1. The recent outbreak of war in the Middle East has resulted in surging gas and oil prices. This could potentially feed into higher prices for UK households and businesses if the conflict, and disruption to energy distribution, is prolonged. It was widely anticipated that the Monetary Policy Committee would reduce the Bank Rate from 3.75% to 3.50% at their upcoming meeting on 19 March, but market sentiment now suggests this outcome is much less likely. Implied Bank Rate as derived from the OIS forward curve indicates a much shallower path for Bank Rate with the next cut not taking place for another 6 months.

2. In the past, the MPC tended to ‘look through’ externally generated shocks to inflation, as these were treated as transitory. However, since the pandemic and war in Ukraine some member of the MPC are placing more weight on the longer term effects on inflation (see speeches here and here). Therefore, it is quite possible the committee will take a ‘wait and see’ approach at the next meeting, despite the compelling evidence of disinflationary progress in the UK economy.
3. The latest Inflation figures show annual CPI inflation fell sharply to 3.0% in January, down from 3.4% in December 2025. Labour market data shows further softening with the unemployment rate reaching a five year high of 5.2% in October to December. Annual wage growth fell to 4.2% in the period, down from 4.4% in the three months to November. There are growing concerns over the pickup in youth (16-24 yrs) unemployment, which reached 16.1% in the final quarter of 2025. This is the highest since 2015 and above the EU average of 14.8%. There are several reasons for this including the increase in national insurance contributions and increase in youth minimum wage. The use of Artificial Intelligence could also be encroaching on entry level jobs, which may cause longer term structural changes in the labour market.
4. Growth in unsecured consumer credit, in particular credit cards remained strong in January, growing by 12.3% over the year, and the total amount of credit card debt outstanding reached a new all-time hight of £79.1 billion. With consumer spending still subdued, the growth in credit suggests households are taking on debt to maintain standards of living (rather than saving less) in the wake of higher inflation and unemployment.

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