastern tensions de-escalate rapidly.

ING pointed out that markets are now pricing in just a 20% probability of a March rate cut, down from 80% before the Iran conflict.

"We are pushing back our call for the next cut to April, though we wouldn't rule out a move this month. Remember, those who have voted for rate cuts at recent meetings have done so because the labour market is getting weaker. That hasn't changed," said developed markets economist James Smith.

"Still, the Bank of England has shown itself to be particularly sensitive to supply-driven spikes in headline inflation, more so than the Federal Reserve or the European Central Bank.

"Last summer's hawkish response to higher food prices made that abundantly clear. Chief economist Huw Pill has often cited 3.5-4% as a level for headline CPI which, if reached, is statistically much more likely to morph into a longer-lasting bout of price pressure."

Smith said UK inflation could peak at 3.5% this year if energy prices stay around current levels into the second quarter.