14/03/2026 by Tony Redondo
The UK economy endured a flat start to 2026, unexpectedly stagnating in January and disappointing market expectations of a 0.2% rise, according to the ONS (Office for National Statistics).
A small rise in construction output was offset by a decline in industrial activity amid zero services output growth. The BoE’s (Bank of England) own forecast of 0.3% growth in the first quarter now relies on average monthly growth of 0.2% in February and March, highly unlikely given the headwinds from higher energy prices resulting from the escalation of the US/Israeli conflict with Iran. All of this bodes ill for unemployment, which is already at a post-Covid high. Many economists warn that it could soon reach its highest level in 11 years, putting around two million people out of work.
Normally, this would be a strong signal to the BoE that interest rates need to be lowered to boost the economy. But these are anything but normal times. Governor Andrew Bailey and his eight colleagues on the MPC (Monetary Policy Committee) face an uncomfortable trade-off between guarding against a fresh inflationary shock, as war in the Middle East pushes up oil prices, and supporting jobs and growth. Until a few weeks ago, economists had been predicting that inflation would fall to the Bank’s 2% target within months, down from the current 3%, and markets anticipated two rate cuts this year. But then came the military action in the Middle East, which unleashed the biggest disruption to oil supplies in history, threatening to reignite price rises across the global economy.
Brent crude finished the week just above $103 a barrel, compared with $60 at the start of the year, and the price of natural gas, a key factor in UK electricity costs has also soared. For the MPC, the memory of Britain’s last energy crisis remains painfully fresh. Inflation peaked at a 41-year high of 11.1% in October 2022 in the wake of Russia’s invasion of Ukraine, prompting the Bank to raise interest rates to 5.25% in August 2023, where they remained for 12 months. Back then, however, the economy was growing and unemployment was considerably lower.
The latest GDP data contrasts sharply with the more upbeat tone of business activity surveys such as the PMIs, which had pointed to buoyant trends in early 2026. Chancellor Rachel Reeves, who has staked her political career on growing the economy, now faces the real prospect of the UK sliding into recession.
Tomasz Wieladek at T. Rowe Price warns that the UK, already one of the weakest advanced economies in terms of recent growth performance, is likely to see the current oil price shock push it into recession, raising unemployment, reducing GDP, and bringing stagflation within reach. Reeves could soon be presiding over unemployment at an 11-year high, an economy in contraction, and a renewed cost of living crisis.
Against this miserable backdrop, the 9th of March marked the 250th anniversary of the publication of Adam Smith’s The Wealth of Nations. Mark Skousen, presidential fellow at Chapman University and author of over 25 books including The Making of Modern Economics, argues that Smith’s work remains one of the most important guides to prosperity ever written and that his core model has been vindicated by modern evidence. Governments today, with their high taxes, sprawling regulation, and tendency to pander to special interests, would have horrified Smith as a return to the very mercantilism he spent his career dismantling.
In The Wealth of Nations, Smith argues that individuals pursuing their own self-interest can promote the public good when channelled through what he called his “system of natural liberty”, built on three pillars: maximum individual liberty, tempered by justice and the rule of law, and underpinned by robust competition. Smith saw competition as a moral regulator, disciplining greed and directing self-interest toward socially beneficial outcomes. He strongly opposed mercantilism and government-granted monopolies, contending that economic freedom and free trade generate greater prosperity, a view supported by modern evidence such as the Economic Freedom Index, which shows that societies with greater economic liberty tend to achieve faster growth and higher living standards. Smith’s model, Skousen contends, achieves a hat trick of maximum liberty, individual improvement, and public benefit, all at once.
The following day, the 10th of March, marked 150 years since Alexander Graham Bell completed the first telephone call.
Currency Exchange Rates Update
A mixed week for the Pound Sterling in the currency markets. The Pound hit a 7-month high against the Euro on Thursday. In the current environment of rising global fuel prices, markets are betting that the BoE will raise UK interest rates faster and further than the ECB (European Central Bank).
https://bmmagazine.co.uk/news/bank-of-england-rate-cuts-2026-middle-east-inflation-shock
In contrast, the Pound slumped to its lowest level against the US Dollar since early December 2025. It’s a classic double-whammy with Dollar strength combined with Pound weakness. The Dollar has strengthened due to risk aversion in the market as even the US temporary sanction waiver on Russian oil failed to keep the price of Brent crude oil below $100/bbl. and equity markets are stuck on the back foot. The FTSE100 index in London has dropped over 6%, the Dax in Frankfurt over 7.8% and the S&P500 in New York over 4.7% this month to date.
In the coming week, the key economic data releases and significant events include:
Monday China Industrial Production & Retail Sales
Canada CPI Inflation
US Industrial Production
Tuesday Australia RBA Interest Rate Announcement
Germany ZEW Business Confidence Index
Wednesday EU CPI Inflation
US Fed Interest Rate Announcement, PPI Inflation & Factory Orders
Canada RBC Interest Rate Announcement
Thursday UK BoE Interest Rate Announcement & Unemployment Rate
EU ECB Interest Rate Announcement
Switzerland Interest Rate Announcement
Sweden Interest Rate Announcement
Notes
Global interest rate expectations have shifted sharply upwards as markets reprice inflation risks.
Expectations for a UK interest rate cuts have evaporated. The financial markets are now signalling that the BoE will either hold borrowing costs at 3.75% throughout the year or increase to 4% if geopolitical tensions continue to drive oil prices higher and push bond yields upward.
The US Fed and the ECB are also expected to hold rates unchanged.
In Australia, the RBA may opt to raise rates.
What’s in the news?
UK
Not so good news
The BCC (British Chambers of Commerce) has downgraded its UK growth forecast from 1.2% to 1%. Their report details that the services sector is expected to support the economy, while construction and manufacturing face contractions. Inflation is also a concern. Vicky Pryce, chair of the BCC’s economic advisory council, warned that a rise in unemployment would be a “worrying drumbeat” throughout 2026, adding that it will have a “widespread economic impact, hitting consumer and household spending and potentially also the housing market.”
Another survey by the BCC shows that UK exporters feel a significant lack of support from the Government. None of the nearly 1,000 firms surveyed felt they received adequate assistance to navigate changing trade policies. William Bain, head of trade policy, said, “Our research is clear. UK exporters are navigating trade policy changes largely alone.” Iain Walker, a director at global standards organisation GS1 UK, which helped compile the report, said Britain “risks falling behind” in the global trade landscape.
Oxford Economics reported that a jump in Brent Crude Oil prices from $97 to $140 and lasting a couple of months could lead to a 0.7% decline in global GDP by year-end. Inflation in the UK would rise to 5.1% prompting the Bank of England to increase interest rates from the current 3.75%.
Heritage pottery brand Denby filed for administration after facing a ‘challenging year’ as it seeks potential investors with 500 jobs at risk. Denby has been manufacturing at the same site in Derby since it was founded in 1809.
USA
The US trade deficit dropped by 25% in January with US exports for industrial supplies like gold, pharma, and IT products offsetting a decrease in consumer goods.
US GDP growth for the fourth quarter of 2025 was revised down sharply from 1.4% YoY to 0.7%, reflecting weaker estimates for consumer spending and business investment. Government expenditure was also marked lower, particularly at the state and local level, while exports contributed less than previously estimated. The unusually long government shutdown last year also continued to weigh on overall economic activity.
January’s PCE inflation data reading slowed slightly to 2.8% YoY, but the figure predates the escalation of the Middle East conflict and the recent surge in energy prices.
Data from the BLS (Bureau of Labor Statistics) shows the number of jobs added by women was nearly three times that of men in 2025 with much of the growth stemming from the strength of the health care and education industries, two fields in which women dominate the job pool.
Donald Trump warned Cuba that it is “at the end of the line” given its dire economic situation. The Caribbean nation has experienced severe fuel shortages, upending daily life on the island, after the US blockaded Venezuelan oil shipments. The Cuban government has signalled openness to a deal with Washington, including alignment with Trump’s security doctrine, but the US likely sees this as insufficient and wants something closer to full regime change.
The EU
After condemning Donald Trump for imposing tariffs on imports, putting up trade barriers and ripping up the rules-based order, European leaders have decided to do something very similar. This week, while everyone else was focusing on the Middle East, the EU was quietly putting up some of the stiffest trade barriers in its 70-year history. It has agreed on a set of “made in Europe” rules that will require any products that governments buy to be more than 50% made in the EU that could restrict investment from outside the bloc and force investments within Europe to be majority-owned in the Continent.
It turns out that tariffs and trade barriers are bad when Trump imposes them but good when the Europeans do exactly the same thing. But will a fresh round of protectionism work or make the deindustrialisation crisis even worse?
The EU’s “made in Europe” rules will block cheaper imports, drive up the prices that have to be paid, first for everything the government buys, and then very quickly for everyone else as well. We should expect prices to rise and taxes will follow suit. It is hard to see how that will help the economy. Next, it will shield declining industries, while doing absolutely nothing to help to create new ones. In the short term, cars, chemicals and steel manufacturing might get a boost as cheaper imports are blocked. But it won’t create any new products, nor will it help those industries to expand into new markets. Finally, and perhaps most importantly, the American economy has huge underlying strengths that allow it to ride through all the disruption created by the tariffs. It has cheap energy, flexible labour markets, strong domestic demand and a huge lead in crucial technologies. It can handle some disruption. By contrast, Europe’s economy is already critically weak. One more blow and it could fall over.
If the EU was serious about rebuilding its manufacturing industry, as it should be, then it would set about lowering its energy costs by building more nuclear plants and exploiting its huge reserves of shale oil and gas; roll back the regulations that have crushed innovation; start lowering tax rates that destroy the incentive to work and invest; and scale back the net zero targets that impose huge extra costs on industry for little net gain. All that would prove a lot more effective than a ‘made-in-Europe’ label.
Volkswagen announced it will cut 50,000 jobs in Germany by 2030. The decision follows a poor 2025 performance in which profits were nearly cut in half amid rising competition from Chinese electric vehicle exports.
Others
China’s consumer prices rose at a faster pace in three years in February, with CPI climbing 1.3% year on year from 0.2% in January, well above the 0.8% forecast. Month on month, prices jumped by 1% versus the previous 0.2%. The increase was driven by surging spending during the Lunar New Year holiday. At the factory level, producer prices narrowed their decline, with PPI falling 0.9% from a 1.4% drop in January and beating expectations for a sharper fall. The data points to firmer domestic demand.
China’s exports rose by 21.8% YoY in first two months of 2026. Still, the export numbers point to China’s two-speed economy with industrial output remaining sturdy whilst domestic consumption remains lacklustre.
China has cut its economic growth forecast to its lowest level in decades, reducing the target from around 5% to 4.5-5%, signalling it could tolerate lesser expansion but wants to ideally strive for better growth.
The internationalisation of the Chinese Renminbi Yuan was fully confirmed as being near the top of the agenda for China’s leaders who will focus on the CNY rather than the decline of the US Dollar nor challenge the USA nor the SWIFT global payments system. That internationalisation is explicitly focused not on Shanghai but in Hong Kong.
In Australia, inflation jumped to 5.2% in March, the highest since July 2023.
South Africa’s GDP grew by a lower-than-expected rate of 1.1% in 2025. The IMF is forecasting it will remain below 2% this decade. Repeated energy crises and persistent corruption have contributed to years of poor performance. Youth unemployment stands at around 50%, eroding confidence. Soaring energy prices sparked by the Iran war are complicating matters further, upending Pretoria’s budget and leaving South Africa at the mercy of shocks caused by events beyond its control.
Stranger than fiction
Australia’s Cortical Labs is developing two “biological” data centres in Melbourne and Singapore, which would use its CL1 units instead of GPUs. The CL1 is a biocomputer, with a chip that contains 200k lab-grown human brain cells.
Twenty competitors in the 2026 Camel Beauty Show Festival in Oman have been disqualified over cosmetic procedures that included Botox, and hump and lip filler. This has been an ongoing problem in the camel pageant industry, where prizes can be in the multimillions.
The 2026 calendar is identical to the 1914 calendar, meaning every date falls on the same weekday because both years begin on a Thursday and have 365 days. This rare match occurs due to a 112-year cycle in the Gregorian calendar that can cause entire yearly date patterns to repeat. The year 1914 marked the beginning of World War I after the assassination of Archduke Franz Ferdinand. The coincidence has drawn attention given the ongoing conflicts in the Middle East and the Ukraine.
Quote
G K Chesterton, “A civilization is not destroyed by wicked men; it is destroyed by weak men who cannot defend what is good.”
