Key Takeaways
- Bank of England Holds Rates, Signals Future Cuts: The Bank of England (BoE) maintained its Bank Rate at 3.75% with a 5-4 vote, but indicated that rates are likely to be reduced further this year, leading traders to boost bets on 50 basis points of cuts by year-end, with a March cut now favored.
- Tech Giants Face Pre-Market Headwinds: Google (GOOGL) shares fell 3.5% pre-market after increasing its 2026 capital expenditure plans, sparking investor concerns over the scale and payback of its AI investments, despite topping EPS, revenue, and Cloud revenue estimates. Microsoft (MSFT) also saw a 1.3% drop after a downgrade by Stifel, citing overly optimistic 2027 estimates.
- Inflation Outlook Improves, Growth Forecasts Adjusted: The BoE's latest forecasts show CPI returning to the 2% target in Q3 2026, earlier than previous estimates, and projecting GDP growth of 0.9% in 2026.
- Mixed Corporate Earnings and Outlooks: ConocoPhillips (COP) reported slightly lower-than-expected Q4 2025 adjusted EPS and net income, while Bristol Myers (BMY) exceeded Q4 revenue and adjusted EPS estimates and provided a strong 2026 revenue outlook.
The Bank of England's Monetary Policy Committee voted by a majority of 5-4 to maintain the Bank Rate at 3.75% at its meeting ending on February 4, 2026. Four policymakers – Breeden, Dhingra, Ramsden, and Taylor – voted to cut rates by 25 basis points to 3.5%. Despite the hold, the BoE stated that the Bank Rate is likely to be reduced further, with Governor Andrew Bailey noting that "all going well, there should be scope for some further reduction in Bank Rate this year."
Money markets reacted by pricing in 50 basis points worth of BoE rate cuts by year-end, an increase from 35 basis points before the BoE statement, with traders now favoring a cut in March. The BoE's Monetary Policy Report indicated that the risk of greater inflation persistence has become less pronounced. The central bank now forecasts CPI to return to its 2% target in Q3 2026, a significant shift from its November forecast of Q2 2027. CPI is expected to be 1.7% in one year's time, 1.8% in two years, and 2.0% in three years.
Regarding economic growth, the BoE estimates GDP grew 0.2% quarter-on-quarter in Q4 2025 and anticipates 0.3% growth in Q1 2026. The forecast for GDP growth in 2026 was revised down to 0.9% from 1.2% in November, with 2027 and 2028 projections at 1.5% and 1.9% respectively. The BoE also estimates that wage growth of around 3.25% is consistent with its 2% inflation target.
In the US pre-market, Google (GOOGL) shares declined 3.5% after the company hiked its 2026 capital expenditure plans, which revived investor concerns regarding the scale and payback of its AI investment plans, despite reporting better-than-expected EPS, revenue, and Cloud revenue. Meanwhile, Microsoft (MSFT) saw its shares fall 1.3% following a downgrade by Stifel, which views the company's 2027 estimates as too optimistic.
ConocoPhillips (COP) reported Q4 2025 adjusted EPS of $1.02, missing analyst estimates of $1.06, and adjusted net income of $1.3 billion against an estimated $1.35 billion. However, cash flow from operations came in higher than expected at $4.32 billion, and the company declared a Q1 ordinary dividend of 84 cents per share. Bristol Myers (BMY) exceeded expectations with Q4 adjusted EPS of $1.26 (vs. estimate $1.12) and revenue of $12.5 billion (vs. estimate $12.28 billion). The pharmaceutical giant also provided a strong 2026 revenue outlook of approximately $46.0 billion to $47.5 billion, surpassing the estimated $44.16 billion.
In other corporate news, Merck (MRK) received Health Canada approval for Enflonsia in infant RSV. Investment bank UBS stated its belief that both gold and silver can move even higher in 2026. Additionally, Amundi SA, Europe's largest asset manager, noted an increasing trend of clients seeking to diversify away from the US market.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.