BoE and ECB Hold Rates; UK Construction Contracts Again as Markets Price Cuts

Executive summary

• Bank of England (BoE) and European Central Bank (ECB) are expected to hold policy rates today.
• UK Bank Rate stands at 3.75%; eurozone deposit rate is 2.00%.
• City money markets price a ~95% probability of no change at the BoE meeting and ~5% chance of a cut to 3.5%.
• UK construction PMI rose to 46.4 in January (from 40.1 in December) but remains below the 50 threshold for expansion.
• UK new car registrations grew 3.4% in January to 144,127 units; BEV sales were 29,654 units (20.6% market share).
• ING projects UK CPI to fall to 1.8% in April and expects BoE rate cuts in March and June.

Central bank decisions today (timings)

• 12:00 GMT: Bank of England interest rate decision and monetary policy report (MPR).
• 12:30 GMT: BoE press conference.
• 13:15 GMT: European Central Bank interest rate decision.
• 13:45 GMT: ECB press conference.

Key policy context

• UK headline inflation rose to 3.4% in December, maintaining a restrictive bias against immediate monetary loosening.
• Eurozone inflation slowed to 1.7% in January and policy rates are already lower (2.00%), reducing near-term impetus for ECB easing.
• Market-implied path: almost two quarter-point cuts priced in for the BoE by year-end, with some forecasters expecting cuts as early as March and June (ING forecast).

Market pricing & probabilities

• Money market pricing: ~95% probability of no BoE change at today’s meeting; ~5% chance of a cut to 3.5%.
• Forward guidance expectations: central banks likely to remain non‑committal on the precise timing of cuts, while signalling that the path of policy may be toward a lower rate if inflation and labour markets soften.

UK construction: PMI and outlook (PMI)

• Construction PMI: 46.4 in January (up from 40.1 in December), still below 50, indicating ongoing contraction in overall activity but at a much weaker pace.
• Segment performance: housebuilding remains the weakest, civil engineering and commercial construction also contracting, though commercial work is closer to stabilisation.
• Survey signals: subdued new residential project pipelines and fragile client confidence; however, business activity expectations rose to an eight-month high and job losses moderated.

Implication for markets and policy:

• A stabilising construction PMI reduces near-term downside risk to GDP growth, but persistent weakness in housebuilding keeps downside risks to UK domestic demand and inflationary pressures intact.

UK auto market and EV trends (SMMT, BEV)

• Total new car registrations: 144,127 units in January, a 3.4% year-on-year increase — the strongest January start since 2020.
• Battery electric vehicle (BEV) uptake: 29,654 units in January; BEV share at 20.6%, the lowest since April 2025.
• Outlook: SMMT has lifted its full-year forecast for the UK car market to 1.4% growth, projecting EV share to rise to ~28.5% later in the year.

Investor takeaways:

• Short-term EV momentum softened in January, but vehicle market fundamentals signal growth through the year, with policy and infrastructure developments the key variables.

Bond markets, yields and political risk (UK, LSE)

• UK 10-year gilt yield: approximately 4.56%–4.59% in recent trading; 2s–10s yield gap widened to about 85 basis points (the widest since 2018 in recent prints).
• 30-year gilt yield: near 5.36%.
• Drivers: political uncertainty and potential fiscal policy shifts are increasing term premia; investors are sensitive to signals that future administrations might depart from current fiscal frameworks.

Portfolio implications:

• A wider yield curve gap increases funding costs for long-duration borrowers and compresses valuations for rate-sensitive assets listed on the LSE and other exchanges.

Corporates and crypto highlights (US, AI)

• Shell: adjusted quarterly earnings were $3.25bn in the latest quarter, down from $5.43bn in the prior comparable period; the company announced a $3.5bn share buyback and a 4% dividend increase, while reporting strong free cash flow for the full year.
• Bitcoin: traded as low as $70,052, down over 40% from its October record high near $126,223; crypto market volatility remains elevated and sentiment-sensitive.

What professional traders and institutional investors should watch

• BoE MPR and MPC communications: focus on the qualitative assessment of the disinflation path, short-term CPI forecast updates, and guidance around the timing and size of potential rate cuts.
• Key data flow: upcoming CPI prints, labour market metrics, and Ofgem price cap updates could materially influence the BoE rate path.
• Market positioning: monitor gilt curve moves, swap spreads, and short-term money market pricing for signs that expectations of two cuts are being re-priced.
• Sector implications: banking and mortgage-sensitive sectors respond quickly to rate-cut pricing; UK-listed cyclicals (construction, autos, consumer) are sensitive to domestic demand signals.

Clear, quotable lines for briefing use

• "The BoE is expected to hold Bank Rate at 3.75% today, with markets assigning roughly a 95% probability to no change at this meeting."
• "UK construction PMI improved to 46.4 in January but remains below the 50 expansion threshold, signalling ongoing contraction that has slowed from December’s multi-month low."
• "ING forecasts headline CPI to fall to 1.8% in April, supporting the case for BoE cuts in March and June under that scenario."

Conclusion

Today’s central bank decisions are likely to be status quo events, but the communication in the BoE’s MPR and the ECB press conference will be the primary market-moving items. Traders should watch inflation path signals, short-term money market pricing, and sovereign curve dynamics for the next directional moves in UK rates and gilt yields.