21/02/2026 by Tony Redondo
This week, Keir Starmer announced his government’s fifteenth major policy reversal in the 19 months since taking power in July 2024. The government has shelved plans to postpone local elections for 30 English councils originally scheduled for May. A spokesperson for the Ministry of Housing, Communities and Local Government stated, “Providing certainty to councils regarding their local elections is now the priority; consequently, all scheduled local elections will proceed in May 2026.”
Beyond the local elections scheduling, the government has seen significant shifts in several key areas including:
- Winter Fuel Payments: Significant adjustments to eligibility criteria.
- The ‘Tractor Tax’: Implementation of a 20% inheritance tax on farms, with the threshold eventually raised to £2.5m following industry pressure.
- Digital ID Cards: The withdrawal of the mandatory proposal.
- Social Policy: Ongoing friction regarding the Two-Child Benefit Cap.
- Welfare (PIP): Revisions to the stricter disability benefit criteria.
- Hospitality Support: The 40% relief for pub business rates was initially set to expire but was “watered down” in early 2026 to prevent mass closures.
- Justice & Inquiries: A shift from refusing a national inquiry into grooming gangs to granting a full statutory inquiry in June 2025.
Regardless of the merits of these individual decisions, the frequency of these shifts raises three fundamental questions: –
- What does this government stand for? What is the “thread” connecting these decisions?
- What is the long-term vision? Is there a central objective beyond reactive policymaking?
- The Manifesto vs. Reality: To what extent do these actions align with the platform they were elected on in 2024?
I raise this not from a political point of view but with the UK economy in mind. It is well known that the financial markets hate political uncertainty above all else. If businesses and economic agents are none the wiser about what our government stands for, it is nigh on impossible to make any medium- or long-term plans and the whole country just muddles through from day to day.
While my generation and my parents’ generation both enjoyed significant improvements in quality of life, I am deeply concerned about the future prospects facing my 17-year-old daughter.
Currency Exchange Rates Update
This week, the Pound experienced its biggest weekly decline against the dollar in more than a year, falling to a 4-week low.
The other significant movement was against the Australian Dollar where the Pound fell over 1% in the week to hit its lowest level against the Aussie since July 2024.
https://www.express.co.uk/finance/personalfinance/2171974/pound-drops-after-unemployment-figures
In the coming week, the key economic data releases and significant events include:
Monday UK Nationwide House Price Index
Germany IFO Business Sentiment Index
Tuesday UK BoE Treasury Select Committee Testimony
France Business Sentiment Index
US Consumer Confidence Survey
Wednesday Germany GDP
EU CPI Inflation
Thursday UK Gorton and Denton (Greater Manchester) by-election
EU Consumer Confidence
Friday France GDP & CPI Inflation
Germany Unemployment & CPI Inflation
Canada GDP
US PPI Inflation
What’s in the news?
Top investment bank Jefferies gives Keir Starmer a 40% chance of being in office in July and warned that irrespective of whether there’s a change in leadership, the Labour party is likely to lurch leftwards on economic policy.
UK
HMRC enjoyed a record inheritance tax haul in 2025, collecting a total of £7.1bn between April 2025 and January 2026 from the tax, a £100m jump on the same period last year with London based families shouldering nearly a quarter of all inheritance tax bills. Amit Joshi, managing director of wealth at Mattioli Woods commented, “Inheritance tax revenues continue to climb as frozen thresholds pull more families into the tax net. What is most concerning isn’t the tax itself, but the lack of awareness. Families often only realise the impact when it’s too late to act. Inheritance tax has become a planning issue by stealth, and the cost of inaction is measured in lost choices, rushed decisions, and unnecessary tax.”
HMRC data also shows that CGT (Capital Gains Tax) receipts soared by 69% in January, rising from £10.033 billion in January 2025 to £16.985 billion this January.
Despite raising taxes by £72bn in their first two budgets (compared to the £8.5bn quoted in their manifesto), Labour have borrowed £112.1billion so far this year, the fifth-highest borrowing on record.
The IFS (Institute for Fiscal Studies) has hit out at the Chancellor’s economic policies, likening her approach to a driver fixated on the speedometer, ignoring other critical factors. Economist Ben Zaranko said, “This framework is achieving neither sustainable public finances nor credibility with financial markets.” The IFS called for a radical reform of the fiscal framework, suggesting a shift towards broader fiscal objectives rather than rigid rules. “The current set-up all but guarantees policy adjustments in response to small changes in the forecast…macroeconomic volatility is mainlined into policy volatility, which adds unnecessarily to economic uncertainty”.
The ONS (Office for National Statistics) reported that Britain’s national debt stands at £2.9 trillion, equivalent to 92.9% of GDP, still around the highest levels since the 1960s but 2.4% below the OBR’s (Office for Budget Responsibility) forecast last November.
In an open letter to Prime Minister Sir Keir Starmer, a group of retired military leaders, former ministers, and security experts have warned that Britain is facing a “1936 moment,” and its armed forces are not ready for war and called for an urgent doubling of defence spending to 5% of GDP.
Good news
The ONS reported that the UK inflation rate fell from 3.4% in December to 3% last month primarily due to lower food, fuel, and airfare prices and is the lowest inflation rate since March 2025, increasing expectations that the BoE (Bank of England) could cut interest rates when they next meet on 19 March.
The ONS reported that the total volume of retail sales rose by 1.8% in January, up from the 0.4% rate recorded in December and the largest increase since May 2024 with an ‘unprecedented’ surge in jewellery demand as investors pursue “safe haven” assets amid ongoing geopolitical uncertainty.
The FTSE 100 stock market index hit a record 10,740 points on Friday for the first time in its history following the US Supreme Court decision on Trump’s liberation Day tariffs.
Not so good news
The latest CBI industrial trends survey indicates that Britain’s manufacturing sector continues to decline with production falling by a weighted balance of 14% in the three months to February. Output volumes also decreased in 13 of 17 subsectors, with metal products, food and drink, and tobacco particularly affected.
The OECD (Organisation for Economic Co-operation and Development) reported that Britain’s youth unemployment rate has risen above Europe’s for the first time since records began in 2000 with unemployment among 16 to 24-year-olds jumping to 15.3% in the three months to September, surpassing the EU’s rate of 15%. The OECD data shows 150,000 more young people are out of work since Labour took power, taking the total number of unemployed 16 to 24-year-olds to 729,000. As well as being higher than the EU average, the youth unemployment rate in the UK is now higher than in Hungary, Slovenia and Poland and on the cusp of overtaking Greece.
The ONS reported that the UK labour market continued to loosen at the end of last year with unemployment climbing to 5.2% between October and December to hit its highest level since early 2021. Suren Thiru, economics director at the ICA (Institute of Chartered Accountants) said, “The UK’s jobs market is continuing to come apart at the seams as the stifling squeeze from spiralling labour costs pushes more businesses to pivot from simply freezing recruitment to actively cutting jobs.”
The FSB (Federation of Small Businesses) has written to Chancellor Rachel Reeves warning that a combination of rising energy standing charges, business rate increases, higher employment costs and changes to statutory sick pay risk tipping firms over the edge and could force closures with 35% of small businesses planning to close or reduce output.
Consumer confidence in the UK has reached its lowest point in two years according to the UK Consumer Sentiment Index survey by S&P Global.
USA
The US Supreme Court ruled by a 6-3 vote that the IEEPA (International Emergency Economic Powers Act) used by the White House to impose Mr Trump’s sweeping levies “does not authorise the President to impose tariffs”. The ruling is a massive loss for Trump, who has made tariffs and his asserted power to impose them on any country at any time, without congressional input a central feature of his second presidential term. The ruling was silent on whether tariffs that have been paid under the higher rates will need to be refunded. That sum could total $175 billion according to some estimates.
Trade bodies welcomed the move but warned of lingering uncertainty and “other options” at Trump’s disposal. Michael Pearce, Chief US Economist at Oxford Economics suggested the US could look to reciprocate the levies through alternative legislation. Pearce said, “Even if the administration is able to replicate the overall level of tariffs using other means, the by-sector and by-country implications could end up looking very different, which will create another bout of trade policy uncertainty for business, investors, and households. This uncertainty is a key downside risk that could ding, rather than derail, growth this year.”
In an immediate response, President Trump signed an executive order imposing a new 10% “global tariff” under Section 122 of the Trade Act of 1974 to replace the IEEPA duties struck down by the US Supreme Court, saying it would start in about three days. Treasury Secretary Scott Bessent, speaking at the Economic Club of Dallas shortly afterwards said that the administration will replace the rejected IEEPA tariffs by leveraging a number of other existing tariff laws. Doing so “will result in virtually unchanged tariff revenue in 2026,” Bessent said. “No one should expect that the tariff revenue will go down.”
The latest US economic data releases suggests a mixed picture for the American economy at the end of 2025 with housing and manufacturing beating expectations. Most notably, housing starts surged to over 1,404k units and industrial production for January expanded by a robust 0.7%, significantly outpacing the initial consensus forecast. However, US GDP came in well below expectations at 1.4% for the final Quarter of 2025, slowed by the record 43-day federal government shutdown that cut spending by nearly 17%. December’s personal consumption expenditures inflation rose 2.9% year-over-year, surpassing the Federal Reserve’s 2% target amid mixed energy prices and steady consumer spending. The US trade deficit in goods widened to a record high in 2025, as imports increased despite President Donald Trump’s tariffs as companies rerouted orders and supply chains to skirt or get ahead of the import fees. And while global trade held up, it was scrambled. Shipments from China to the US fell nearly 30%, while Americans bought more from Vietnam and Mexico.
Japan unveiled $36 billion in investments in US fossil fuel and mineral projects as part of a $550 billion trade agreement struck with President Trump. The first projects include a huge natural-gas power plant in Ohio, and an oil platform in the Gulf of Mexico.
A record 11% of CEOs at 1,500 of the biggest public US companies were replaced in 2025 and the trend seems to be continuing this year, with giants like Disney, HP, PayPal, and Walmart announcing new leaders. The incoming cohort of chief executives is also younger compared to last year’s appointees, with an average age of 54, compared to 56 before; more than 80% are first-time CEOs.
Average US long-term mortgage rate dipped to 6.01%, its lowest level since September 2022.
The EU
The latest Eurozone economic indicators paint a concerning picture, with industrial production decelerating in January; German ZEW expectations unexpectedly deteriorating, and the Euro Area Economic Sentiment Index falling significantly below forecasts. The softer readings underscore how fragile the recovery remains in Europe.
The ECB has not confirmed a report that ECB President Christine Lagarde would depart ahead of French presidential elections in April 2027. Her leaving, combined with the surprise early exit of the head of the Bank of France, offers European leaders a chance to select replacements ahead of the French national vote where the National Rally is expected to perform well in those polls. The contest to replace her has already kicked off with Spain publicly staking its claim to the powerful post, with its former central bank chief seen as a top contender.
Germany’s population is set to shrink 5% by 2050, much faster than previously anticipated, according to new forecasts. The shift risks further straining a pension system that already accounts for about a quarter of the country’s budget. Other countries have similar problems, notably Japan and China who have both experienced plummeting birth rates in 2025.
Others
The IMF (International Monetary Fund) called on China to halve its industrial subsidies, as concerns mount about manufacturing overcapacity in the world’s second-biggest economy that has built up a trade surplus of over $1 trillion. It has led to worry overseas and concern at home with Chinese policymakers worried that domestic supply gluts are causing damaging price wars and deflation. The IMF’s China chief proposed that Beijing cut subsidies from 4% of GDP to about 2% and starts to move toward “consumption-led growth”.
Wealthy Chinese are bringing their money and businesses to Dubai. Slower growth in China and a crackdown on the excesses of the rich are driving many to the emirate, which they see as neutral, freewheeling, and ready to do business. More than 370,000 Chinese citizens now live in the UAE, and around 15,000 Chinese firms operate there. Both figures have doubled since 2019. At the top jewellery and couture shops in Dubai Mall, many salespeople speak Mandarin. The influx of wealth is most visible in the rise of family offices and asset management firms in the UAE’s financial centres. Dubai is likely to remain welcoming as long as Washington doesn’t push the UAE to curb commercial and financial ties with China.
Credit ratings agency Moody’s says the UAE property market may be heading towards a peak and expect a slowdown over the next year or so, with a “mild softening of prices” as more villas and apartments come to the market. There are 180,000 units due to be completed in Dubai between 2026 and 2028. The ultra-high-end segment looks brighter than most though. These days, Dubai is a global leader for properties worth more than $10 million.
The RBA (Reserve Bank of Australia) said it would do “what is necessary” to contain inflation after a spike in Australian inflation pushed the headline CPI rate from 1.9% in June to 3.8% in December. The latest Australian jobs report surprised with a lower unemployment rate of 4.075%, a result that will make the RBA uneasy about waiting until May to act. If another rate rise already feels inevitable, the small amount priced for March looks out of line with the much larger move expected by May.
The RBNZ (Reserve Bank of New Zealand) expects inflation to fall back to 2% over the next twelve months with new RBNZ Governor Anna Brennan saying local monetary policy “is likely to remain accommodative for some time.”
South Africa’s unemployment rate has fallen to its lowest level in more than five years. That still means more than 30% of South Africans remain jobless despite broad-ranging government efforts. Improving electricity supply and easing logistics bottlenecks have also helped bolster the economy, while analysts expect inflation to ease over the course of this year and next. Morgan Stanley economists project a series of interest rate cuts beginning next month as a result and forecast that “growth in 2026 is set to improve.”
Iran partially closed the Strait of Hormuz last week, a crucial chokepoint in global oil flows, as Tehran held another round of nuclear talks with the US in Geneva. The closure, the result of military drills Tehran conducted in the waterway, marked the first shutdown since US President Donald Trump threatened to strike Iran in January. Brent crude, which fell substantially in 2025, is up nearly 13% this year because of the tensions and the prospect of war. About 13 million barrels per day of crude oil transited the Strait of Hormuz in 2025, accounting for roughly 31% of global seaborne crude flows.
Stranger than fiction
The accounting giant KPMG fined one of its partners for using AI to cheat on a training exam about using AI. The $7,000 fine is one of several penalties it has meted out with dozens of staff caught cheating on exams using AI.
Whilst AI models are increasingly autonomous, they are still largely unable to interact with the physical world. A new startup, RentAHuman, has begun offering human labour to AI agents. The site now has around 11,000 job ads, including requests to “count pigeons in Washington ($30/hour); deliver CBD gummies ($75/hour); and play exhibition badminton ($100/hour). One agent helping run a convention paid a human to deliver beer after it noticed supplies were low.
Quote
Winston Churchill, “The problems of victory are more agreeable than those of defeat, but they are no less difficult.”
