03/01/2026 by Tony Redondo
In 2025, Trump’s tariffs were supposed to tank markets and trigger a global recession. Instead, global Mergers & Acquisitions value reached $4.8 trillion, the second-highest total on record, trailing only the post-Covid “everything rally” of 2021 and up 36% on 2024.
In London, the FTSE 100 stock market index hit 10,000 for the first time in the first trading day of 2026, extending gains after a bumper 2025. Looking ahead, the UK market is expected to deliver solid earnings growth in 2026 and remains one of the cheapest equity markets globally, creating fertile ground for future returns.
Gold and silver both achieved their best annual performances since 1979, supported by the impact of US interest rate cuts, tariff tensions, and robust demand from exchange-traded funds and central banks.
In the US, all the major stock market indexes hit a third straight positive year with the Dow Jones Industrial Average up 13.7%; the S&P 500 up 17.3% and the Nasdaq Composite up 21.3%. The small cap-focused Russell 2000 also rose, by 12.1%.
Goldman Sachs Research expects more to follow, forecasting that the global economy will generate “sturdy” growth in 2026 and expand 2.8% in 2026. Of the major economies, India is forecast to lead the way with 6.5% growth followed by China (4.5%), Spain (2.2%), the US (2%) and the UK and the Eurozone with 1.1%.
The UK economy starts 2026 under the spectre of recession with growth set to dim in 2026 after economic growth stalled in the second half of 2025. The ONS (Office for National Statistics) downgraded the economy’s second quarter expansion to a sluggish 0.2% and this was followed by a 0.1% expansion in the third quarter. Lindsay James, investment strategist at Quilter, said the data “all but confirms what has become very clear in the second half of the year – the UK economy is grinding to a halt and showing little sign of achieving what it did in the first half of the year.”
The OBR (Office for Budget Responsibility) also found in Reeves’ November Budget, where taxes were raised by another £26bn that there would be zero impact from the policies introduced on growth. Alex Kerr, UK economist at Capital Economics, said with the economy slowing “significantly” in the second half of 2025, “we doubt 2026 will be much better”.
Currency Exchange Rates Update
The Pound lost over 5% of its value in 2025 but rose in December to hit a 3-week high against the Euro.
2025 was a much better year for the Pound against the US Dollar, gaining over 7% in value and touching a 3-month high last week. In 2025, the Pound lost just over 0.5% against the Australian Dollar, gained over 2.5% against both the Canadian and New Zealand Dollars, but dropped nearly 6% against the South African Rand.
https://www.birminghammail.co.uk/news/money/pound-sterling-remains-best-level-33135407
NatWest, amongst others, is warning that the Pound faces renewed downside risks, as the earlier supports have largely been exhausted. In its 2026 outlook, the bank argues that the Pound has failed to secure lasting gains from its attractive interest-rate “carry” in 2025, with weak growth and persistent fiscal concerns offsetting the benefit of higher yields.
Traders have increased their bets against the Pound to the highest level in six years, with nearly £6bn wagered, reflecting negative sentiment towards the currency. Jane Foley from Rabobank noted concerns about the UK’s fiscal position and slow growth. Unemployment is at a five-year high, and inflation remains above the Bank of England’s target, further complicating the economic landscape.
Swiss lender Lombard Odier is predicting that the UK base rate will fall by a full 1% to 2.75% amid an unemployment crisis this year. Bill Papadakis from Lombard Odier said policymakers would be forced to act because of a “collapse in job vacancies to below pre-pandemic levels and a rising unemployment rate,” adding that “strong wage growth has already slowed meaningfully as the employment picture has weakened. Together with falling services inflation, this should translate into lower price pressures, allowing the Bank of England to cut rates to 2.75% by the end of the third quarter – a level close to neutral.”
In 2025, the US Dollar suffered its worst year since 2017, pressured by the Fed pivoting to cut US interest rates three times, President Donald Trump’s tariffs, and his aggressive push to secure the appointment of a more dovish Federal Reserve chief this year.
Chinese overseas bank lending has tripled in the past four years, and sales of onshore and offshore Yuan debt have set records for the second year running. The reason behind these rises in lending and bond issuance has been largely due to the price differential between Chinese and US rates. The Dollar is still pre-eminent, but some suggest the Yuan will make strides towards achieving global acceptance as BRICS countries try to move away from USD-dominated funding.
African currencies were among the world’s best performing in 2025, driven by soaring commodity prices. The South African Rand saw its biggest jump in 16 years, and the currencies of the Democratic Republic of Congo, Ghana, Zambia, and other major African metal producers have all performed well.
This week, the key economic data releases include:
Monday US PMI Manufacturing
Tuesday EU PMI Composite
Germany CPI Inflation
Wednesday Germany Unemployment
EU CPI Inflation
US PMI Non-Manufacturing
Thursday UK Halifax House Prices
EU Unemployment & Consumer Confidence
Friday China CPI & PPI Inflation
Germany Industrial Production
Canada Unemployment
US NFP Employment & Consumer Confidence
What’s in the news?
UK
Labour Together, a think tank linked to Sir Keir Starmer, has criticised the Employment Rights Bill as a “safety blanket” that hinders economic progress and proposes scrapping 80% of the bill. The paper argues that flexibility in the labour market is essential for economic growth.
The Conservatives have overtaken Labour in the polls for the first time since Boris Johnson was in office in 2021. The Telegraph’s poll tracker now has the Tories on 18.5%, the party’s highest average score since May and an early sign of recovery under Kemi Badenoch’s leadership with Labour falling to 18%, just over half of its share of the vote at the last general election in 2024. The Telegraph’s poll tracker balances the latest data from a range of respected pollsters, including YouGov, Opinium and Savanta.
Reform UK has led the polls since March and continues to enjoy a comfortable double-digit lead over both the Tories and Labour.
The latest KPMG Consumer Pulse survey shows the majority of Brits think the UK economy is getting worse with sentiment souring significantly amid rising prices and weak growth. Nearly 60% of Brits believe the UK economy is on a downward spiral, a major jump from the 43% recorded at the beginning of 2025.
Good news
The UK’s embattled manufacturing sector took another small step towards recovery at the end of 2025 thanks to an influx of new orders. The latest UK Manufacturing Purchasing Managers’ Index (PMI) from S&P Global UK hit a 15-month high in December as the industry continued to grow for the second consecutive month. Confidence rose in December, driven by improving operating conditions with output and new orders rising whilst suppliers’ delivery times lengthened. However, Make UK, the sector’s industry body warned of an “existential threat” to the survival of many companies due to the rising price of industrial electricity prices.
In a U-turn, the Labour government has watered down its inheritance tax raid on farmers by raising the levy threshold from £1m to £2.5m from April 2026 but the change comes too late to prevent 6,270 agriculture, forestry and fishing businesses shutting their doors from October 2024, when the policy was announced, to date, the highest number ever record.
Lidl announced “record breaking” Christmas sales with a 10% surge as almost 51 million customers shopped at the discount retailer. In the four weeks leading up to Christmas, Lidl turned over more than £1.1 billion.
Not so good news
The ONS reported higher than forecast government borrowing figures for November (£11.7bn against the £10bn forecast). Borrowing for the financial year to date stands at £132.3bn, £10bn higher than last year and £16.8bn above the OBR forecast. Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, commented, “The data shows that Britain’s public finances remain weak.”
The UK Hospitality trade body expect hospitality firms in the UK to face an average increase of £32,714 in business rates over the next three years, despite the Chancellor’s promise of lower tax rates for over 750,000 properties as the complex calculation method means many businesses will see higher bills. Allen Simpson, chief executive of UK Hospitality, warned these costs will be “simply unsustainable” for many firms.
The ONS reported a 0.1% decline in retail sales for November, following a 0.9% drop in October. Analysts had anticipated a 0.4% increase. Supermarket sales fell for the fourth consecutive month, down 0.5%. ONS senior statistician Hannah Finselbach, noted, “This year November’s Black Friday discounts did not boost sales as much as in some recent years.”
Commercial property construction activity is at its lowest in over a decade as tighter monetary conditions and sparse demand continue to weigh on construction. According to a fresh analysis from Costar, just 68m square feet of offices, industrial and retail sites was being developed at the end of September, a 16% decrease on the same period last year and 34% less than the 2022 peak of 103m square feet. The slowdown, which takes commercial development to its lowest level since 2014 was especially evident in retail, where the 3.2m square feet of real estate under construction was less than a quarter of the peak hit in 2017.
The ONS reported that household disposable income has slumped to its lowest level since before the pandemic after the Labour tax raids of the last two budgets with households suffering a £6bn blow as higher tax rates eat away at rising wages. The statistics show that income per person shrank 0.8% in the three months to September compared to the previous quarter after considering inflation.
Chancellor Rachel Reeves’s job taxes have triggered the biggest hiring slump in the G7 with UK vacancy adverts down 12.3% following the Chancellor’s tax and minimum wage changes. Vacancies have fallen by 5.4% in Germany, 4.4% in France, 3.2% in the US, 1.9% in Italy, 1.9pc, and 9.9% in Canada in the same period.
Shoppers in the UK have shunned Boxing Day high-street sales, amid warnings that the worst could be yet to come. Data from MRI Software shows footfall in central London was down 7.7% compared to last year. The decline was also acute in market towns, where footfall was down 7.1%, while overall UK high streets saw shopper numbers fall by 2.4%. Almost 70% of consumers blamed lower Boxing Day spending on cost pressures, up from less than half last year, according to figures from Barclays Bank.
Britain attracted the lowest level of investment of the G7 nations in 2025 in a fresh blow to Sir Keir Starmer’s ambitions to boost economic growth. It means investment in Britain was even lower than in Germany, which is currently in the grip of its longest period of stagnation since the Second World War. According to the Productivity Institute, even if the UK were to increase its investment rate by about 4% of GDP, it would take almost 100 years to reach the levels of countries such as the US, Germany, France and the Netherlands.
According to analysis by the Bank of America, profitability at non-financial firms in the UK has fallen to its lowest level since 1982 with experts blaming Labour’s Increase in business taxes and the national minimum wage. Sonali Punhani, of BoA, said the slump in profitability at non-financial firms showed the “real economy” was suffering under Labour. This measure excluded businesses like banks and stockbrokers, where profits can be influenced by movements in global financial markets. Ms Punhani said, “The real economy is still reeling from the decisions that were made in the previous Budget. We did a whole study on corporate vulnerability in the UK and profit margins in the UK are the lowest since 1982 because of all these labour costs and the fact that demand on the other side has not been strong enough for firms to rebuild their margins. It’s going to remain an issue until demand recovers.”
Fresh data from Retail Economics shows the poorest households in Britain have become poorer under Labour despite Sir Keir Starmer’s promise to improve living standards with spare cash left over after bills and essential spending for the least affluent households shrinking by 2.1% since Labour was elected in July 2024.
USA
The US economy grew by an astonishing 4.3% in the third quarter of 2025, boosted by strong consumer spending, far surpassing economists’ expectations. It’s the fastest growth rate in two years and caps six months of robust growth.
The personal consumption expenditures price index, the Fed’s primary inflation gauge, rose 2.8% during the same period, and 2.9% for core which excludes food and energy. Both were above prior respective readings of 2.1% and 2.6% and remain well above the Fed’s 2% inflation gauge.
A power outage in San Francisco left Waymo cars stranded, unable to navigate as the city’s traffic lights went dark. The robotaxis did not lose power themselves but appear to have been unable to adjust quickly to a major unforeseen change to their environment. Dozens of autonomous vehicles blocked intersections. The company said that its cars are designed to cope with broken traffic lights, but “the sheer scale of the outage” halted them.
The EU
The EU has begun implementing its carbon border tax, a landmark climate policy that has upset its trading partners. The CBAM (Carbon Border Adjustment Mechanism) targets imports of aluminium, cement, steel, and other goods that the EU determines are made with more-polluting processes than those allowed within the bloc. Brussels sees the levy as a key tool in fighting global warming and helping its domestic companies, but developing countries say the policy unfairly hits their facilities. Nations including Brazil, China, and India have complained that it’s simply another tool for industrial protection and revenue generation.
Compared to 2020, France and Germany have approximately 15% more jobs on offer whereas Spain has 53% more and Italy 68% more. The UK on the other hand has seen a decline of 20% in job vacancies in the same period.
Germany’s car market has been hit by another serious blow, with job losses likely at a major parts manufacturer after Diepersdorf Plastic Manufacturing, a top supplier filed for bankruptcy in the run-up to Christmas. Rising costs and a drop in European vehicle production are thought to be behind a drop in revenues, forcing the company into restructuring, with around 1,000 jobs understood to be at risk.
Others
The lack of progress on the US-India trade deal, compounded by persistent outflows in foreign funds, has weighed on the Indian Rupee this year, making it Asia’s worst-performing currency. India is among the highest tariffed countries in the world at 50%, levies that dwarf even those on China as trade talks between New Delhi and Washington continue to drag on.
Japan’s birth rate in 2025 will likely fall below even the most pessimistic forecasts. Preliminary data suggests 2025 will see fewer than 670,000 babies, the lowest since records began in 1899. Demographers had expected 749,000 and did not project births to fall so low until 2041. Prime Minister Sanae Takaichi has called the fertility crisis Japan’s “biggest problem,” especially given the country’s deep scepticism about inbound migration. Falling birth rates are a near-global phenomenon, but East Asia has seen the most dramatic collapse.
Stranger than fiction
A Starlink and a Chinese satellite nearly collided last month as low Earth orbit fills up with the two coming within some 650 feet of each other. There are at least 24,000 objects, including debris and satellites, in LEO, and there could be 70,000 satellites by 2030. Close passes are increasingly common. New research shows two satellites pass within a kilometre of each other every 22 seconds. The potential outcome is “Kessler syndrome,” in which one collision creates a debris cloud, causing other collisions and eventually filling low orbit with shards of metal traveling at five miles a second.
A strange cosmic double blast 1.3 billion years ago may have been the first “superkilonova” ever detected. Some giant stars blow up at the end of their lives in explosions called supernovae. Kilonovae occur when two dead, heavy stars called neutron stars collide; only one has ever been detected, using gravitational waves, in 2017. But an event in August confused scientists when, first, a gravitational-wave detector spotted the signs of a kilonova, and then traditional radio telescopes spotted electromagnetic waves typical of a supernova from the same spot. Astrophysicists proposed that a supernova blast 1.3 billion light years away created two small neutron stars, which then spiralled together to cause a kilonova shortly afterward.
Quote
Carl Sagan, American astronomer, planetary scientist, and astrophysicist, “Cosmos is a Greek word for the order of the universe. It is, in a way, the opposite of chaos.”
