15 January 2026: Reeves doesn’t rule out more support for the hospitality sector

There were lively exchanges in the House of Commons yesterday during Prime Minister’s Questions, as the Leader of the Opposition, Kemi Badenoch, accused Sir Keir Starmer of performing thirteen policy U-turns since he won the General Election in July 2024.

While this made for great theatre, it underlined the precariousness of Starmers' position, since there is an unexpected level of militancy among his own backbenchers.

The British public is also getting sick of U-turns. As Keir Starmer’s government looks set to abandon plans for compulsory digital ID, there’s complex data to back up the idea that the policy whiplashes are wearing thin.

The digital ID reversal follows on the back of climbdowns over welfare reforms, inheritance tax for farmers, the two-child benefit cap and business rates for pubs. One Backbench Labour MP complained that they were “constantly being marched up the hill to defend positions they think are wrong, only for Starmer to U-turn and make them look like fools.”

The real danger is something more profound: a growing sense that the government is both out of touch and directionless. As the U-turns have piled up, Labour has taken heavy hits on having ‘a clear sense of purpose’ and on ‘knowing what it stands for’. This has undermined not just confidence, but credibility,

This has helped to push Keir Starmer’s own approval ratings down to net -46, equal with Theresa May's rock-bottom low in May 2019.”

Opinion polling shows that Labour’s ratings for having a clear sense of purpose and knowing what it stands for have fallen from +6 and +4 pre-election to -29 and -33 by December last year.

The UK is on red alert for more tax rises, amid fears that most of Rachel Reeves's monster Budget raid has already been wiped out.

The Chancellor justified her latest assault on the country's wallets in November by arguing that she needed to build up so-called 'headroom' in her plans.

This move was more popular among economists than among voters, although support has been eroded as spending continues to outstrip tax revenue.

Analysis by Bloomberg suggests that two-thirds of the £22 billion margin might already have disappeared, due to a combination of U-turns, lower GDP growth prospects and a defence funding shortfall.

Since the Budget, the government has moved to appease furious family farmers by easing inheritance tax rules, at an estimated cost of £130 million a year.

Reeves is also promising to cushion the devastating business rate hikes for pubs, which insiders have suggested could cost £300 million.

Labour MPs are clamouring for the relief to be extended to the whole hospitality sector, which could dramatically increase costs.

Geopolitical tensions in Iran and Greenland, along with U.S. President Donald Trump's latest attack on the Federal Reserve's independence, have made investors more cautious about the dollar over the last week or so.

Investors have supported the pound so far in 2026. Weekly data from the U.S. shows they cut their bearish Sterling positions by the most in five months in the first week of January.

A long dollar position of just $2.577 billion remains, down from $6.586 billion at the end of December. This was the most significant long dollar position since September 2019.

UK inflation cooled more quickly than expected towards the end of 2025, while growth remains sluggish. Markets expect just two rate cuts from the BoE this year, something economists believe is overly optimistic, and weak readings on growth and price pressures could prompt a drop in the pound.

"Soft UK employment and CPI for December would be key catalysts for markets to reprice for a February BoE rate cut.

Consumer price data is due next week, along with monthly jobs figures, while GDP data is due on Thursday. Economists polled by Reuters expect the UK economy to have contracted by 0.2% in the three months to November, leaving the annual rate of growth at 1.1%.

The pound opened stronger yesterday, reaching a high of 1.3464, but eventually trailed off to close at 1.3434.

After meeting with President Trump's team at the White House today, Danish and Greenlandic foreign ministers wanted to stress that the talk was polite and constructive.

But, beyond the diplomatic niceties, it was clear they had not convinced the administration to drop its demand to annex Greenland to the US.

The ministers said there remained a fundamental disagreement in the meeting, adding that their red line was Greenland’s territorial integrity.

The Danish foreign minister, Lars Løkke Rasmussen, was asked about a comment from Trump in which he derided Danish moves to beef up Greenland's defence as amounting to adding another dog sleigh.

Rasmussen responded that he shared some of Trump's concerns about a new security situation in the Arctic, but that the US had drawn down forces in Greenland since the Cold War.

Trump’s foreign policy initiatives have a singular slant towards his “MAGA” initiative, but rifling roughshod over friends and allies in the manner he is doing now is not endearing to his country.

It is clear that the President has decided to “come out fighting” ahead of the mid-term elections in November this year, but his popularity rating has slumped.

Trump’s approval rating among Gen Z has dropped a massive 42 points in the past year, new polling has found.

Trump won over more young voters in the 2024 election than in his two previous runs for president, helping him return to the White House. But nearly a year into Trump’s second presidency, Gen Z, those born between 1997 and 2012, are turning on him.

CNN Chief Data Analyst Harry Enten recently announced shocking results from new polling, showing Trump’s net approval rating among Gen Z at -32 percentage points. That is a considerable dip from his plus-10 net approval rating with young people in February 2025, shortly after the start of his second term.

Several of his more “mature” supporters will follow Trump irrespective of his foreign policy initiatives as he continues to deport migrants whom they believe are responsible for issues within American borders.

Trump recently added salt to the Federal Reserve's wounds by suggesting that his policies have led to the fall in inflation. Such an attitude runs contrary to FOMC members' views, with Atlanta Fed President Raphael Bostic telling reporters yesterday that he believes that the “battle” against inflation may have been won, but the “war” continues.

Federal Reserve Governor Stephen Miran, appointed last year by President Trump, criticised top global central bankers who defended Fed Chair Jerome Powell amid the Justice Department’s criminal probe.

While former Treasury secretaries, Fed chairs, and Republican lawmakers have pointed out that the investigation is inappropriate, Miran alone has defended the Ministry of Justice’s probe.

According to the Wall Street Journal, at an economic conference in Greece, the Central Bank Governor responded to a question about foreign Central Bank Governors expressing support for Powell the previous day, stating, “It is inappropriate for Central Bank Governors to intervene in matters unrelated to domestic monetary policy, let alone involve themselves in other countries’ affairs.”

In response to a question about whether the Ministry of Justice’s investigation could undermine the Fed’s credibility in addressing inflation, he rebutted, “Looking at the fundamental economic trends, prices are already declining.”

The dollar index is struggling to break through stubborn resistance at 99.30, which has held firm on seven separate sessions.

Yesterday, the index reached a high of 99.25 and closed at 99.08.

It is too early for the European Central Bank to discuss interest rate cuts as inflation in the Eurozone might still turn out higher than expected, ECB policymaker Martins Kazaks has said

The ECB halved its policy rate in the year to June as it watched price growth fall to its 2% target, but the rate has since been on hold despite projections for slightly lower inflation and moderate economic growth.

Kazaks acknowledged that the likely postponement of the European Union's ETS2 emissions trading system would "flatten" inflation. Still, he and colleagues should also "continue to look at core inflation, which has been well above 2%".

He said downside risks to inflation, such as ETS2, the dumping of Chinese goods on the European market, and a possible appreciation of the Euro, were "much better known," but upside risks, such as trade fragmentation, should not be discounted.

Heightened geopolitical tensions have heightened growth risks, especially for countries dependent on trade or saddled with sizeable debt loads, according to European Central Bank Vice President Luis de Guindos.

The economy of the Eurozone has proven largely resilient to international pressures, growing by 0.3% in the third quarter, driven by stronger consumption and investment. A solid services sector and a robust labour market have also helped to offset flat activity in industry and construction.

ECB projections for economic expansion have been revised up to stand above 1% in 2026 and rise to 1.4% in the following years.

Inflation, meanwhile, has hovered in a narrow range since the spring, coming in at 2% in December, in line with the ECB’s target level. Over the medium term, the central bank expects price growth to stabilise around that level.

But, speaking in Madrid, de Guindos said "negative surprises," such as a re-escalation of trade tensions, setbacks in artificial intelligence advancements or "intensifying doubts regarding U.S. fiscal credibility," could trigger "abrupt shifts in sentiment." These could, in turn, spill over into various asset classes and regions.

He added that such "high uncertainty" in the global environment does not appear to be reflected in financial market pricing. Markets seem to be pricing in "very benign outcomes" and downplaying "tail risks," even as safe-haven flows into gold touch fresh record highs.

The HCOB Eurozone Composite Employment PMI Index showed a slight increase in workforce numbers across the euro area during December. Employment has now risen in nine of the last ten months. That said, despite solid output growth in the final quarter of 2025, job creation has remained relatively sluggish and centred on service firms, with data showing an ongoing downturn in employment at goods producers.

Labour market trends have continued to vary by country within the euro area, according to the latest PMI data, with robust growth in payroll numbers in Spain contrasting with a period of job losses in Germany.

The latest business outlook survey, which was conducted last October and tracks firms' expectations for hiring in the year ahead, suggested a continuing divergence between solid jobs growth in Spain and, to a lesser extent, Italy on the one hand, and more caution towards hiring in Germany and France on the other in 2026. These divergences in part reflected differing views on the impact of Artificial Intelligence.

The Euro is being driven by outside interests, as the ECB’s stance on growth and inflation is clear. Yesterday, the single currency was becalmed, falling slightly to a low of 1.1635 and closing at 1.1643.

Have a great day!