14/02/2026 by Tony Redondo
The UK’s economic landscape is currently defined by a precarious balance between a burgeoning welfare system and stagnant growth, leading the CSJ (Centre for Social Justice) to warn that the nation risks becoming a “welfare state with a bankrupt country attached.” Their analysis reveals a startling reality: over six million working individuals would currently be financially better off on benefits. This shift follows a surge in benefit claims since Labour took office in 2024, exacerbated by hiring freezes as companies grapple with tax increases introduced by Chancellor Rachel Reeves. Even figures within the Labour Party, such as former Shadow Work and Pensions Secretary Jonathan Ashworth, acknowledge the urgency of the situation, noting that the volume of people reliant on health-related benefits proves that welfare reform can no longer be ignored.
The fiscal implications of this trend are significant. Data from the OBR (Office for Budget Responsibility) forecasts that the UK will spend 2.2% of its GDP on health benefits by 2030/2031. This trajectory positions the UK as the “sick man of the G7,” outspending all economic peers on benefits. Furthermore, OECD data highlights that the UK is the only G7 member where the workforce remains smaller than its pre-pandemic size. Within the Universal Credit system, four million of the eight million claimants currently have no obligation to seek employment, a stark contrast to the period between 2021 and 2023 when the UK’s disability spending was lower than that of Italy, France, and Germany.
Despite the government’s spending plans, economic momentum remains “soggy.” The EY ITEM Club, a leading UK economic forecasting group predicts growth of just 0.9% for 2026, a decline from the 1.4% seen in 2025. This sluggishness is mirrored in ONS reports, which show a mere 0.1% growth in the final quarter of 2025. The dominant services sector showed zero growth for the first time in two years; construction suffered its worst quarterly performance in four years, declining by 2.1% and manufacturing provided only a marginal boost to an otherwise flat economy.
Critics argue that the current administration’s reliance on high taxes and regulation is gradually stifling the economy’s capacity to recover. With a lack of tax revenue to fund ambitious spending plans, some fear a cycle of fiscal disaster where leadership changes lead only to further tax hikes and slower growth. Former Bank of England policymaker Andrew Sentance suggests the UK is on track for its most dismal decade of growth in a century. This decline is often attributed by sceptics to a lack of private-sector experience within a Cabinet primarily composed of individuals from legal, the public and charity sectors, and trade union backgrounds.
Currency Exchange Rates Update
With the BoE (Bank of England) holding interest rates unchanged at 3.75% by a much tighter 5-4 vote than had been expected, the markets believe another rate cut is likely sooner rather than later. The BoE also downgraded its growth forecasts for the next two years and warned the economy was now in danger of a sharp jump in unemployment. Given the moribund state of the UK economy, critics will argue it’s not just the Government who are out of touch after BoE Chief Economist Huw Pill came in for criticism at the end of last week after declaring that the Bank’s aggressive interest rate cuts in the last 18-months amount to a ‘policy error’ that may have contributed to price rises. The admission of a mistake from a senior official comes just weeks after the Bank said its forecasts for inflation and wage growth had been wrong for years. Inflation ran away from the Bank in 2021, reaching a peak of 11.1% in October 2022, its highest level since the early 1980s and interest rates peaked at 5.25% in 2023 before the Bank began lowering borrowing costs in August 2024. The Bank’s MPC (Monetary Policy Committee) has since cut interest rates six times to take the base rate to 3.75%.
https://www.birminghammail.co.uk/news/money/weeks-mortgage-rate-increases-could-33369809
The Pound was little changed last week against the Euro, finishing the week just 0.18% down against the single currency.
Against the US Dollar, the Pound finished the week up 0.27%.
On Thursday, the Pound sank to its lowest level against the Australian Dollar since July 2024 and its lowest level against the South African Rand since February 2023.
The Pound is one of the higher beta currencies in the G10. In the currency markets, “beta” refers to a currency’s sensitivity to global risk appetite, specifically how much it moves in tandem with global equity markets and broader economic cycles. Unlike the US Dollar, Japanese Yen, or Swiss Franc which often act as “safe havens”, the Pound typically gains when markets are optimistic and falls when they are cautious. Switzerland’s political stability, low debt and diversified economy make the Swiss Franc often seen as the ultimate safe-haven currency asset. No surprise then that the CHF (Swiss Franc) recently hit an 11-year high against the US Dollar.
Like the BoE, the ECB (European Central Bank) also left interest rates on hold, and the markets expect no change to EU rates for the whole of 2026.
This week, the key economic data releases include:
Tuesday UK Unemployment & Wages Data
Germany CPI Inflation & ZEW Business Confidence
Canada CPI Inflation
Wednesday New Zealand RBNZ Interest Rate Decision
UK CPI Inflation
US Industrial Production, Durable Goods & Housing Starts
Thursday Australia Employment
US Trade Balance
EU Consumer Confidence
Friday UK Retail Sales &PMI Manufacturing
EU PMI Composite
US GDP, Consumer Sentiment & New Home Sales
What’s in the news?
UK
The EC (Electoral Commission) has ruled that there is no good reason for delaying the local government elections for more than a year. The Labour government had asked 63 local authorities with elections scheduled for this year whether they would prefer to delay them, but the EC have ruled that Ministers do not have “sufficient reason” to delay local elections for millions of voters. Labour ministers have already been accused by Nigel Farage, the Reform UK leader, of behaving “like dictators” over the election delays, which are set to be challenged by Reform’s lawyers at the High Court this week.
Vijay Rangarajan, Chief Executive of the EC said, “Obviously, there’s a judicial review on the way, which may actually clarify this, because Reform is judicially reviewing that set of decisions to delay,” he said. “So, we’ll see what the court case comes to as well, because that will raise at least some of these issues.” He added that ministers had created a “conflict of interest” by allowing councillors to decide whether ballots are postponed, arguing that any delay should have been up to council chief executives, who are not affected by the election cycle. “[There is] this conflict of interest where you’re asking people to decide how long it is before they face voters,” he said. “We think it should be the other way around – the voters should decide how long it is before they [councillors] face voters.”
Good news
The latest figures from CoStar show London’s office market staged a strong recovery in 2025, as both occupiers and investors returned in force following the pandemic downturn. There were 14 new lettings over 100,000 sq. ft, the joint-highest since 2017. Investor activity also surged, with 19 deals above £100m, reflecting rising rents, stronger demand, and improved lending conditions. Overall, net absorption approached 4m sq. ft, marking the strongest occupancy gains since 2018 and signalling renewed confidence in London’s commercial property market.
RICS (The Royal Institution of Chartered Surveyors) say there are early signs of recovery in the UK housing market following a slowdown linked to autumn budget uncertainty and economic pressures with 35% of members expecting house sales to rise over the next year and declining negativity in buyer inquiries and agreed sales. House prices may also be stabilising, with the price gauge improving from -19% in October to -10% in January.
Not so good news
ONS data shows a growing divergence in the UK’s trade balances for goods and services. In 2025, the trade deficit for goods reached its widest margin on record, with the UK importing £248.3bn more than it exported. That figure leapt £30.5bn on the previous year. By contrast, the UK’s services exports surplus grew £16.4bn between 2024 and 2025, taking it to a record high of £191.8bn.
The UK labour market is experiencing a significant slowdown, with the BDO Employment Index dropping to 93.30 in January, it’s lowest since March 2011. HMRC reported 43,000 fewer payrolled employees in December, marking the sharpest decline since late 2020. Job vacancies are at levels not seen since early 2021, and wage growth has slowed to 4.3% in December, the lowest since early 2022. A new survey suggests that the UK service sector, responsible for some 80% of the overall UK economy has endured its longest sustained period of job losses in 16 years with employment in the sector decreasing each month since October 2024. Worse still, the pace of job losses accelerating in January compared to December 2025. Tim Moore, economics director at S&P Global Market Intelligence, said the survey sent “gloomy signals” for the UK labour market, which is already under significant pressure.
Around 5,160 mortgaged properties were repossessed in 2025, a 39% increase from 2024, according to UK Finance. The fourth quarter saw 1,210 homes repossessed, up 17% year-on-year but down 13% from the previous quarter. Despite this rise, only 0.92% of all mortgages were in arrears. The report highlighted that most repossessions involved older mortgages, with over two-thirds dating back at least a decade.
The number of vehicles built in Britain last year fell to the lowest level since 1952, prompting manufacturers to consider diversifying into the defence sector. Just 764,715 vehicles built in 2025, a 15.5% decrease from 2024, according to the SMMT (Society of Motor Manufacturers and Traders).
Productivity in the UK public sector remains below pre-pandemic levels. Lord Redwood, a former Conservative Cabinet Minister, highlighted the issue in a report for the CPS (Centre for Policy Studies). He stated: “The Chancellor’s black hole in the finances is all created by the failure to even deliver 1% a year improvement in productivity.” The report warns that if NHS productivity does not improve, the Treasury could face a £20bn deficit by 2028/29. Recommendations include staffing reforms and better procurement to enhance efficiency.
Credit card borrowing has surged, reaching its fastest growth in nearly two years. The average interest rate on purchases is now a record 35.8%, with 48% of cardholders incurring interest. The FCA (Financial Conduct Authority) has urged lenders to act responsibly regarding persistent debt. However, as individuals improve their credit scores, they often receive enticing offers for high-interest credit cards.
USA
The US economy produced a stupendous jobs report in January with more than half of the 130,000 jobs added last month in the health care sector.
US inflation rose by 2.4% YoY, the slowest increase since May 2025. Core inflation grew by 2.5% YoY, marking the slowest pace since March 2021. Market expectations for further Fed interest rate cuts this year have accelerated, with 2-year US Treasury yields dropping toward 3.40%, the lowest since October. The financial markets are now pricing in slightly more than two rate cuts from the Fed in 2026, with the first expected around June or July.
US life expectancy hit a record high in 2024, powered by fewer ‘accidental’ deaths. Provisional figures put life expectancy at 79 years, as 18,000 fewer people died than in 2023 and deaths from unintentional injuries (including overdoses) fell more than 14%. The US still trails peer countries, but preliminary statistics suggest it will see continued improvement in 2025.
Americans are expected to spend a record $29.1B this Valentine’s Day, according to a survey by the National Retail Federation and Prosper Insights & Analytics. Apart from love, middle and high-income shoppers are showering not only romantic partners but also friends, co-workers, and pets with gifts.
The EU
The EU is about to implement the “biggest change” to its “customs systems and programmes for about 50 years”. The main driver is the explosion in e-commerce as the traditional customs procedures that have been in place for many years are no longer fit for purpose resulting in a whole new approach. Key changes include the creation of a centralised EU Customs Data Hub, a new EU Customs Authority overseeing the hub, an increased use of trusted trader schemes and the elimination of the ‘de minimis’ threshold for low-value consignments. Under the de minimis rules, imports of consignments valued under €150 have been exempt from customs duties and other obligations. This easement has been particularly significant for the ecommerce sector but has come under scrutiny in recent years amid fears that Chinese online retailers are exploiting it to dump cheap goods on the European market. In 2025, the EU announced that from 1 July 2026, all low value imports into the EU will be subject to a flat customs duty of €3 per item, with an additional €2 handling fee coming in November. These are temporary measures, and when the EU Customs Hub launches, the de minimis threshold will be completely removed. Kate Foster, deputy head of international affairs at the FSB (Federation of Small Business) noted that firms, particularly SMEs, were being faced with a “time and financial cost” because of customs changes in the EU. The de minimis changes will, in effect, “bring small businesses into the customs system”, meaning they will need to take on “the paperwork” and “the paying of the duties”. Foster said, “Global trade tends to thrive on predictability. Businesses need to stop seeing the current global geopolitical instability, particularly centred on what the US is doing in trade, as an aberration… We need to start approaching it as a new norm when it comes to business planning.”
The EU inflation rate for January came in at 1.7% following falls in energy prices and the core Inflation rate, which strips out volatile energy and food prices, is at 2.2% year on year. While ostensibly good news for inflation hawks, it is not so good given that weakened growth has led inexorably to weakened demand in the EU.
German 30-year bond yields have risen to their highest level since 2011, driven by a sharp increase in government debt issuance after Berlin’s plans to raise €512 billion in debt this year to fund major infrastructure upgrades and military modernisation.
France has finally approved its 2026 budget, closing a chapter of political paralysis that has lingered for almost two years and weighed heavily on confidence at home and abroad. After two failed prime ministers, repeated market tremors, and months of institutional drifting, the passage of the spending plan has brought a degree of calm back to French politics and financial markets alike. The budget deficit is expected to stand at around 5% of GDP in 2026, only a modest improvement from 5.4% in 2025. An earlier target of 4.6% has been abandoned because political realities made it unattainable. Pension reforms were scrapped, and fiscal ambition steadily gave way to the compromises required to keep a fragile minority government intact. The 2026 budget restores order after disorder, and that alone carries value. France has reduced its immediate risk premium, but it has not reduced its structural exposure. Markets, for now, have paused their judgment.
Belgium’s parliament approved a bill allowing courts to strip citizenship from immigrants who commit crimes such as murder or sexual offenses. Under the country’s existing laws, people could lose their citizenship status over crimes threatening the state like terrorism, but the new bill expands the list of offenses.
The Danish government also announced last week that non-Danish citizens jailed for a year or more for serious crimes could be deported. Europe has seen a major wave of immigration, as countries attempt to maintain a dwindling workforce amid aging populations, but it is unpopular and has driven support for anti-immigrant populist parties. The EU is now trying to tighten its borders and return undocumented migrants to their countries of origin.
For the first time in 5 years, European olive oil prices fell in 2025 by an average of 23%, sufficient to get producers warning of an impending crisis in the olive oil industry. Those are the same producers who benefited from price rises of almost 80% since 2021 on the back of droughts, climate change, and the consequent supply challenges. Spain saw a fall of 39% in 2025, while Greece and Portugal not far behind and Italy saw a fall of 14.5% as crops normalised.
Others
China’s consumer prices rose just 0.2% in January, falling short of the 0.4% forecast and slowing from 0.8% the month before. The miss underlines how stubborn China’s deflation pressures remain.
Factory gate prices also stayed negative. Producer prices fell 1.4% from a year earlier, slightly better than expected and the smallest drop since July 2024.
Australia’s consumer sentiment index fell 2.6% in February after the 0.25% rate rise announced by the RBA (Reserve Bank of Australia) but consumer home price expectations rose to a fifteen-year high. A separate survey from National Australia Bank showed that business conditions in January fell to 6.6, the lowest level since July last year. RBA deputy governor Andrew Hauser says inflation remains “too high” and the central bank can’t allow it to persist much longer, arguing that that some of the recent rise in prices shows stronger demand running into supply limits and warned that if inflation sticks around, the RBA “can’t let that happen.”
South Africa’s annual agricultural exports reached a record high in 2025, despite slowing sales to the US. The 10% rise in shipments from the previous year was attributed to higher volumes and prices with increased output of corn, citrus fruits, and wine helped drive exports. Trade with the US, which was still the country’s second-biggest bilateral trading partner after China in 2025 has come under strain because of Washington’s imposition of 30% tariffs in August. But Beijing signed a deal to import more South African fruit last year and the two countries are finalizing a duty-free export deal.
UAE non-oil exports rose by 45% last year, according to Prime Minister and Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum. Overall, UAE non-oil trade reached 3.8 trillion AED (Dirhams), thereby passing the $1 trillion mark for the first time. The rapid growth means the UAE is closing the gap on its neighbour Saudi Arabia, which has an economy twice as large. The UAE central bank projected the UAE economy would grow by 5% in 2026.
New analysis by international consultancy Knight Frank has looked at 12 key global markets to assess Ultra High Net Worth property investment patterns. Across the 12, the agency recorded 555 US$10 million plus sales in the fourth quarter of 2025, up 17% quarter on quarter, totalling US$10.3 billion. The average deal size edged up to US$18.6 million as activity rose strongly in Dubai, Hong Kong, Sydney and Miami.
Dubai reasserted its dominance, first for both deal count (143) and value (US$2.5bn) in the last quarter of 2025, reflecting what Knight Frank calls “robust end year momentum”. Liam Bailey, Global Head of Research at Knight Frank, said, “Two stories stood out this quarter. First, Dubai’s record year capped a powerful multiyear run of wealth inflows and super-prime new build delivery. Second, London’s fall to seventh place in Q4 underscores how tax reform has weighed on trading in the super prime market.”
Russia’s economy showed signs of increasing weakness, with growth slowing, oil revenues plummeting, and inflation again a worry. Moscow has so far avoided the collapse that experts had predicted after sanctions were imposed over its full-scale invasion of Ukraine, largely by dedicating huge spending to defence. But the effects of that spending spree may be coming into view with economic growth slowing to 1% in 2025 and taxes from crude oil sales, crucial for the government coffers halving between January 2024 and January 2025.
A month after Washington captured Nicolas Maduro and liberalized key economic sectors, optimism is surging in Venezuela with nearly 75% of Venezuelans surveyed saying the nation is moving in the right direction. Even Maduro supporters overwhelmingly approved of recent changes. Washington’s intervention has led to a surge in crude production, which last year accounted for almost all of Venezuela’s exports, despite oil majors saying greater economic reforms were needed. Caracas’ tight grip on civil society has eased somewhat too, notably with the release of some political prisoners, which would have been “unthinkable” before the US ousted Maduro.
Stranger than fiction
A 33-year-old man with influenza B and an antibiotic-resistant bacterial infection was in such bad shape that his lung tissue was turning into liquid. With no way for oxygen to reach his blood, everything was shutting down, and he was too ill for a lung transplant. So, surgeon/researcher Ankit Bharat and his team at Northwestern University took his lungs out, always considered a last resort and replaced them with a device they’d engineered to mimic them. This, plus other tactics to keep his heart working, allowed the man to live for two days until the sepsis in his body resolved and a lung transplant could be completed two years ago. The patient is doing just fine.
Quote
US President Ronald Reagan, “The most terrifying words in the English language are: I’m from the government and I’m here to help.”
