It’s a blockbuster week of central bank meetings with the ECB, Bank of England and Bank of Japan meetings. Markets expect a full house of rate decisions – which means standing pat, and rate cut and a rate hike respectively. First up is the Bank of England, followed closely by the ECB on Thursday, with the Bank of Japan fully predicted to announce a rate hike on Friday.
Bank of England – Rate cut incoming as data forces Bailey’s hand
The Bank of England is widely expected to cut the Bank Rate by 25bp to 3.75%, with market pricing implying near certainty and all economists aligned. The decision is again likely to be tight after November’s 5–4 hold decision came down to Governor Bailey’s casting vote, But incoming data now appear to validate his “wait and see” call and whether disinflation would persist.
The broader data flow since the last meeting has turned softer. October’s CPI reading at 3.6% matched BoE projections and confirmed that September’s cool print was not an anomaly. Services inflation also eased modestly, and it is hoped the peak in price pressures is now in. Labour-market conditions have eased, with job losses accelerating, unemployment rising and wage growth cooling. GDP has contracted for two consecutive months, and the economy has not expanded since June. PMI readings and retail sales continue to signal stagnation at best. Analysts at major banks describe growth as lacklustre and see little prospect of near-term improvement, strengthening the case for a December cut and potentially another move early next year.
Fiscal developments laid out in the recent Budget are mildly contractionary but do not introduce new inflation pressures, while growth downgrades and higher taxes add weight to the easing argument. Even so, several hawkish MPC members, namely Lombardelli, Mann, Pill and Greene are unlikely to support cuts beyond December, suggesting the vote could again split 5–4. Bailey’s stance remains pivotal. More policy easing to 3.5% by March is seen as likely by most economists, with policymakers focusing on this week’s fresh labour, inflation and PMI data in the days before the meeting. Markets are more hawkish, and don’t predict the next cut until June. We may see a moderately weaker pound on confirmation of a cut, with sterling facing ongoing headwinds from the UK’s weak growth profile. The flip side and a ‘hawkish cut’ would bolster recent GBP gains.
ECB Meeting – Eurozone resilience keep policy in a ‘good place’ mode
Markets fully expect the European Central Bank to leave policy unchanged at its upcoming meeting, in line with the consistent guidance from ECB Governing Council members. The data backdrop since the last meeting has turned firmer across the board. Growth surprised to the upside in Q3 with a 0.3% quarterly expansion, inflation has run slightly hotter than the ECB projected, and wage growth accelerated to 4% in Q3 instead of easing as expected. PMIs in October and November also stabilised, supporting the ECB’s view that policy is in a “good place”.
Given these upside surprises, the fresh quarterly December staff projections may see an upgrade to the growth outlook for 2025-26, with forecasts out to 2028 pointing to steady, moderate expansion. Inflation is likely to see only marginal adjustments and should remain broadly consistent with the ECB’s medium-term target. This combination of firmer activity and sticky services inflation means the bar for rate cuts has risen.
Market pricing for 2026 now implies no cuts and even some probability of hikes, reflecting comments from hawkish officials such as Schnabel, who sees upside inflation risks. However, other policymakers, including Villeroy and Simkus, argue there is no case for raising rates soon. This divergence underpins the ECB’s data-dependent stance and strengthens expectations that Lagarde will avoid committing to a future path, instead emphasising flexibility. With the ECB likely to stay on hold for an extended period, the near-term euro market reaction may be limited.
Bank of Japan – BoJ ready to lift off again
The Bank of Japan is widely expected to raise its short-term policy rate by 25bps to 0.75% at next week’s meeting, with economists and market pricing both leaning strongly toward a move. After holding steady since January, expectations for a December hike have surged as a series of hawkish source reports signalled the BoJ was preparing markets for further tightening. Governor Ueda reinforced this shift, stressing that policy must be adjusted “appropriately” to secure the inflation target and warning that waiting too long risks sharper inflation and more disruptive tightening later.
Ueda’s message that a rate increase would simply ease off the accelerator, rather than break the economy, helped push market pricing to favour a December move. Additional reports suggested the new Takaichi government would tolerate a hike and that policymakers want to keep the option of further increases open. It had initially been presumed that PM Takaichi was a monetary policy dove and would pash back against policy tightening. Investors will focus on the policy statement for clues on the pace of normalisation, with many economists expecting rates to reach at least 1% by next autumn.