21 January 2026: The Labour market is continuing to weaken – BoE’s Ramsden

Britain's jobs market weakened in the run-up to November's budget announcement by Rachel Reeves, and wage growth slowed, data published yesterday showed, potentially easing the Bank of England's worries about persistent inflation pressures.

Economists saw signs of stabilisation as job vacancies rose, suggesting employers' willingness to hire, but the big picture remained one of caution in the jobs market.

Bank of England Deputy Governor David Ramsden said that wages will remain a key focus this year and that his view is that policy remains restrictive, in a speech at King's College in London.

"The UK jobs market is in a problematic phase with spiralling labour costs likely to mean notably higher unemployment," said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

"Though these discouraging figures will reinforce fears among policymakers over the health of the economy, the pace at which the jobs market is deteriorating is unlikely to be enough to trigger an interest rate cut next month."

Payroll data delivered by the DWP showed a 43,000 drop in December from November, the most significant monthly fall since November 2020. However, there have been larger preliminary estimates of falls in that period that were subsequently revised up, an ONS official said.

Annual pay growth in the private sector, excluding bonuses, which is being closely watched by the Bank of England, slowed to 3.6% in the three months to November, its slowest rise since November 2020, from 3.9% in the three months to October.

Overall core pay growth slowed to 4.5% in the September-to-November period compared with a year earlier, slightly below the 4.6% growth in the three months to October and in line with economists' expectations in a Reuters poll.

The jobless rate, which is based on a survey that the ONS is overhauling after responses fell to low levels, held at 5.1%, as expected, and was the highest since January 2021.

Andy Burnham, a prominent figure in Britain's governing Labour Party and leadership rival to Prime Minister Keir Starmer, said yesterday that his vision for the economy should reassure bond investors.

Burnham, the Mayor of Manchester, said restoring public control over key services would lower the state's long-term costs. At the same time, past deregulation, privatisation, austerity, and Brexit had weakened public financial control.

He said Britain was stuck in a low-growth trap and needed reforms that he billed as "Manchesterism". Investment in housing and utilities could reduce government waste and boost economic growth if combined with the kind of collaborative, long-term planning that has so far served Manchester's economy well.

"That is the way to reassure markets."

He said welfare benefits disappearing into private rents instead of social housing, as well as soaring bills charged by private utility companies, were examples of where the state could lower costs to the broader economy.

With Labour trailing in opinion polls, investors are focused on Starmer's future ahead of local elections in May, as well as on the fiscal discipline championed by the Chancellor, Rachel Reeves.

Sterling initially rallied to a high of 1.3546 as the data led the market to believe that interest rates would be unchanged at the next MPC meeting; however, it returned close to its opening level as Trump's criticism of the Prime Minister’s deal to sell the Chagos Islands added to the pressure on Keir Starmer.

It is understood that Donald Trump intends to announce his pick for Chairman of the Federal Reserve at the World Economic Forum in Davos later. However, this may simply be a ploy by Trump to add interest in his speech to the “great and the good” of global finance.

Meanwhile, U.S. Treasury Secretary Scott Bessent said yesterday that he believed it would be a mistake for Federal Reserve Chair Jerome Powell to attend Supreme Court arguments in a case about President Donald Trump’s attempt to fire a Fed Governor.

The Supreme Court justices meet later today to consider the legality of Trump’s bid ​to remove Fed Governor Lisa Cook.

The press ‍and other media ​reported on Monday that ​Powell planned to attend the ‍court’s oral arguments.

“I actually think that’s a mistake. Because if you’re trying not to politicise the Fed, for the ‍chair to be sitting there, trying to put his thumb on ‍the ‍scale is a ​real mistake,” Bessent said.

Critics of the Republican President have expressed concern that Trump’s actions and rhetoric could jeopardise the Federal Reserve's independence.

In a separate speech delivered in Davos yesterday, Bessent said the Trump administration projects the U.S. economy will provide 4% to 5% inflation-adjusted gross domestic product growth in 2026. But prevailing forecasts see only about half that level of development on tap for the year.

“We are going to see a very, very strong economy this year. We could see between 4 and 5% real growth, which would mean 7 or 8% nominal growth,”

U.S. Commerce Secretary Howard Lutnick has also said the U.S. can achieve 5% to 6% GDP growth this year.

Bessent didn’t go into detail on how the U.S. would achieve this milestone, though President Donald Trump is slated to give an economic update at Davos later. Bessent, however, said that American households could see income tax refunds of up to $1,000 from the tax-and-spending bill Trump signed into law in July, which could boost aggregate consumer spending.

It is becoming increasingly challenging to extract salient information from the Administration’s comments, since Trump himself delivers economic policy “on the go”. At the same time, his Cabinet members are apparently required to back up his comments, whether or not they believe them to be true or supported by the data.

The dollar index dived to a low of 98.26 yesterday as the markets drew back on any risk appetite given the continuing fears of how the “Greenland situation would be resolved.” A betting man would have got very long odds on January 1st that the first month of the New Year would be dominated by Greenland and Venezuela.

The index eventually recovered to close at 98.56.

The German government has revised its 2026 economic growth forecast downward to 1.0% from its previous projection of 1.3%, Reuters reported on Tuesday.

The adjusted GDP outlook is expected to be incorporated into the Economy Ministry’s annual economic report, which will be presented on January 28, a source revealed.

The downward revision comes as Europe’s largest economy continues to face challenges, though specific reasons for the reduced forecast were not immediately disclosed.

The German Government, more than other EU members, regularly updates its economic forecasts to reflect changing conditions and expectations for the country’s economic performance.

The ZEW Economic Sentiment Index, a crucial barometer of economic expectations among financial market experts and institutional investors across the Eurozone, was published yesterday. The January reading of 40.8 represents a significant improvement from the previous figure of 33.7, indicating that survey respondents have become more optimistic about regional economic conditions.

This positive shift in sentiment reflects financial professionals' overall assessment of the Eurozone's economic trajectory. The index captures forward-looking expectations rather than current conditions, making it a valuable leading indicator for economic trends. The substantial 7.1-point increase suggests that market participants are viewing recent economic developments and policy measures more favourably.

Could a German finally run the European Central Bank?

Mythology from the institution’s founding 28 years ago suggests there was a gentlemen’s agreement then to prevent this, given the ECB was initially modelled on the Bundesbank and based in Frankfurt.

Those conditions were central to the complex bargain with France and the rest of the European Union to ‘Europeanise’ the Deutsche Mark into the Euro.

German Central Bankers and economists had been wary of the idea, but Chancellor Helmut Kohl favoured it, in part to dampen reservations across the Rhine about German reunification.

A seasoned ECB official drily observed at the time that, ‘If there is ever such an agreement, the gentlemen in question will all be dead.’

The legal and political horse-trading over the ECB’s management is gearing up because its four best-known figures on the six-person board, President Christine Lagarde, Vice President Luis de Guindos, Isabel Schnabel and Philip Lane, in charge of market operations and economics, respectively, all depart in the next two years.

Germany started mooting candidates for the ECB presidency in the 2010s. Axel Weber and then Jens Weidmann, two former Bundesbank Presidents, met opposition from other European countries for their hawkishness and, for this reason, were not fully backed by Chancellor Angela Merkel, who, in any case, was backing Ursula von der Leyen, another German, for the EU presidency.

Weber might now be vindicated in the wake of the asset price inflation he warned about, partly driven by cheap money, but in Weidmann’s case, the other countries’ forebodings may have been prescient.

The improvement in the ZEW Economic Sentiment Index provides insight into the evolving confidence levels within the Eurozone's financial community. Such sentiment indicators are closely monitored by policymakers, investors, and analysts as they help gauge the overall mood and expectations surrounding economic performance in the region.

There has been nothing in the data published so far this year to suggest that the ECB will change monetary policy.

The Euro made strong gains yesterday as the market took a moral standpoint over Trump's threats to Greenland. The single currency reached a high of 1.1768, but buying was tempered by the proximity of substantial sell orders rumoured to be around 1.1780. It eventually fell back to close at 1.1719.

Have a great day!