Nomura says higher oil prices and stronger UK data have made the Bank of England’s March rate decision a close call. It still forecasts a 25 basis point cut in March and another 25 basis point cut in June. Market pricing for a March cut shifted from over 21 basis points last Friday to about 13 basis points. The key issue is whether higher oil prices could push up inflation enough to delay a cut.

Oil Risks And The March Decision

Nomura points to risks linked to the Middle East, including shipping through the Strait of Hormuz and any damage to GCC oil and gas infrastructure. These factors could affect energy prices in the coming weeks. It also cites February data including private regular wage growth, persistent services inflation, a large jump in retail sales, and PMI figures that beat forecasts. Nomura says this data raised doubts about how confident markets were about a March cut. Upcoming releases before the 19 March decision include the Decision Maker Panel survey on Thursday, another UK labour market report on the morning of the decision, and a preliminary estimate of February CPI due the following week. Nomura says evidence of easing wage growth and services inflation would support a March cut, while further Middle East military action could raise the chance of no change. Looking back to early 2025, we recall how the Bank of England’s March decision became a very close call due to a spike in oil prices and stronger domestic data. Markets, which had been leaning towards a rate cut, were forced to quickly reassess that view. The Bank ultimately held rates steady, a move that punished traders who were positioned too aggressively for an ease.

Implications For UK Rates Trading

Now, in the first week of March 2026, a similar pattern is emerging, making the memory of last year particularly relevant. Brent crude has been trading firmly above $85 a barrel, and the latest wage growth figures from January came in at a sticky 5.8%. This persistence in price pressures suggests the Bank may once again be hesitant to cut rates at its upcoming meeting. For derivative traders, this means pricing for volatility in the UK interest rate market is crucial. The uncertainty suggests that options on SONIA futures, which profit from price movement rather than direction, could be more prudent than outright bets on a rate cut. The experience of March 2025 showed us that the market can turn on a dime when the data contradicts expectations. Upcoming data releases are now the most important factor to watch, just as they were last year. The labour market report, due just before the Bank’s next decision, will be critical. Any sign that wage growth is not cooling sufficiently could cause the market to rapidly price out any remaining chance of a near-term cut. The geopolitical situation impacting energy markets remains a significant wild card. Any further disruptions to supply could give the Bank of England another reason to stay on hold to counter inflationary risks. Therefore, any positions betting on lower UK rates should be carefully managed against movements in the price of oil. Create your live VT Markets account and start trading now.

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