MUFG Sees March BoE Rate Cut Reinforced by U.K. Jobs Data, Sterling Under Pressure

06:22 AM EST, 02/17/2026 (MT Newswires) -- Fiscal risks in the United Kingdom have receded somewhat with the prospects of easing inflation and Bank of England rate cuts helping restore confidence to the Gilt market, which has eased fiscal sustainability risks, said MUFG.

The U.K. jobs data released Tuesday, in the bank's view, reinforces the prospect of a rate cut at the next meeting on March 19. Given the 5-4 split vote at the February meeting, what is key now for the March meeting is that there are no nasty inflation-related surprises that would see the momentum shift back toward renewed caution.

The inflation forecasts revealed by the BoE at the February meeting were certainly consistent with further easing -- at 1.8% in Q1 2028 and 2.0% in Q1 2029, stated MUFG. One key argument is that lower inflation should push down wage settlements.

Tuesday's data certainly confirmed a general further easing in wage growth, with the headline weekly earnings three-month year-over-year reading slowing from 4.6% (revised from 4.7%) to 4.2% in December, wrote the bank in a note to clients. The excluding-bonus measure slowed from 4.4% (revised from 4.5%) to 4.2%. The unemployment rate ticked higher by 0.1ppt to 5.2%.

Notably, the single-month unemployment rate hit 5.37%, the same level as the peak of the post-COVID fall-out in the labor market, pointed out MUFG. The one element of strength relative to expectations was the upward revision to pay-as-you-earn employment with the December reading revised from -43,000 to -6,000. The January reading was -11,000, a little better than expected. Still, the economy continues to shed jobs, just not at the pace previously reported.

Sterling (GBP) is the worst-performing G10 currency so far on Tuesday in response to this data and that underperformance could extend further if the consumer price index data on Wednesday doesn't show any upside surprises, added the bank. With Governor Andrew Bailey stating that he would approach each meeting asking "whether a cut is justified," it's clear where the bias lies with one key swing voter.

Tuesday's data will make Bailey more confident in cutting rates, according to MUFG. Policymaker Catherine Mann is also close to a cut based on her comments and Tuesday's data will make her more confident in cutting rates.

CPI data as expected on Wednesday, will reinforce the bank's view of a March rate cut and keep sterling under downward pressure.

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