By George Glover

Europe's most important central banks are likely to hold interest rates steady on Thursday. Just like the Federal Reserve, policymakers across the Atlantic are in wait-and-see mode.

The Bank of England is widely expected to maintain rates of 3.75% when it makes its latest policy decision at 7 a.m. Eastern time, having lowered them by a quarter of a point in December.

Investors are all-but-certain the European Central Bank will keep borrowing costs at 2% when it announces its own decision an hour and 15 minutes later. It would be the fifth meeting in a row it has left them unchanged.

The monetary-policy moves come just a week after the Fed voted to keep its target for the federal-funds rate at 3.5% to 3.75%, following three straight quarter-point cuts.

The ECB is probably in the best place of the three central banks. Euro zone inflation dropped below 2% last month and is expected to remain under that mark for the next two years.

While Frankfurt believes it is in a "good place," the euro has appreciated against the dollar this year as part of the so-called Sell America trade. That means there's a chance inflation could continue to fall, because weakness in the greenback makes imports cheaper and exports less competitive at a point when President Donald Trump's sweeping tariffs are already upending global trade.

Trump threatened last month to impose tariffs on eight European countries unless they allowed his administration to annex Greenland, then backtracked after striking a deal regarding the future of the Arctic island.

"The risk in 2026 has always been skewed to further easing given the expected undershoot of the inflation target," Deutsche Bank's Chief European Economist Mark Wall said in a recent research note.

"Recent events, like the appreciation of the euro exchange rate, underline this risk," he added. "But the case for a further easing of monetary policy has not been proven yet."

U.K. consumer-price inflation came in at 3.4% for December, but economists expect that measure to cool over the next few months because the ruling Labour Party hiked some taxes in its November budget. That, combined with some softness in the labor market, could bolster the case for further BOE rate cuts.

"The combination of lower inflation ahead and continued softening of the U.K. labour market should reinforce the central bank's view that the path for monetary policy is towards a lower Bank rate, potentially as early as next month," Barclays Private Bank's chief market strategist Julien Lafargue wrote in a research note.

U.K. stocks have outperformed their European and American counterparts lately, despite some worries about stubborn inflation and ballooning government borrowing costs.

London's flagship FTSE 100 index has jumped 21% over the past 12 months, compared with a 15% rise for the Stoxx 600 and a 14% gain for the S&P 500.

Write to George Glover at george.glover@dowjones.com

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February 04, 2026 16:00 ET (21:00 GMT)

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