Bank of England Governor Andrew Bailey told the Treasury Committee that he expects inflation to return close to target in April. He said a possible interest rate cut in March is “a genuinely open question”.
He said that if inflation returns to target, there could be room to ease monetary policy further. He added that he will go into the next meetings asking whether a cut is justified.
Inflation Target And Rate Cut Timing
He said he expects there may be room for some further easing this year. However, he did not commit to any specific timing.
Looking back at early 2025, the Bank of England suggested a rate cut could come as soon as March. The view then was that inflation would quickly return to the 2% target by April 2025, which would allow policy to ease. This gave markets a dovish signal at the time.
But the first cut did not happen until May 2025. Later cuts then took the Bank Rate down to the current 4.5%. Inflation did fall, but it has stayed higher than hoped. The latest Office for National Statistics data shows the UK Consumer Prices Index was 2.9% in January 2026, still above target.
Because inflation remains persistent, the case for further rate cuts is less clear than it was a year ago. As traders, we should consider that the market may be too confident about how fast easing will happen. That can create opportunity in interest rate markets.
Trading Implications For Rates And Fx
We think traders should consider options on SONIA futures to position for rates staying higher for longer. Current market pricing appears to expect two more cuts by the end of 2026. That may not happen if inflation stays elevated. Buying options that benefit if rates remain at or above 4.5% could be a sensible approach.
For currency traders, this uncertainty can increase volatility in the British pound. The recent rise in the pound to $1.27 suggests the market is scaling back bets on large BoE cuts. We think option straddles on GBP/USD around upcoming BoE meetings can be a good way to trade the chance of sharp moves in either direction.
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