Macroeconomics: The Day Ahead for 6 February

The BoE rate decision and Monetary Policy Report offer some distraction from trade tensions on a relatively light day for major statistics, which has German Factory Orders (much better than expected m/m, but unchanged in q/q terms) and Swedish CPI (much higher than expected, vindicating Riksbank’s rate pause signal) to digest ahead of the UK Construction PMI, US Challenger Job Cuts, Q4 Non-farm Productivity and weekly jobless claims. Outside of the BoE policy meeting, there are a good number of Fed speakers, while Czechia’s CNB is expected to resume its rate cutting cycle with a 25 bps to 3.75%. Another busy day for corporate earnings has Tokyo Electron in Asia, AP Moeller-Maersk, AstraZeneca, Carlsberg, ING, Orsted & Societe Generale in Europe, while across the pond Amazon, Bristol-Myers Squibb, Cloudflare, ConocoPhillips, Eli Lilly, Tapestry and Warner Music are likely to be among the headline makers.

** U.K. – BoE rate decision **

– The BoE will almost certainly cut 25 bps to 4.50%, and is likely to signal further gradual cuts, for the time being likely to be 25 bps at each Monetary Policy report meeting. In December they noted that Q4 GDP was set to undershoot their Nov forecast, and given the run of recent data, are likely to revise down their GDP forecast for 2025. Anecdotal evidence on labour demand (e.g. REC and other surveys) suggests it is also weaker than they were anticipating, though I doubt they are going to revised their wage forecasts (as the same surveys seem to chime with the Agents estimate of 3-4%), particularly as the single month Avg Weekly Earnings turned down in November after spiking up in October (again they implied this in the Dec minutes). CPI forecasts are also unlikely to be revised significantly. Leaving aside what Trump has said about tariffs on the UK as against the ones on the EU, the UK accounts for just 3% of US imports, it’s not important, but they will note that trade tensions pose downside risks to global and Eurozone growth, and add to the existing array of uncertainties, and will likely cite the Budget measures on NI and minimum wages as posing an upside risk on inflation, but downside risks to labour demand and growth. I suspect that for the time being they will try and avoid much discussion about govt borrowing costs, particularly as the early January hubbub about rising gilt yields proved to be a storm in a teacup. The vote will be interesting, both to see if Mann dissents again, and if Dhingra and perhap on of the other two December disenters vote for 50 bps cut. On balance, the message will likely be cautiously dovish on the rate outlook, and they will likely reiterate that they remain data dependent, above all given the array of domestic and international uncertainties.