07:15 AM EST, 02/20/2025 (MT Newswires) -- UBS said it changed its Bank of England policy rate call following strong inflation and labor market data over the last couple of days in the United Kingdom.

While the bank previously expected the BoE to accelerate the pace of easing in H2, UBS now predicts the BoE to continue its gradual pace of easing throughout this year.

More specifically, the new call assumes that the BoE will deliver three 25bps rate cuts this year (May/ August/ November) bringing Bank Rate to 3.75% by end-2025. For 2026, UBS now estimates the BoE to cut three times (February/ May/ August) to a terminal rate of 3.0%.

Overall, the new UBS call implies an unchanged terminal rate of 3%, although this would now be reached in H2 2026 rather than Q1 2026. The bank's call remains above market expectations of just over two rate cuts (-53bps) this year.

Despite more pronounced signs of improvement in underlying services inflation, with the bank's new forecast foreseeing inflation hovering around 3% this year, UBS thinks that the BoE will maintain its gradual approach to easing.

However, given the significant role of energy in UBS and the BoE's upward revision in the inflation projections, which, absent new shocks, would mechanically drop out in 2026, the bank forecasts inflation to approach the 2% target in Q2 2026, which UBS believes should allow the BoE to continue easing at a gradual pace.