BOE on Knife Edge Over Rates Awaits Pivotal UK Inflation Data

(Bloomberg) — The Bank of England will watch a slew of data closely in the coming days after a knife-edge decision to keep interest rates steady on concerns that inflation is still uncomfortably high.

A packed week for observers of the UK economy runs through labor market numbers and consumer price statistics, and concludes with public finance and retail sales reports.

Wednesday’s inflation report will take the spotlight, not least because it’s the final reading for a deeply divided BOE before its next decision in March. Policymakers this month split 5-4 to hold, keeping their rate at a level that, along with the US Federal Reserve’s upper bound, is the highest among the Group of Seven.

Consumer-price growth is predicted by the BOE to recede to its 2% goal by April, yet for now is still well above that. Officials anticipate the January data to show inflation at 2.9%, while the median forecast of economists is 3%. Those at Pantheon Macroeconomics and Investec see higher-than-expected shop prices and hotel costs keeping the rate elevated.

Policymakers will also look for broad evidence that disinflation is under way, with the jobs report on Tuesday another key data point. Evidence that the labor market has continued to weaken would reassure officials that price pressures are receding.

What Bloomberg Economics Says:

“Concerns about soft jobs demand have become more prominent for the central bank and we expect two rate cuts this year.”

—Dan Hanson and Ana Andrade, economists. For full analysis, click here

Pay growth is on a downward trend: Investec expects private sector regular wage increases to have slowed to 3.4% in December from 3.6% in November and 3.9% a month earlier.

Unemployment has risen to 5.1%, a near-decade high excluding the pandemic, and may keep rising. Separate tax data show 184,000 jobs have been lost over the past 12 months.

The numbers will feed into a taut debate at the BOE. Comments over the past few days highlighted the rift between them, with chief economist Huw Pill arguing that rates are a little too low, while Deputy Governor Sarah Breeden predicted a quarter-point cut by the end of April.

Elsewhere, global purchasing manager indexes, inflation data from Japan to Canada, and Anna Breman’s first decision as New Zealand’s central bank governor will draw attention.

Click here for what happened in the past week, and below is our wrap of what’s coming up in the global economy.

US and Canada

In the US, the government will issue its first estimate of gross domestic product for the fourth quarter, a period that included the longest-ever federal government shutdown. The latest report card on the economy, due Friday, is projected to show growth cooled to a still-solid 3% annualized pace after expanding in the prior quarter at the quickest rate in two years.

Consumers probably remained the economy’s primary driver despite grumbling about the cost of living and anxiety over job prospects. Economists surveyed by Bloomberg anticipate personal spending rose at a 2.6% pace during the period.

Business spending on equipment also likely contributed to economic activity in the fourth quarter, though not to the extent it did in the previous three-month period, according to the Atlanta Fed’s GDPNow forecast.

The Bureau of Economic Analysis on Friday will also release figures on December personal spending and incomes, as well as the Fed’s preferred inflation gauge. Economists will play close attention to real disposable income, which has been weak recently, for clues on the potential trajectory of consumer spending.

On Wednesday, economists will parse December durable goods data for hints of momentum in capital spending. In addition, the Fed’s industrial production report may show a solid advance in factory output at the start of the year that would add to evidence of a nascent recovery in manufacturing.

Wednesday afternoon, the Fed releases minutes of its January policy meeting, at which central bankers kept interest rates unchanged after three straight reductions at the tail end of 2025.

For more, read Bloomberg Economics’ full Week Ahead for the US In Canada, the headline inflation rate, currently 2.4%, may have edged higher in January due to a base-year distortion from last year’s sales tax holiday. Otherwise, price pressures remain muted, and the Bank of Canada expects inflation to hover near its 2% target through 2026.

The December merchandise trade release will give the first full-year view of how Trump’s trade war has battered and reshaped Canadian exports. January existing home-sales data are expected to show prices continuing to drift lower as US tariffs stoke economic uncertainty.

Asia

The week opens with Japan’s fourth-quarter GDP, which will offer the clearest read yet on whether the economy regained traction late last year.

The report lands alongside a suite of detail on prices and activity at a time when markets are increasingly alert to signs that Japan’s reflation story is broadening beyond imported inflation.

Thailand will also publish fourth-quarter GDP figures on Monday. New Zealand releases card spending data, which provide an insight into private demand, while India has its jobs report and wholesale prices.

On Tuesday, the Reserve Bank of Australia publishes minutes of its Feb. 3 policy decision, when it became the first major central bank to hike borrowing costs this year. Later in the week, Australia has two key labor market indicators — wages and employment — both crucial for rate expectations.

On Wednesday, the Reserve Bank of New Zealand, under new Governor Breman, is expected to leave borrowing costs unchanged. It’ll be her inaugural policy meeting there, having started a five-year term in December. Breman is scheduled to deliver her first major speech on Friday in Christchurch.

Staying with central banks, the Philippines and Indonesia announce rate decisions on Thursday.

Japan is back in the spotlight later in the week, with trade data, producer prices and wage figures providing further clues on the balance between external demand and domestic cost pressures. National CPI numbers for January on Friday are expected to slow while staying near the central bank’s target.

India rounds out the week with PMI data, offering a timely read on whether growth in services and manufacturing is holding up.

For more, read Bloomberg Economics’ full Week Ahead for Asia Europe, Middle East, Africa

Euro-zone finance ministers on Monday will discuss how to promote the use of the single currency in issuance and transactions, advancing their priority of strengthening its global role.

Among data in the region, industrial production on Monday and PMIs on Friday may be highlights, with the latter offering a more timely glimpse of the state of company activity halfway through the first quarter.

European Central Bank officials scheduled to speak include Bundesbank President Joachim Nagel on Monday and Executive Board member Isabel Schnabel on Wednesday.

Bank of France chief Francois Villeroy de Galhau, who announced his resignation to run a charity for troubled youngsters, will testify the same day in the National Assembly. He’s likely to be quizzed on the timing of a move that will allow President Emmanuel Macron rather than his successor as head of state to appoint the next governor.

In Switzerland, GDP numbers on Monday will be a highlight, with economists predicting a snapback in the fourth quarter from contraction in the prior three months caused by Trump’s outsized tariffs on the country.

Further afield, data due Wednesday are expected to show South Africa’s inflation eased to 3.4% in January from 3.6%. Reserve Bank Governor Lesetja Kganyago has said price growth has likely peaked and should “slow from here.”

For more, read Bloomberg Economics’ full Week Ahead for EMEA A few monetary policy decisions are on the calendar:

Romania’s central bank on Tuesday is expected to leave its rate unchanged at 6.5%, awaiting more evidence that inflation is slowing. Officials will also release new inflation forecasts. In Namibia the following day, policymakers are forecast to hold their rate at 6.5%, mirroring South Africa’s decision last month to stand pat. That’s because the arid southwest African nation pegs its currency to the rand. And on Thursday, Rwanda may lift borrowing costs to rein in inflation that’s running at its highest level since late 2023. Latin America

The Carnival season thins out the region’s usual schedule as a number of countries celebrate on Monday and Tuesday.

Colombia, which won’t be off, will post fourth-quarter output on Monday as well as December GDP-proxy data.

The economy likely won’t match the third quarter’s 3.6% year-on-year pace, though the early consensus still sees a strong finish to 2025. Analysts surveyed by Bloomberg anticipate growth accelerating for a second year in 2025, and again in 2026.

There’s not a lot on Mexico’s plate, but the highlight — minutes of Banxico’s Feb. 5 meeting — is eagerly anticipated.

The decision to snap a 12-meeting, 400 basis-point easing cycle was unanimous, and elements of the accompanying statement suggested policymakers could get comfortable staying at the current 7% for an extended spell.

Brazil’s GDP-proxy data for December may show LatAm’s No. 1 economy flirting with stall speed amid double-digit borrowing costs and tapped out consumers. The early consensus sees a negative monthly print, which could flatline the quarterly output result.

December output figures are also on tap from Peru, where activity may have rebounded at year-end following a sluggish November.

Low interest rates coupled with government spending and historically elevated prices for metals may see growth of 3% or better for a third straight year in 2026.

For more, read Bloomberg Economics’ full Week Ahead for Latin America –With assistance from Swati Pandey, Laura Dhillon Kane, Vince Golle, Monique Vanek, Robert Jameson and Mark Evans.

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