The week ahead 23 March 2026 - Rate cuts shelved as oil price surges
What to watch out for in the UK economy and property market this week.
Prior to the outbreak of the war in the Middle East, the Bank of England Monetary Policy Committee (MPC) was strongly hinting a Base Rate cut was imminent. Last week saw the MPC vote unanimously to leave its policy interest rate unchanged; as did the US Federal Reserve and the ECB. This occurred to the backdrop of a rollercoaster ride for financial markets, particularly oil and gas. The MPC is now on difficult ground, as weak GDP and labour market data justify a rate cut; but the inflation outlook is highly uncertain. So, rate setters have decided to pause while events play out. Read our full analysis of the Bank of England Base Rate decision.
While UK electricity and gas bills will fall next month when the new Ofgem price cap comes into force, energy consultancy, Cornwall Insights, has forecast that they could rebound in July. A rise for the average bill of £332 a year, or 20% on the April level, is predicted. This comes as the latest labour market figures showed pay growth slowed again in January, and was marginal in real terms. If we add on rising petrol prices, UK households look set to see their finances come under pressure again this year.
Gilt yields have risen since the war began, and reached 5.0% on Friday, marking a 12-month high. Concerns over the impact of the war are now dominating, pushing bond yields higher around the world; although the UK has been harder hit than other G7 nations. In part, this is because hedge funds bought gilts pre-war believing Bank of England rate cuts were coming, but are now unwinding those bets. Some investors feel that compared to other large nations, the UK government lacks fiscal latitude should the war become prolonged and hit the economy. One Financial Times columnist noted anecdotally that to this day, some international investors still cite the Truss government’s ‘mini budget’ in 2022 as a reason to apply extra caution toward the UK.
This week sees data released for the UK on business activity, inflation and retail sales.
The PMI business activity index is based on a survey of firms, whose results are converted into a score, which if it is above 50.0 indicates growth for the commercial side of the economy. The January and February numbers were relatively strong, but given the outbreak of war in the Middle East, we are expecting a fall in March. That said, it is probably too soon for the hit to businesses to be great enough to push the index below the 50.0 mark. The April figures will be the bigger test.
The inflation numbers coming out this week are for prices in February, and while they are expected to show a slowdown, that will provide little guide on where inflation is going in the coming months.
The January retail sales numbers were quite punchy, but that owed much to the seasonal sales. Also, some exceptional parts of the retail sector, like online sales of gold bars, were buoying the data, and we do not view that as sustainable. Indeed, rising retail gold bullion purchases often indicates consumer nervousness. Presently, it is a difficult time for households, as pay growth has been decelerating. Consequently, we believe the rate of growth for retail sales probably slowed in February.
This week's figures
Tuesday 24 March
UK ‘Flash’ Composite PMI, March
53.7 previous
51.0 forecast
Given the uncertainty created by the Middle East war and consequent spike in energy prices, we believe business activity has probably slowed, but it is too soon after the outbreak of fighting for the index to have dropped below the pivotal 50.0 mark.
Wednesday 25 March
UK CPI Inflation, y-on-y, February
3.0% previous
2.8% forecast
We are forecasting a deceleration for inflation in February, as this pre-dates the outbreak of the war. The outlook for inflation is clouded, and a rise later in the year of some degree is now widely anticipated.
Friday 27 March
UK Retail Sales Volume, y-on-y, February
4.5% previous
1.7% forecast
After a strong January, driven by discounting, we believe the squeeze on household finances from decelerating wage growth probably led to a slowdown for retail sales growth in February.
