Following the Bank of England's recent decision to hold rates, UBS is forecasting a 25 basis point cut in March. This comes after a surprisingly dovish split in the Monetary Policy Committee (MPC), with four members voting for an immediate cut. The central bank also revised its inflation projections downwards, further supporting the case for easing.

UBS analysts point to the BoE's revised inflation outlook as a key factor, now expecting inflation to reach 2.1% by Q2 2026. This is a substantial decrease from the prior forecast of 2.9%, suggesting that inflation pressures are indeed easing. Even traditionally hawkish policymakers seem to be softening their stance, indicating a shift.

Looking ahead, UBS projects an additional cut in June, bringing the terminal rate to 3.25%. The January inflation print, anticipated to show a decline to around 3% year-over-year, is expected to provide justification for the move. This assessment reflects a belief that the barriers to deeper rate cuts will diminish.

For investors, UBS recommends receiving 5-year Sonia, suggesting that stimulative policy should be taken seriously. The central bank's actions, coupled with the weakening labor market, support UBS's view for further monetary easing. This could impact bond yields and the broader market sentiment, signaling potential opportunities.