MARKET REVIEW
Bank of England (BoE): The Monetary Policy Committee of the BoE kept interest rates unchanged, in line with market expectations. However, the vote was shown to have been a knife-edge decision, with four of the nine members voting to cut rates, marginally being outnumbered by those preferring no change. Inflation declined slightly, with the headline rate falling to 3.0% and the core rate to 3.1%. However, the unemployment rate increased to 5.2%, its highest level in almost five years. Meanwhile, average earnings growth fell back to 4.2% year-on-year for the three months to December 2025. Consumer confidence fell back as the GfK Consumer Sentiment Barometer declined to -19, its weakest level for nine months. Despite this softening, retail sales rose by 4.5% year-on-year, well above the market consensus expectation.
European Central Bank (ECB): The ECB kept interest rates unchanged at its policy meeting in February as inflation fell. The headline rate declined to 1.7%, a move that had been widely expected, while the core rate eased back to 2.2%, its lowest level since 2021. GDP data showed 0.3% quarter-on-quarter expansion in the eurozone in the fourth quarter of 2025. With Spain (0.8%) leading the way among the larger of the region’s economies. France lagged slightly at just 0.2% growth. The ZEW Economic Sentiment Indicator slipped back slightly to 39.4, when a further advance above 41 had been expected in the market. Meanwhile, consumer confidence edged slightly higher, following a modest increase in employment data, with 0.2% growth in the furth quarter.
US Federal Reserve (Fed): There was no rate setting meeting for the Federal Reserve in February, so the Fed funds rate remained at 3.5%-3.75%. The Manufacturing Purchasing Managers Index (PMI) from the Institute of Supply Management registered a strong rebound in January, rising to 52.6, its highest reading in more than 3 years, when the market had anticipated it remaining below 50. Meanwhile, the Services PMI was static at 53.8. There was also a strong rebound in the employment data, as the non-farm payrolls data showed an increase of 130,000 jobs in January, well above expectations for the month. Headline inflation fell sharply to 2.4%, with the core rate declining to 2.5%, its lowest level in almost five years. Consumer confidence remained relatively robust, with the University of Michigan Consumer Sentiment Index moving a little higher to 56.6. However, following strong economic expansion in the third quarter of 2025, initial estimates for GDP growth in the fourth quarter were below expectations at just 1.4% quarter-on-quarter annualised.
Figure 1: Central bank rates history and future market pricing1
Key interest rates and global data1
Insight money market funds performance
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