Closing post
Time to wrap up….
Bank of England policymakers have left interest rates unchanged at 3.75%, but indicated that lower inflation as a result of cost-of-living measures in Rachel Reeves’s budget should pave the way for cuts in the months ahead.
The nine-member monetary policy committee (MPC) voted to leave borrowing costs on hold, despite forecasting weaker growth and lower inflation than at its last quarterly forecast in November.
But the narrower than expected 5-4 split in the MPC’s voting suggested further reductions in borrowing costs were to come. The committee has cut rates six times since mid-2024.
Andrew Bailey, the Bank’s governor, who voted to hold rates, said:
“We now think that inflation will fall back to about 2% by the spring. That’s good news. We need to make sure inflation stays there, so we’ve held rates unchanged at 3.75% today. All going well, there should be scope for some further reduction in bank rate this year.”
During a press conference, Bailey said he was ‘shocked’ by recent revelations of communications between Peter Mandelson and Jeffrey Epstein during the financial crisis.
“How is it that we live in a society in which this happened while the cover-up happened as well?
I think that is a very fundamental question that we have to ask ourselves.”
An emotional Bailey contrasted Mandelson’s actions with the late chancellor, Alistair Darling, who he said acted “with a thorough sense of honesty and decency”
He also said the Bank was seeing evidence that AI was hitting hiring across the UK.
Economists expect the Bank to cut interest rates at least two times this year, with Unicredit predicting four cuts by Christmas, bringing rates down to 2.75%.
In other news….
Rio Tinto and Glencore have abandoned plans for a megamerger that would have created the world’s largest mining group.
Bailey: 50:50 odds of rate cut in March 'not a bad place to be'
The City money markets are indicating there’s a 50:50 chance that the Bank of England cuts interest rates at its next meeting in March.
And BoE governor Andrew Bailey has told Bloomberg TV that that’s reasonable, and “not a bad place to be”.
Bailey says:
“So I think going into March, 50-50 is not a bad place to be... because in a sense markets are asking themselves the same question that I’m asking.”
Deutsche Bank’s chief UK economist, Sanjay Raja, also predicts a UK rate cut in March – but only two during 2026 as a whole.
Raja says:
We continue to think that further rate cuts are coming. We stick to our call for the next Bank Rate cut to come in March and a final rate cut to come in June taking Bank Rate to 3.25% - broadly consistent with our estimate of neutral.
What do we need to see for a Q1-26 rate cut? Data coming broadly in line with the Bank’s projections. Risks are still skewed to a slower pace of rate cuts. But we remain confident that Bank Rate will be cut twice this year.
Unicredit: Bank will cut rates in March
Analysts at Unicredit predict the Bank of England will manage four quarter-point cuts to UK interest rates this year.
They told clients that today’s decision to leave rates unchanged was “a dovish hold”, adding:
The BoE narrowly voted to leave the bank rate unchanged at 3.75% today. The BoE’s communication was dovish in several ways: a knife-edge vote split, downward revisions to the BoE’s growth and inflation forecasts, and a more balanced risk assessment.
We still expect the BoE to cut the bank rate four times this year, to 2.75%. This is likely to include a rate cut at the next meeting on 19 March.
Quiz cutting jobs as administrators called in
Fashion retailer Quiz has closed its website and cut 109 head office and warehouse jobs after calling in administrators for the second time in a year.
The company, which employs 565 people in total and was founded in Scotland in 1993, said it would continue to trade from its 40 stores and seven concessions while administrators from advisory firm Interpath consider options for its future. Further Quiz concessions trading in New Look and Matalan stores in the UK, are not part of the administration process.
Quiz, which delisted from the Aim junior stock market in January last year and then closed 23 stores after falling into administration in February 2025, has been struggling for some time amid heavy competition in the fashion market and the closure of many department stores where it previously ran concessions. In 2019 it operated form 246 outlets including 75 standalone stores but some closed after it called in administrators in 2020, during the covid-19 pandemic.
Alistair McAlinden, head of Interpath in Scotland and joint administrator, said:
“With Quiz the latest retailer to fall into administration, there’s no doubt it’s been a tough start to 2026 for the UK high street.
“It’s our intention to continue to trade all stores and the concessions in Ireland as a going concern for as long as we can while we assess options for the business. We are tremendously grateful for the support of Quiz’s employees and directors who will work alongside us as we trade the business over the coming weeks.”
Anyone who has made a purchase from Quiz online but whose items have not been despatched will not receive their items and those awaiting a refund will not receive one from Quiz. Administrators said those customers should contact their card provider for assistance. Anyone wishing to return an item bought online can seek a replacement or substitute at a store.
Customers who have made a purchase via the website prior to [5 February 2026] and who now wish to return the item(s) will not be able to return goods in the usual manner.
Customers are consequently advised to go to their nearest Quiz store where a replacement or substitute item(s) equal to or less than the value of the original purchase can be provided.
Shares in Glencore have tumbled by around 8%, as City investors react to the news that merger talks with Rio have floundered.
Rio Tinto’s shares are down 1.9%.
Rio Tinto: merger talks with Glencore are off! (again)
Newsflash: Hopes of a mega merger in the mining sector have been dashed, again.
Rio Tinto has announced that it is no longer considering a possible merger or other business combination with Glencore.
It took the decision after concluding “it could not reach an agreement that would deliver value to its shareholders,” Rio told the City.
It adds:
Rio Tinto assessed the opportunity and came to this view through the disciplined lens set out at its Capital Markets Day in December 2025 - prioritising long-term value and delivering leading shareholder returns.
Under City rules, Rio cannot now bid for Glencore for six months.
The two companies had begun talking about a merger that would create the world’s largest mining company in January, almost a year after previous discussions between the two mining companies collapsed.
US job cuts surge to highest January total since 2009
In another blow, job cuts in the US surged in January, a closely watched survey shows.
The consultancy firm Challenger, Gray, & Christmas has reported that job cuts jumped to the highest level for any January since 2009.
They say US-based employers announced 108,435 job cuts in January, more than double the 49,795 cuts announced in the same month last year, and three times more than were announced in December,
Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas, says:
Generally, we see a high number of job cuts in the first quarter, but this is a high total for January. It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026.
Updated
Over in the US, the number of job vacancies has fallen sharply.
The latest JOLTS jobs report show that the number of job openings fell by 386,000 in December to 6.5 million
The number of job openings decreased in professional and business services (-257,000), retail trade (-195,000), and finance and insurance (-120,000).
This may be a sign that the US labour market is cooling, or that companies are turning to artificial intelligence systems rather than hiring staff.
The eurozone is seeing “significantly higher” levels of investment in artificial intelligence, which is likely to boost productivity and growth in the future, Christine Lagarde said at today’s European Central Bank press conference.
The ECB president said investment has been “one of the good news stories as far as the European economy is concerned” - especially private sector investment in AI.
Lagarde said by this she meant “everything to do with AI”, including licensing deals and building data centres or hardware for AI products.
She told reporters in Frankfurt:
The really interesting thing from our perspective is how it [AI] will impact productivity and how it will contribute to inflation, depending on the level of improved productivity. There is a little bit of that [happening], but it’s going to take a while to unleash.
The ECB said the eurozone economy expanded by 0.3% in the final quarter of 2025, with growth mostly driven by the services, “notably in the Information and Communications sector.”
Lagarde said the “adoption of productivity enhancing reforms and new technologies” by eurozone firms may drive up growth by more than expected in the future, by having positive effects on business and consumer confidence.
Updated
Berenberg bank are predicting that the Bank of England will cut UK interest rates to 3%, from 3.75% today, by the end of 2026.
Andrew Wishart, senior UK economist at Berenberg, says:
We predict a larger 75bp reduction in bank rate this year. Indications of reasonable economic momentum at the start of the year mean that next meeting, on 30 March, may be too soon for the next cut.
However, it will be difficult for spending and activity to maintain momentum amid fiscal consolidation and a deceleration in household income growth. Meanwhile, growing competition between a rising pool of jobseekers battling for few available roles will likely cause wage inflation to slow more sharply than the forward-looking surveys predict.
As a result, inflation is likely to remain close to 2% from Q2 onwards. This will allow the BoE to shift its focus to stabilising employment with three more 25bp interest rate cuts.
Updated
At their respective press conferences today, Bank of England chief Andrew Bailey and ECB president Christine Lagarde both welcomed the nomination of Kevin Warsh to run America’s central bank.
Both Bailey and Lagarde signed a letter last month expressing “full solidarity” with outgoing Federal Reserve chair Jerome Powell, as he faced investigation from the Department of Justice.
Donald Trump has now chosen Warsh to succeed Powell as Fed chief in May, once he is approved by the Senate….
Eurozone interest rates also left on hold
Over in Frankfurt, the European Central Bank has also left interest rates on hold.
The ECB’s governing council voted to leave the rate on its deposit facility at 2%.
The rate on its main refinancing operations (where banks borrow from the ECB for a week) remains at 2.15%, while the marginal lending facility (providing overnight credit) sticks at 2.4%.
We kept our key interest rates at their current levels.
— European Central Bank (@ecb) February 5, 2026
We did this because we see inflation stabilising where we want it to be: 2%.
Read today’s monetary policy decisions https://t.co/YDUtYLHQxy pic.twitter.com/2SRFCdxWJf
ECB president Christine Lagarde told reporters:
Our updated assessment reconfirms that inflation should stabilise at our two per cent target in the medium term. The economy remains resilient in a challenging global environment. Low unemployment, solid private sector balance sheets, the gradual rollout of public spending on defence and infrastructure and the supportive effects of our past interest rate cuts are underpinning growth. At the same time, the outlook is still uncertain, owing particularly to ongoing global trade policy uncertainty and geopolitical tensions.
We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.
Q: Does the political uncertainty facing the UK widen the ranges [of potential scenarios] that the MPC has to take into account?
Governor Andrew Bailey says policymakers don’t spend their time discussing political risk, although obviously they take market pricing into account (so if political turmoil moves the markets, it will influence the Bank’s forecasts).
And asked if the UK has sufficient safeguards regarding protection of sensitive information, in the light of the Mandelson-Epstein mesages, Bailey insists there is a “clear and unambigous legal framework” for dealing with market-sensitive information. The matter is now in the hands of the police.
Updated
Bailey: Alistair Darling was doing all the right things (unlike ...)
Bank of England governor Andrew Bailey has added his voice to those condemning Peter Mandelson for leaking market-sensitive information at the time of the global financial crisis, our economics editor Heather Stewart writes.
“I am shocked by what we are hearing,” Bailey said (see earlier post), when asked about the revelations at a Bank press conference.
We do learn from that that there are times when … lobbying happens which has ethics attached to it which I do find shocking, frankly.
Asked again about his personal feelings, Bailey, who worked with the Treasury on the response to the 2008 financial crisis, appeared to become emotional as he compared the actions of Mandelson to those of the late chancellor, Alistair Darling.
Bailey reminds journalists at the Bank that he and his colleagues at the press conference, Clare Lombardelli and Dave Ramsden, all knew Darling (who died in 2023).
His voice trailing off, Bailey says:
One of the things I think we all three of us can say: to see those pictures of Peter Mandelson with Alistair Darling. Alistair Darling was doing all the right things, and he was doing them with a thorough sense of honesty and decency, and he can’t speak for himself today, sadly.
Updated
Bank seeing evidence AI leading to reduced hiring
Q: Does the Bank of England believe AI will bear down on the jobs market and lead to job losses?
Andrew Bailey says history shows there will be a lag between AI take-up and the pass-through into productivity. He cites the fact it took 30 years between Edison inventing the lightbulb before this innovation showed up in higher productivity.
He also cites new research published on the Bank’s excellent Bank Underground blog – which shows there are a number of employment effects that come through from AI.
Some take employment down, and others take it up, and the “timing profile” of those two effects are different.
He adds that the Bank is seeing evidence of reduced hiring in some areas.
Bank: We have some Venezuelan gold
The Bank of England is a little cagey about how much of Venezuela’s gold is in its vaults.
This is a hot issue at present, as Caracas has been blocked from repatriating the gold following the disputed outcome of Venezuela’s presidential elections in 2018.
With former president Nicolás Maduro now seized by US officials, the question is…
Q: Does the Bank of England still have 31 tonnes of Venezuelan gold?
Andrew Bailey tips the question over to deputy governor Dave Ramsden.
Ramsden rather fudges the answer, saying that the Bank’s “very significant gold custody operation” is conducted under great confidentiality.
However, because the Venezuelan bullion is in an ongoing court case, he can confirm that the Bank does have “some Venezuelan gold” in its vaults, but he won’t say how much.
January was a very busy month in the gold department generally, Ramsden adds.
Q: Do you agree with the market participants who think the Labour leadership turmoil is the biggest threat to economic growth and market stability?
Andrew Bailey insists he won’t talk about politics, at all.
Whatever happens in politics, what is more important is what’s going on in the underlying economy, he insists.
Q: Do you see any evidence that the political uncertainty created by the Mandelson issue is affecting the pound, or UK gilts?
Andrew Bailey points out that the early rise in gilt yields (which we covered earlier) have pretty much reversed (partly because
All market conditions this morning have been entirely orderly, he insists.
Deputy governor Dave Ramsden also tried to dampen down the suggestion that political instability was worrying markets. He says what we’re saying today is “tiny, in perspective”, compared to the volatility last April when Donald Trump announced his ‘Liberation Day’ tariffs.
Analysis: Why the Bank of England is holding rates despite a weakening economy
Bank of England governor 'shocked' by Mandelson-Epstein revelations
Bank of England governor Andrew Bailey has revealed he was shocked by this week’s revelations about Peter Mandelson’s behaviour during the financial crisis.
Asked if he has any reflections about Mandelson’s conduct, following the news that he was passing Jeffrey Epstein information including a eurozone bailout, UK bankers bonus tax proposals, and Gordon Brown’s resignation plans after the 2010 election, Bailey says “I am shocked by what we are hearing”.
Bailey reminds reporters that he had to give evidence a year ago in a legal case (brought by former Barclays CEO Jes Staley, who had ties to Epstein.) relating to his time at the Financial Conduct Authority.
He adds:
I am shocked about what we now learn about what went on during the financial crisis period.
And Bailey offers two reflections.
The first is that “the most important thing in all this is the victims”.
The second: “How is it that we live in a society in which this happened, and the cover-up happened too. These are questions that we all need to ask,” Bailey adds soberly.
Updated
Q: Is this a question of when, not if, rates are cut, asks Sky News Paul Kelso.
Bailey says he does think it likely that there are further rate cuts to come.
But he says there is a lot of uncertainty over what the ‘neutral rate’ of interest rates is (the rate which would allow inflation to settle at target).
Q: How can you say its ‘good news’ that inflation will hit target in April, when you’ve not cut rates today? Shouldn’t you react now to rising unemployment and weak growth?
Andrew Bailey insists that today’s inflation predictions are good news – adding that the Bank’s job is to keep inflation sustainably on target.
Updated
The Bank of England are now being grilled by economic journalists about today’s narrow decision to leave UK interest rates on hold.
Q: Given the weak outlook for inflation, why wasn’t there a majority to cut rates today?
Governor Andrew Bailey says the Bank needs to see this pattern [of falling inflation] emerge, and also see more evidence that inflation will return to target sustainably.
He adds that the Bank needs to be focused on underlying inflation, rather than simply reacting to the various shocks that have hit the economy in recent years.
This fan chart shows the Bank of England’s inflation forecasts for the coming years (darker parts of the chart are seen as more likely).
On the dilemma facing the Bank, governor Bailey explains that cutting Bank rate too quickly or by too much can lead to inflation pressures persisting (bad).
But waiting to long risks a sharper downturn in activity (also bad!).
Chart: Why Bank expects inflation to fall
Governor Bailey: there should be scope for further easing
Bailey then says recent developments have given ‘more confidence’ that inflation is on track to fall to its 2% target soon.
Happily, monetary policy is not being hit by ‘big new shocks’, he continues.
So, with inflation falling to target “there should be scope for some further easing in monetary policy,” Bailey promises.
But, services inflation and wage growth needs to fall further for the Monetary Policy Committee to be confident that inflation will fall to 2% and stay there.
Bailey: UK to hit inflation target a year earlier than expected
The Bank of England is giving a press conference now to explain today’s decision to leave interest rates on hold.
Governor Andrew Bailey starts by saying his main message is “one of good news”.
The disinflation process is on track, he declares, and looks to be ahead of schedule compared to the Bank’s expectations in November.
He point out that CPI inflation has fallen from 3.8% in September to 3.4% in December, which is a little lower than expected.
Bailey says the Bank expects inflation to decline to about 3% in January, February and March, and then reach a level close to its 2% target in April – “and we think then staying there”.
That point of reaching near to the target is about year earlier than we expected when we were last here back in November.
Updated
Quilter: much closer split than expected
Lindsay James, investment strategist at Quilter, says:
In its first interest rate decision of the year, the Bank of England has held rates at 3.75%, with five members of the monetary policy committee voting for a hold while four voted for a 0.25% cut.
This is a much closer split than had been expected, and the Bank’s stance has shifted somewhat, clearly outlining that it expects rates to be cut further based on the current evidence.
Updated
The City had predicted a 7-2 split today, so the news that four(!) Bank policymakers wanted to cut rates was a shock.
The structure of the monetary policy committee appears to have crystallised into four doves (deputy governors Sarah Breeden and Dave Ramsden, and external members Swati Dhingra and Alan Taylor), and three committed hawks (deputy governor Clare Lombardelli, chief economist Huw Pill, and external member Megan Greene).
That leaves governor Andrew Bailey as the swing voter (his vote was decisive for the December rate cut) and the fourth external member, Catherine Mann, who switched from the doves to the hawks, and back again, last year. Mann has advocated an “activist monetary policy strategy” to cope with current uncertain times.
Updated
Schroders: cuts are not a matter of if, but when.
George Brown, senior economist at Schroders, has rapidly analysed today’s BoE decision, and says:
Today’s rate decision was seen as a foregone conclusion, but the Bank’s close vote to hold rates suggests cuts are not a matter of if, but when.
The Bank’s guidance had been cautious and non‑committal, reflecting unease about the persistence of underlying inflation. That had left Governor Bailey holding the deciding vote - an unusually fine balance that underlines just how delicate this stage of the rate cycle has become. But his messaging suggests there should be further easing, with Mann also now leaning towards easing rates. The temporary disinflationary window ahead should offer enough cover to justify one or two more cuts.
However, the Bank will have to act soon if it intends to cut, before that window closes and the opportunity for further easing slams shut in the second half of the year.
Updated
City traders scramble to price in more rate cuts this year
In the City, investors are scrambling to reassess how many interest rate cuts we may get before Christmas.
Having seem the Bank split 5-4 on today’s decision, they’re now expecting more cuts this year.
The money markets are now pricing in 50 basis points (half a percentage point) of cuts by the end of this year, up from 35bps just before the Bank’s announcement at noon.
That means two quarter-point cuts are now fully priced in.
TUC: We need a rapid-fire sequence of rate cuts
The TUC are calling for a “rapid fire sequence of rate cuts” in the months ahead, after seeing the Bank of England – narrowly – sit on its hands today.
TUC general secretary Paul Nowak said:
Working people in every corner of the country are still being hammered by the living standards crisis.
The Bank of England has a crucial role to play in easing pressures for mortgage payers, and boosting confidence across the economy so the UK can get back to stronger and sustainable growth.
The Bank was too cautious last year. They should go further and faster with a rapid-fire sequence of rate cuts in the months to come.
Updated
BoE: Bank Rate is likely to be reduced further (but not today)
The Bank of England is hinting that it expects to cut interest rates at future meetings, saying:
On the basis of the current evidence, bank rate is likely to be reduced further. Judgments around further policy easing will become a closer call.
Updated
Why the Bank was split on rate decision
The minutes of this week’s meeting show that there was a wide spread of views about the risks of inflation, and thus whether to cut interest rates today or not.
Indeed, the five policymakers who were successful in holding interest rates don’t seem to agree about the situation – and were in two camps about how quickly inflation would fall.
The Bank says:
Five members (Andrew Bailey, Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill) preferred to maintain Bank Rate at 3.75% at this meeting. These members recognised that progress in disinflation had continued. While the lower near-term outlook for inflation was welcome, it remained to be seen how this would pass through into wage and price-setting in the economy. For three members in this group (Megan Greene, Clare Lombardelli and Huw Pill), a more prolonged period of policy restriction was likely to be warranted to mitigate the remaining risks that inflation could settle above the target, but they would continue to assess the evidence. The other two members in this group (Andrew Bailey and Catherine L Mann) had greater confidence that this risk would be mitigated by the lower near-term path for inflation and placed greater emphasis on the risks to inflation from weaker activity, but neither member judged that the weight of evidence was yet sufficient to warrant reducing Bank Rate at this meeting.
Four members (Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor) preferred a 0.25 percentage point reduction in Bank Rate at this meeting. These members judged that the risk from greater inflation persistence had receded materially, and thought it likely that inflation expectations would normalise once inflation itself returned to around the target. These members attached a greater weight to the risks to inflation from weaker demand. For these members, monetary policy was still too restrictive, and a further cut in Bank Rate was warranted at this meeting.
Bank split 5-4 on rate decision
Oh wow. The Bank of England came very close to cutting interest rates today!
Four of the Bank’s nine policy makers – Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor – wanted to cut rates to 3.5%.
But the other five – Andrew Bailey, Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill – outvoted them, and voted to maintain Bank Rate at 3.75%.
That means governor Bailey was, again, the swing voter – as he had voted with the other doves in December in the narrow vote to cut rates then.
Updated
Bank of England interest rate decision
Newsflash: The Bank of England has left UK interest rate on hold today, at 3.75%.
That matches economist forecasts, as inflation rose further over its target in December.
More to follow….
Matthias Scheiber, senior portfolio manager and head of the multi asset team at Allspring Global Investments, says:
The BoE is likely to leave rates at 3.75% this Thursday. Faster than expected cooling in inflation is offset by stubbornly high wage growth while economic growth seems to have picked up again.
Inflation is expected to fall back to 2% in spring because of the cost-of-living measures announced by the government. We still expect the BoE to cut interest rates at least one more time, possibly more this year.
This should ease the burden on mortgage payments, and the housing market has lately shown signs of recovery.
Updated
Bank of England rate decision coming up....
Tension is ratcheting up as we await the Bank of England’s decision on interest rates, at noon today.
The City are expecting the BoE to leave interest rates on hold, at 3.75% – with just a 4% chance of a cut.
The Bank last cut its rates in December, from 4% to 3.75% – but a cut today does seem unlikely as inflation has risen further from its target.
Dan Coatsworth, head of markets at AJ Bell, sets the scene:
“Markets are currently pricing in a 96% chance of no change to interest rates when the BoE policymakers sit down today, with the next cut not expected until April.
“Barring a huge turn up for the books, attention will be centred on the balance of votes and whether this shifts the calculus on the timing and trajectory of rate cuts through the remainder of 2026.
IG: Starmer’s travails cause losses in sterling and gilts
Keir Starmer’s travails are causing losses in sterling and gilts today, reports Chris Beauchamp, chief market analyst at IG.
With UK borrowing cost still higher today (see earlier post), and the pound still down against the US dollar (see here), Beauchamp says:
The relative calm in UK borrowing costs following the budget has come to an abrupt end as the PM’s leadership comes under threat. Investors are clearly wary of the consequences of what will follow from Keir’s possible defenestration, given the wide field of leadership candidates from the various sections of the Labour Party.
A rerun of the disastrous Truss premiership is unlikely, but a more left-wing leader devoted to higher spending might upset the delicate balance in UK government borrowing markets, leading to higher borrowing costs.
Updated
The ‘wisdom of the crowds’ suggests no change in interest rates today, professor Costas Milas of the University of Liverpool tells us:
The BoE should keep interest rates unchanged based on the wisdom of the crowds.
Indeed, as I discuss in my latest piece for LSE Business Review, public expectations of inflation have recently been more accurate than the BoE’s own inflation forecasts. The public currently predicts inflation in excess of 3% for 2026Q1 which suggests no change in Bank Rate either today or next month (on the 19th of March).
Critical minerals summit yields agreements
The US-led critical minerals summit on Wednesday involving 50 countries has unleashed a slew of agreements aimed at loosening the grip of China on more than 25 key elements, both in their raw form, and processed.
The EU and the US have announced joint intentions to work closer together, committing to a memorandum of understanding in the next 30 days.
The two will also work with Japan on building additional supplies, following a separate US Japan arrangement signed in October.
The US state department said it had signed 11 bilateral deals on critical minerals at the summit, convened by state secretary Marco Rubio.
Patrick Schroeder, senior research fellow at Chatham House’s Environment and Society Centre said the opening speeches by Rubio and vice president JD Vance made it clear the driving interest was that the US wanted to secure supplies for AI development.
Schroeder said:
Although they didn’t say it explicitly, it is still America first. It was framed as ‘America needs your help.’ There was no mention of renewables.
Separately Germany is closing in on a deal with Australia after separate talks in Canberra between foreign minister Johann Wadephul and Penny Wong.
And South Korea, which was also at the summit involving around 50 countries, announced it would also cooperate with other countries including the US, Vietnam and Laos while allocating about $172.35m (£127m) of state funds to support local companies developing overseas mines.
Picking up on Canada prime minister Mark Carney’s much-quoted speech at Davos about the need for “middle powers” such as Canada and Europe to work together, Wong said: “As middle powers, we want to contribute to a world where no country dominates and no country is dominated,” she said.
“We must diversify our supply chains, and we must cooperate as closely as possible,” said Wadephul on Thursday.
“We want to eliminate that problem of people flooding into our markets with cheap critical minerals to undercut our domestic manufacturers,” Vance told a gathering of visiting ministers in Washington without mentioning China.
Updated
Pound loses almost a cent against the US dollar amid Mandelson crisis
Back in the financial markets, the pound has dropped by almost a cent against the US dollar now.
Sterling has slipped to $1.3555, still its lowest in almost two weeks, as City traders anticipate the Bank of England’s interest rate decision… and watch pressure build on Keir Starmer.
Michael Saunders, a former Bank of England interest rate setter and current senior economic advisor with Oxford Economics, suggested yesterday that a change in leadership would have implications for the markets.
It could lead to a further shift to ‘tax and spend’ (under Angela Raynor), increased borrowing for the nationalisation of utilities (Andy Burnham), persistent low inward migration (Shabana Mahmood) or a more pro-EU stance (Wes Streeting).
Saunders says:
“We doubt any of these alternatives would significantly lift potential economic growth in the next few years.
“Indeed, tax and spend or persistent low net migration would probably damage potential growth. But a major shift to closer EU trade links could boost potential growth in the medium term.”
Updated
UK construction shrinks again, but 'tailspin' may be over
Britain’s construction sector continued to contract last month, but the worst of the downturn may be over.
Data firm S&P Global has reported that the decline in UK construction activity slowed in January, to the smallest drop in seven months. But, housebuilding, civil engineering and commercial building activity all continued to drop.
House building was the weakest-performing segment in January, S&P Global’s poll of purchasing managers has found, though the pace of contraction eased to its slowest for three months.
Survey respondents cited a lack of new residential development projects and subdued demand conditions, a sign that the government is struggling to hit its home building targets.
Overall, the construction PMI index rose to 46.4 in January, up from December’s five-and-a-half year low of 40.1, but still below the 50-point mark showing stagnation.
Tim Moore, economics director at S&P Global Market Intelligence, said:
“January data provided encouraging signs that the UK construction sector has exited its tailspin, and firms are becoming more hopeful that new projects will get back on track in 2026.
The latest reduction in total industry activity was the slowest since last June. Commercial work outperformed, with activity moving close to stabilisation amid a postBudget boost to contract awards. House building weakness persisted, although even here the rate of decline eased considerably since December and was the least marked for three months.
Construction companies noted subdued underlying demand due to fragile client confidence and elevated risk aversion, but there were some reports of improving investment sentiment and greater sales enquiries at the start of the year. As a result, business activity expectations rebounded to an eight-month high, while the pace of job losses moderated.
UK car market grows in January despite EV slowdown
Britain’s car market has recorded its strongest start to a year since 2020, despite a slowdown in demand for electric cars.
The Society of Motor Manufacturers and Traders (SMMT) has reported that the UK new car market grew by 3.4% in January to reach 144,127 units.
But uptake of battery electric vehicles rose just 0.1% to 29,654 units. As a result, BEV’s share of the market dipped to 20.6%, the lowest since April 2025.
New car market starts year with growth but EV share fallshttps://t.co/TROcpisMR5 pic.twitter.com/4KdVEG9yQK
— SMMT (@SMMT) February 5, 2026
Mike Hawes, SMMT chief executive, says:
Britain’s new car market is building back momentum after a challenging start to the decade. It is also decarbonising more rapidly than ever and, despite a January dip in EV market share, the signs point to growth by the end of the year. The pace of the transition, however, may be slowing and is certainly behind mandated targets.
With sales of new pure petrol and diesel cars planned to end in less than four years, there needs to be a comprehensive review of the transition now, to ensure ambition can match reality.
The SMMT has also lifted its forecast for growth in the UK car market this year to 1.4%, with the EV share expected to rise to 28.5%.
There are three things to watch out for from the Bank of England’s interest rate decision and its latest monetary policy report (MPR), reports Simon French, chief economist at City firm Panmure Liberum:
What the qualitative comments from MPC [monetary policy committee] members tell us about whether the disinflation bias remains intact? It probably holds - but a good MPR will always throw up some interesting analysis;
What is the latest estimate for Q2 inflation? A sharp drop from 3.0% YoY to 2.4% YoY will be largely be the result of base effects, and one off policy measures. Any sign of a growing output gap weighing on core inflation forecasts?
Politics could have a big say around the 30 April MPC - coming a week out from the local elections. Does the MPC seek to manage (down) market expectations for a rate cut in Q2, or would it have one eye on the June meeting instead when politics will be clearer (and two more months of CPI data will be available).
The gap between the UK’s short-term and long-term borrowing costs has hit its widest level in around eight years, as the pressure on Keir Starmer has mounted, Bloomberg has spotted.
Bloomberg’s Alice Gledhill explains:
The yield gap between two- and 10-year gilts hit the widest since 2018 as a fresh round of UK political turbulence weighed on government bonds.
The 10-year yield rose as much as four basis points to 4.59% at Thursday’s open, pushing the gap over the two-year to 85 basis points.
UK long-term borrowing costs rise amid Mandelson crisis
UK borrowing costs are rising, slightly, this morning, as investors ponder whether Sir Keir Starmer’s premiership could be ended by the Peter Mandelson scandal.
UK bond prices are dipping, which pushes up the yield (or interest rate) on the bonds.
UK 10-year bond yields are up three basis points (0.03 percentage points) at 4.56%, while 30-year bond yield are up four basis points at 5.363% – the highest level since last November.
These are relatively small moves in bond market terms, though it’s also notable that US government bond yields have dropped slightly and German yields are flat.
Eurasia Group says Starmer is “fighting for his political life”, and now put the probability of a leadership challenge and his removal this year at 80% (up from 65% previously).
City investors may worry that a new administration might be less committed to sticking to the UK’s fiscal rules to please the bond market.
Updated
Melanie Baker, senior economist at Royal London Asset Management, expects no change from the Bank of England today:
“The BoE and ECB are widely expected – including by me – to keep rates on hold today. Many major central banks having moved closer to what they think is ‘neutral’. Against that backdrop and if economies continue to ‘tick along’, we may see more of them remain on hold for periods of time. For some, the next move will be a rate hike and the Australian central bank recently raised rates.
I don’t think that either the US Federal Reserve or Bank of England are quite done cutting rates this year, but we may have to wait a while. In the meantime, much depends on the data and there are both upside and downside risks to labour markets and inflation.”
Shell shares slip after profits drop
Shares in oil giant Shell are slipping at the start of trading in London, after it reported a 40% drop in earnings.
Shell posted adjusted earnings of $3.25bn for the last three months of 2025, down from $5.43bn in July-September. In response, its shares are down 1% at £28.37 each.
The company blamed falling income on “unfavourable tax movements”, lower energy prices and higher operating expenses.
But despite this, Shell is planing to pump more money back to its shareholders through yet another share buyback plan, worth $3.5bn.
Shell chief executive officer, Wael Sawan:
2025 was a year of accelerated momentum, with strong operational and financial performance across Shell. We generated free cash flow of $26 billion, made significant progress in focusing our portfolio and reached $5 billion of cost savings since 2022, with more to come. In Q4, despite lower earnings in a softer macro, cash delivery remained solid and today we announce a 4% increase in our dividend and $3.5 billion share buyback, making this the 17th consecutive quarter of at least $3 billion of buybacks.”
Laith Khalaf, head of investment analysis at AJ Bell, agrees it would be a surprise if the Bank of England lowered interest rates today, saying:
“It’s extremely unlikely the Bank of England is going to do anything but hold interest rates where they are at its February meeting.
The Bank reduced rates in December and has clearly indicated it wants to adjust policy gradually, so consecutive cuts are pretty much unthinkable in the current economic environment.”
The slump in bitcoin is continuing today, wiping out all the gains since Donald Trump’s election victory over a year ago.
The world’s largest crypto currency dropped as low as $70,052 early today, its lowest level since 6 November 2024, the day after the US election.
It’s now lost over 40% since hitting its last record high ($126,223) last October.
$BTC Patterns pic.twitter.com/Ax595mNXrD
— Cassandra Unchained (@michaeljburry) February 4, 2026
Trump has billed himself as a crypto-friendly president during his 2024 election run. But while the Trump family itself has done well out of its own cryptocurrency company, anyone who bought bitcoin since the election win is now sitting on a loss.
Today’s losses come after Treasury secretary Scott Bessent said yesterday the US government can’t tell banks to bail out crypto.
Updated
The pound is a little weaker against the US dollar in early trading.
Sterling’s down a third of a cent at $1.3620, its lowest level in nearly two weeks.
ING expects UK interest rate cuts in March and June
Analysts at ING have predicted that UK inflation will tumble this spring, allowing the Bank of England to lower interest rates twice by the summer.
ING estimate that headline inflation will fall to 1.8% in April from 3.4% in December – crucially, that would take the consumer prices index below the Bank’s 2% target.
They expect food inflation to slow, and for energy bills to drop in April when regulator Ofgem next sets the price cap. A smaller rise in water bills, and a slowdown in rental growth, should also ease the cost of living squeeze.
As such, James Smith, ING’s developed markets economist, expects rate cuts in March and June. That’s a more aggressive cutting cycle than the City is pricing in.
Smith says:
We forecast inflation will drop to 1.8% in April before hovering at the 2% target through the spring and summer. What’s more, we think roughly 0.8 percentage points of the decline from December’s reading is virtually locked in – an artefact of regulated price changes and tax changes.
Updated
Introduction: Bank of England and ECB rate decisions today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Interest rates on both sides of the channel are likely to be left on hold today, but relief may be coming for UK borrowers within months.
Both the Bank of England (BoE) and the European Central Bank (ECB) are expected to maintain their respective interest rates unchanged today.
UK interest rates are currently 3.75%, and the rise in inflation in December to 3.4% makes it implausible that many BoE policymakers will vote to cut interest rates.
The City money markets indicate there is just a 5% chance that the BoE lowers interest rates to 3.5%, and a 95% likelihood that we get ‘no change’ at noon today.
Economists also predict seven policymakers will vote for a hold, with just two dovish members (Swati Dhingra and Alan Taylor) expected to vote for a cut.
But looking further ahead, almost two quarter-point cuts are expected by the end of this year.
Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management, says:
The Bank of England is widely expected to keep interest rates unchanged in February. On the back of the Budget, we could see a more benign outlook on the inflation front, at least in the short-term.
When it comes to forward guidance, the BoE is likely to remain noncommittal about the timing of any future interest rate cuts. That said, the combination of lower inflation ahead and continued softening of the UK labour market should reinforce the central bank’s view that the path for monetary policy is towards a lower Bank rate, potentially as early as next month.
Interest rates are already lower in the eurozone, at 2%, meaning there’s less pressure on the ECB to ease policy any further.
Eurozone inflation fell to 1.7% in January, data yesterday showed, thanks to lower energy costs and a stronger euro.
Richard Flax, chief investment officer at wealth manager Moneyfarm, says:
For investors, this environment of stable inflation and steady interest rates provides a degree of clarity and reduces the risk of further policy tightening.
We expect the ECB to remain on hold, as markets have already priced in, with a high bar for any policy action in the near term.
That said, we continue to monitor underlying price pressures and external risks, such as geopolitical developments and shifts in global demand, that could influence the outlook.”
The agenda
8.30am GMT: eurozone construction PMI report for January
9am GMT: UK car sales for January
9.30am GMT: UK construction PMI report for January
Noon: Bank of England interest rates decision
12.30pm GMT: BoE press conference
1.15pm GMT: European Central Bank interest rate decision.
1.45pm GMT: ECB press conference
Updated
