We prefer short duration and no heroics

A rare 9–0 BoE vote couldn’t soothe markets in March 2026. War driven inflation risks, fading growth, and violent moves at the short end left UK rates caught between caution and fear.

March 2026 was a month that reminded us all why we keep a bottle of whisky in the bottom drawer. Between a surprise outbreak of central bank harmony, a war in the Middle East, and inflation doing its best impersonation of a boomerang, the UK money markets had plenty to chew on. If you were hoping for a quiet start to spring, well … bless your optimism.

Let’s start with the numbers, because nothing says “fun” like economic data. Inflation held steady at 3.0% in February—flatlining, but not in the comforting way. Core inflation even ticked up to 3.2%, which is the economic equivalent of your boiler making a weird noise just after the warranty expires.

Wages, meanwhile, are rising at their slowest pace since 2020. That’s great news for the Bank of England (BoE), which is terrified of wage-driven inflation. Less great if you’re trying to afford a pint and a packet of crisps without taking out a second mortgage.

Growth? Technically, yes. The economy grew 0.1% in Q4 2025, which is about as close to a flatline as you can get without needing CPR. Unemployment crept up to 5.2%, the highest since 2015, and consumer confidence is somewhere between “meh” and “I’m moving to Portugal.”

Retail sales bounced in January, but don’t get too excited—it was more of a dead-cat bounce than a sign of robust consumer health. The Office for Budget Responsibility had forecast 1.1% gross domestic product (GDP) growth for 2026, but that was before the Middle East decided to throw a spanner in the works. Now, even that modest number is looking a bit ambitious.

The unanimous unicorn

In a plot twist no one saw coming, the Bank of England’s Monetary Policy Committee (MPC) voted 9–0 to keep the Bank Rate at 3.75%. That’s right—unanimous.

This rare display of unity was prompted by the war in the Middle East, which had sent oil and gas prices soaring. The BoE, ever the cautious parent, decided now was not the time to fiddle with rates. Governor Andrew Bailey said they’re “assessing how events unfold,” which is central banker code for “we’re just as confused as you are.”

The MPC’s minutes were filled with phrases like “second-round effects” and “inflation expectations,” which roughly translate to “We’re worried people will start demanding pay rises again.” Chief Economist Huw Pill said he’s “ready to act.”

Panic at the short end

Markets did not take the BoE’s decision well. The 2-year gilt yield jumped 34 basis points in a single day—the biggest move since the 2022 Liz Truss mini-budget debacle. Traders, who had been dreaming of rate cuts, suddenly woke up to the possibility of hikes. It was like expecting a warm scone and getting a cold slap instead.

By late March, the 2-year yield was hovering around 4.6%, and the 10-year gilt yield hit 5.0%—its highest since 2008. The yield curve, which had been flatter than a pancake, is now doing a bit of a yoga pose: still slightly inverted, but with both ends pointing skyward.

SONIA, the overnight rate, is behaving itself, trading just below the Bank Rate. That suggests liquidity is still sloshing around nicely, even if everyone’s too nervous to spend it.

The political tight rope

Prime Minister Keir Starmer is currently starring in his own West End production: “Diplomacy on a Budget.” He’s trying to support Western allies without actually joining the war in Iran.

Public opinion is split, but leaning heavily toward “let’s not get involved, thanks.” Around 70% of voters oppose joining the US in offensive military action, and most think Trump’s latest escapade is a bad idea. Starmer has promised the UK won’t be drawn into a wider war, though he hasn’t ruled out helping to reopen the Strait of Hormuz.

Meanwhile, energy prices are climbing faster than a cat up a curtain. UK natural gas prices have nearly doubled, and petrol is once again a luxury item. The government has offered a £53 million support package for households, which should just about cover the cost of boiling the kettle a few times a week.

The BoE’s quiet diet plan

While everyone’s been distracted by war and inflation, the BoE has been quietly continuing its quantitative tightening (QT) program—essentially putting its balance sheet on a diet. They’re aiming to shed £100 billion in gilts this year, but like any good diet, they’ve already decided to cut back on the hard stuff. Long-dated gilt sales have been reduced to avoid spooking the markets, which is fair enough—no one wants a repeat of the 2022 pension fund panic.

Despite QT draining reserves, liquidity remains decent, thanks to the BoE’s repo operations. Think of it as the Bank taking with one hand and giving back with the other. Overnight funding markets are calm, and there’s strong demand for ultra-short-term instruments. Apparently, everyone wants to lend money for 30 days or less—because who knows what fresh hell April will bring?

Keep it short, keep it liquid

In times like these, we’re embracing the classic British approach: keep calm, carry on, and don’t do anything daft. We’re pulling back on duration and building liquidity. Why? Because the future is about as clear as a pint of Guinness.

With short-term yields looking attractive and long-term uncertainty looming large, we’re happy to park cash in short-dated instruments and wait for the fog to lift. There’s no need to chase yield at the long end when the short end is offering decent returns without the risk of getting whiplash from rate volatility.

Our advice? Stay nimble, stay liquid, and don’t forget to laugh. Cheers to calmer days ahead—and if not, at least we’ll have something to write about next month.