9 January 2026: Pubs to be saved from closure by a major Rachel Reeves U-turn

It is expected that Rachel Reeves will perform yet another U-turn later today when she tells Parliament that she has decided that the increase in business rates for the hospitality industry will not go ahead.

But this is only the latest in a series of humiliating climbdowns by the Prime Minister and his team.

Despite winning an election just 18 months ago with a considerable majority, Labour struggles to make decisions and stick to them.

High street businesses have called on the Government to expand business rate relief plans beyond pubs following reports of an impending U-turn. The Treasury is understood to be preparing a support package for the pub industry, to be announced in the coming days, following an outcry over the impact of a significant rate hike.

However, ministers now face pressure to expand that support to other businesses, with trade bodies saying “piecemeal responses” will not “save our high streets”.

The off-the-cuff revolt by pub landlords who refused to serve Labour MPs in their premises over the Christmas period struck a chord with Starmer and his colleagues.

It is extraordinary that a Party with such a generous margin is still being forced to reverse policy decisions in such a publicly humiliating manner.

Opposition politicians have also urged the Government to go further.

The Chair of UKHospitality called for a hospitality-wide solution, saying the entire industry is affected by business rate hikes, not just pubs.

Figures provided by the trade body suggest that hotels in England face an average increase in business rates of 115% by 2030, compared with 76% for pubs.

Jon Collins, chief executive of music venue body LIVE, said: “If the Government is preparing a U-turn on business rates for pubs, it must not leave live events and arenas behind.”

The National Pharmacy Association called for similar support for pharmacies, which chief executive Henry Gregg said face a 140% increase in rates.

He said: We’re urging the Government to exempt pharmacy businesses from business rates altogether, in the same way as GPs are.

For many UK households, 2025 marked the beginning of the end of the mortgage rate shocks of the previous year. And while that did not mean a return to cheap borrowing, interest rates clearly eased over the course of the year.

The Bank of England’s base rate, a key determinant of mortgage pricing, fell from 4.75% in January 2025 to 3.75% in December.

And mortgage rates followed suit. For a typical first-time buyer with a 10% deposit, rates fell from around 5.35% in January to about 4.49% by the end of the year.

House prices, meanwhile, did not surge; annual growth slowed to around 0.7%. Overall, 2025 looked more like a period of cooling and stabilisation, certainly one of the calmer years for the housing market in the past decade.

And that calmness could be about to continue. Most forecasts suggest that the base rate could fall further, towards 3.00% by the end of 2026.

But the December 2025 decision is a valuable reality check. While the Bank cut rates to 3.75%, it was by a narrow vote. That close split shows the Bank is still cautious about cutting interest rates too quickly.

The first rate cut of this year is unlikely to happen in the first two quarters. The February, March and April meetings are considered unlikely to vote for a cut.

The pound continues to reverse the gains made during the holiday period, when volatility was high and liquidity low. Yesterday, it closed at 1.3476 after falling to a low of 1.3415.

Having called for rates to be cut by 100 basis points earlier in the week, Fed Governor Stephen Miran “went nuclear,” calling for 150 points in cuts this year. This was, he said, to support the employment market, which will see the final 2025 data published earlier today.

Miran told Bloomberg Television that Fed officials had room to further reduce rates, given his view that underlying inflation was likely running at 2.3%.

“I’m looking for about a point and a half of cuts. A lot of that is driven by my view of inflation,” Miran said. “Underlying inflation is running within the scope of our target, and that’s a good indication of where overall inflation will be in the medium term.”

Miran's comments offered a more precise view of his target for rate cuts this year, after he told a Fox News program on Tuesday that "well over 100 basis points of cuts will be justified this year."

U.S. Treasury Secretary Scott Bessent will continue the administration's desire for lower interest rates in a speech to the Economic Club of Minnesota, CNBC reported, citing excerpts of his prepared remarks.

“Cutting interest rates will have a tangible impact on the lives of every American,” he said, according to CNBC. “It is the only ingredient missing for even stronger economic growth. Which is why the Fed should not delay.”

Fitch Ratings on Thursday raised its estimate of U.S. GDP growth in 2025 to 2.1% from its earlier forecast of 1.8%, and lifted its forecast for U.S. GDP to 2% for 2026 from 1.9%. It estimates that inflation rose to 3% in December and will end 2026 at 3.2%, reflecting delayed tariff pass-through.

This is above the Fed's latest estimates, which will be updated at the January 27/28 FOMC meeting.

Miran's call for 150 basis points of cuts is in line with the lowest projection for the appropriate funds rate by the end of 2026 among the Fed's 19 policymakers, released at the end of December's rate-setting meeting. That estimate put the fed funds rate at 2.00%-to-2.25%, down from the current 3.50%-to-3.75% and 50 basis points below the next-lowest estimate.

The US trade deficit made a sharp and unexpected pullback in October, reaching its lowest level since 2009 as imports of goods dropped while President Donald Trump's tariffs took hold, government data showed Thursday.

The overall trade gap plunged 39% to $29.4 billion in October, said the Department of Commerce, as imports declined by 3.2%

The deficit was significantly smaller than the $58.4 billion median forecast from economists' surveys.

The release of the trade data was delayed by more than a month due to the lengthy government shutdown last year, depriving officials and companies of updated figures as they assess the health of the world's biggest economy.

While US exports rose by $7.8 billion in October to $302.0 billion, imports declined by $11.0 billion to $331.4 billion.

This was primarily due to a significant fall in goods imports. In particular, consumer goods, which declined by $14.0 billion, and pharmaceuticals, which also fell sharply, the Commerce Department said.

Donald Trump has a long history with the Federal Reserve, and it’s rarely been quiet. Now, he’s turning his focus back to Fed Chair Jerome Powell, and markets are paying attention.

Powell, who has led the Fed since 2018, is legally protected from being removed over policy disagreements. That insulation is meant to keep the central bank independent, even when Presidents are unhappy with its interest rate decisions.

Trump 2026 is a far more aggressive version than 2025, if that were possible. If Powell decides to stay on as Governor when his term ends, there could be fireworks that will dwarf the 4th of July.

The dollar looks ready to test the 99.20 level, which marked its recent high, as the fallout from the “Venezuelan Adventure” continues. It hit a high of 98.98 yesterday and closed at 98.87.

Official inflation figures published yesterday for the entire Eurozone showed that the ECB should be congratulated for having, one way or another, created alchemy by keeping interest rates and inflation within narrow ranges for an extended period.

However, the nature of financial markets is that such a period in the doldrums is unlikely to last, and the next shock is just around the corner.

How that shock will manifest itself is anybody’s guess: it may come from Ukraine, the Middle East, or even a bid by Donald Trump to buy or take over Greenland.

ECB President Christine Lagarde will nonetheless congratulate herself for presiding over bringing inflation down to 2% and staying there, even if, in fact, neither she nor her colleagues on the Governing Council had any fundamental role in inflation’s fall.

However, it is not all sunshine and roses for the ECB. It has almost completely disregarded economic growth. The question for the first half of 2026 is when fiscal stimulus will start to boost economic growth. The latest sentiment data still shows a lacklustre economy, though unemployment remains around all-time lows.

The Economic Sentiment Indicator for the Eurozone fell from 97.1 to 96.7 in December. Not a significant move, but reflective of an economy showing modest growth without any meaningful signs of a pickup.

Industrial sentiment improved somewhat, particularly as new orders came in a little better. Still, with the indicators for new orders and production expectations remaining lower than in October, this can hardly be called the start of an investment rebound.

Weaker reported demand for services also supports muted fourth-quarter GDP growth expectations.

German Chancellor Friedrich Merz's stimulus measures include a major fiscal shift, including a €1 trillion package for infrastructure, green projects, and industry, along with a historic loosening of the constitutional debt brake to allow significantly increased defence spending.

Key components include a €500 billion infrastructure fund, tax relief for SMEs, and energy support for industry, aimed at boosting economic growth and modernising the country after years of austerity, marking a significant departure from traditional German fiscal discipline.

Following the publication of inflation data, the ECB may show some concern that it will fall further to 1.8% or even 1.5%. However, investors do not see oil prices or energy costs in general falling sufficiently for that to happen. However, were that to be the case, the next move in interest rates could be a further cut.

European Central Bank Vice President Luis de Guindos said yesterday that interest rates are at an appropriate level, though he warned of “enormous uncertainty” due to geopolitical events.

Speaking several days after the US arrested Venezuelan President Nicolás Maduro, De Guindos said, “Things are happening that would have been unthinkable just a few quarters ago.”

“In a complex geopolitical environment, business investment may be affected and is showing a very moderate evolution,” Guindos said at an event in Madrid yesterday.

“Households are maintaining their savings rate at a high level, despite the improvement in real income, because they have doubts about the future and even about fiscal policy,” he added.

The Euro fell to a low of 1.1642 and closed at 1.1651as traders formulate their most likely scenarios for the first quarter of the year.

Have a great day!