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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

UK investors will be closely watching the Bank of England’s monetary policy report for any shift in the balance of views among rate-setters around future wage growth and the economy, which could potentially alter the expected path for interest rates.

Financial markets are betting that the BoE will hold rates at 3.75 per cent when the Monetary Policy Committee announces its decision on Thursday. Barclays, Capital Economics, HSBC and Deutsche Bank all expect two dissenters to vote for a cut — external committee members Swati Dhingra and Alan Taylor.

In December, the BoE stressed that its regular survey of annual pay conditions “would be a key input into the February MPC round”, as many rate-setters flagged concerns over forward-looking indicators of wage growth in their individual commentaries.

The survey will only be available from Thursday, but the BoE’s monthly assessment of business conditions showed wage growth expectations for the year ahead at 3.7 per cent in December, unchanged since the spring and still too elevated for the central bank.

An independent and closely watched purchasing managers’ index for January showed the greatest increase in average prices charged by businesses since August 2025, which could help cement the cautious tone of December’s monetary policy report. The BoE could repeat that its policy rate “is likely to continue on a gradual downward path”, and that future decisions will be a close call.

But the central bank is still expected to signal that rates will fall further. It is also likely to lower its inflation forecast compared with November because of the policies introduced in that month’s Budget, lower energy prices and the appreciation of sterling. Barclays expects an inflation forecast of 1.7 per cent in early 2027, with some uptick in 2028.

For Capital Economics, a fall in inflation below 2 per cent in the second half of 2026 could prompt the central bank to cut rates to 3 per cent this year, lower than the 3.5 per cent currently expected by financial markets. Valentina Romei

What will Lagarde say on euro strength?

The European Central Bank is widely expected to hold its policy rate steady at 2 per cent on Thursday for the fifth consecutive meeting.

Pricing for the year is showing a slim chance of a further move lower, with swaps traders largely acquiescent to ECB chief Christine Lagarde’s refrain that the euro area’s monetary policy is in a “good place”, with inflation running bang on the central bank’s 2 per cent target.

Despite fresh risks to growth from geopolitics, after another clash between the EU and the US over Greenland, analysts at Barclays expect the ECB to “maintain a neutral tone . . . until it is confident that the balance of risk has materially deteriorated”.

Traders will be closely watching any remarks on the recent strength in the euro, which climbed above $1.20 last week, its highest level since 2021, in a new bout of weakness for the US dollar that threatens to push down on euro-area inflation. The euro later weakened a little to $1.19.

“If the euro appreciates further and further, at some stage this might create of course a certain necessity to react in terms of monetary policy,” Austrian central bank governor Martin Kocher told the FT.

Traders expect Lagarde to repeat that the central bank does not target the exchange rate. Nevertheless, a bigger rise in the currency from here could shift the dial more towards future cuts than future increases. Ian Smith

Will changes in US labour surveys mask trends in the jobs market?

Big changes to the employment survey collected by the Bureau of Labor Statistics could mask meaningful signals about the state of the US jobs market in January’s report.

The labour department is expected to report on Friday that US hiring rose in January, according to a survey of economists by Bloomberg, adding 65,000 jobs after December’s 50,000.

But analysts, including those at Bank of America, have argued that the number is likely to be as low as 45,000 because of a modification the BLS will make to its “birth and death” model and the impact of seasonality. Without those factors, BofA analysts said, “we think January job growth was pretty stable, likely 70,000-80,000”. 

The labour department will also adjust its household survey to incorporate new population estimates from the Census Bureau. This adjustment is expected to show a large reduction in the US population and labour force in January, though it is not likely to change the unemployment rate, which the Bloomberg forecast shows steady at 4.4 per cent.

While Federal Reserve chair Jay Powell addressed risks to the labour market at the central bank’s meeting on January 28, he weighed those against the risks of higher inflation, suggesting that it had no plans to cut interest rates immediately.

Expectations for a cut at the bank’s next meeting in March are near-zero, with the roughly two quarter-point reductions expected by the end of the year to come after Powell’s term as chair ends in May. Kate Duguid