The Bank of England (BoE) is set to announce its monetary policy decision on Thursday, alongside other major European central banks, amid heightened uncertainty caused by the ongoing war in Iran, which began in late February [3]. The conflict has disrupted energy supplies and pushed up inflation expectations across Europe, leading to a reassessment of interest rate forecasts. Prior to the conflict, markets had priced in an 80% chance of a March rate cut by the BoE, but this likelihood has sharply diminished as rising oil prices have lifted inflation expectations in the United Kingdom [1][3]. Economists now say the fallout from the war has left the likelihood of a cut in March 'all but gone' [3].
The UK labor market report, released by the Office for National Statistics (ONS) on Thursday at 07:00 GMT, is also in focus. The Claimant Count Change for February is expected to ease to 25.8K from 28.6K in January, with the Claimant Count Rate previously at 4.4% [1]. Average Earnings including bonuses in the three months to January are expected to accelerate 3.9%, down from 4.2% prior, while ex-bonuses wages are expected to rise by 4.0% against the previous 4.2% [1]. The ILO Unemployment Rate (3M) may tick up to 5.3% from 5.2% prior, and Employment Change showed an increase of 52K in the previous quarter [1].
Market participants are closely watching the BoE's vote split, with a 6–3 outcome signaling a more dovish tilt than the expected 7–2 consensus [1]. The GBP/USD pair is trading around 1.3270, with technical analysis indicating weaker momentum (14-day RSI at 38) and immediate support at the three-month low of 1.3218 recorded on March 13 [1]. The upside for GBP/USD may be restrained as the US Dollar could regain traction amid a more hawkish Federal Reserve outlook; the Fed left rates unchanged at 3.50%–3.75% at its March meeting, with Chair Jerome Powell noting that inflation may ease gradually but at a slower pace than previously anticipated, and rising oil prices are likely to push inflation higher in the near term [1].
In the GBP/JPY cross, spot prices are nearly unchanged for the day, trading around 211.85-211.80, as traders await the BoE policy update and monthly UK employment details [2]. Investors have abandoned bets on two UK rate cuts this year, instead pricing in a greater chance of a hike in November due to the energy shock from the Middle East conflict [2]. The Bank of Japan (BoJ) left rates unchanged at its March meeting, citing concerns that the surge in crude oil prices could weaken economic growth, and escalating geopolitical tensions have benefited the safe-haven Japanese Yen [2].
Analysts expect the BoE and other European central banks to stress heightened geopolitical uncertainty and signal a more hawkish tone in their statements, rather than move policy immediately [3]. PIMCO's Konstantin Veit anticipates that new staff projections will show a short-term inflation overshoot driven by higher energy prices, with headline inflation peaking at around 3% this year and energy contributing roughly 1 percentage point [3].
CONCLUSION
The Bank of England's March rate cut is now seen as highly unlikely due to the inflationary impact of the Iran conflict and surging energy prices. Markets are focused on the BoE's policy statement and vote split for signals on future direction, with analysts expecting a more hawkish tone. The GBP remains sensitive to both domestic employment data and global geopolitical developments, resulting in high market impact and cautious trading.