The Bank of England's first interest rate decision of 2025 will take place next week, and investors widely expect rate-setters to reduce borrowing costs for a third time.

The Bank of England looks likely to cut interest rates next week, when it could also nudge investors to expect faster reductions than they currently predict as the economy flatlines.

The Bank of England must contend with a slowdown in Britain's economy but also stubborn inflation pressures when it considers whether to cut interest rates in early February as well as its message about the outlook for the rest of the year.

Inflation is stuck above the BoE's 2% target and looks set to rise further while the economy has stagnated since the middle of 2024, offering conflicting signals for the central bank's rate-setters.

EUR/GBP offers its recent gains from the previous session, trading around 0.8360 during the Asian hours on Friday. The EUR/GBP cross depreciates as the Euro struggles amid increased expectations of further interest rate cuts by the European Central Bank (ECB).

Economic strength in the US relative to other major economies is likely to drive contrasting paths for interest rates worldwide.

Tepid growth across British businesses edged up at the start of 2025 but employment and optimism contracted again and price pressures rose, according to a survey that underscored the challenge facing the Bank of England.

Companies are cutting jobs at the fastest pace since the global financial crisis, barring the pandemic, after Rachel Reeves announced £40bn of tax rises in the Budget, according to a closely watched survey.

Marks and Spencer (LON: MKS) Group PLC continue to lead the day’s fallers, down 3.6%, while a lack of major movers saw Taylor Wimpey (LON: TW) PLC and Compass Group (LON: CPG) PLC also among losers.

The monthly consumer confidence index published by market research firm GfK fell in January to -22 from -17 in December, its lowest reading since December 2023. A Reuters poll of economists had pointed to smaller decline to -18.

European markets ticked cautiously higher as the world looks to the inauguration of Donald Trump later on today.

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