22 January 2026: Growth will remain a rare commodity

Inflation in the UK rose to 3.4% in December from 3.2% in November. This was the first time in five months that prices had risen year on year.

However, market analysts believe that, since the main “contributors” to the increase were one-offs, the news is unlikely to derail expectations that the Bank of England will cut interest rates in the spring.

Businesses in Britain's hospitality sector say new taxes are limiting their capacity to invest, compounding the economy's traditional weakness and undermining the government's pledges to revive growth.

The Labour Party won power in 2024, vowing to grow Britain's economy, having courted businesses, big and small, for years.

But it has introduced billions in new taxes to address public debt and fund services, including increased employment taxes. A higher minimum wage has also added to business costs.

It is tough to find a single “growth policy” that has been delivered by Rachel Reeves over two budgets and one “spring statement”

Britain's economy and real incomes have grown slowly since the global financial crisis, while Brexit and COVID hit already weak productivity and investment trends compared to peers.

The pain is acute for some High Street retailers and local pubs, restaurants and hotels. Supermarket giant Tesco and Premier Inn owner Whitbread are among those who have highlighted the cost of business rates.

According to OECD data, Britain consistently ranks among the highest in property tax burdens among developed nations.

While the government often talks about easing regulation, business owners report the opposite, citing employment rights legislation, above-inflation minimum wage hikes, and new packaging rules.

Trade group UKHospitality has said 1,000 restaurants, 600 hotels and 500 pubs could close this year as a result of the changes, with pubs facing an average 76% hike over the next three years as pandemic-related reliefs are removed.

Finance minister Rachel Reeves said last week she is working on a support package for pubs, and suggested this could be extended to other hospitality businesses. But she said any further changes to business taxation would need to be done in a "balanced way".

Restaurant visits in Britain are still 21% below pre-pandemic levels, according to data from consumer behaviour company Circana, while those in Germany, Spain, Italy and France have recovered more.

One independent restaurateur was quoted as saying he faces an additional £50k in business rates this year, equivalent to a 40% rise, on top of a £150k increase in 2024 due to higher wages and payroll taxes.

The higher minimum wage, due to rise by 4.1% from this April after a 6.7% rise in 2025, is prompting businesses to invest in technology to reduce staff numbers.

The pound lost ground following an improvement in risk sentiment prompted by Donald Trump’s confirmation that he will not use force to bring Greenland under U.S. control. It fell to a low of 1.3401 and closed at 1.3424.

Donald Trump said yesterday that he had reached the “framework” of a deal on Greenland, backing away from his earlier demands to acquire the Danish territory after days of escalating threats and once-unthinkable worries about the most powerful member of NATO turning its weapons against one of its oldest allies.

China and Russia, considered enemies of Trump’s “new world order,” will be encouraged by how easy they have found it to undermine traditional relationships such as NATO.

Declaring that he would scrap planned tariffs on Europe, Trump said talks were underway with NATO Secretary General Jens Stoltenberg to bolster security in the Arctic.

The announcement, made on Trump’s social media account, was the latest head-spinning twist in his effort to seize Greenland from Denmark despite Danish and Greenlandic objections that the island is not for sale. And it marked a retreat from a push to claim another nation’s territory as his own, which had unsettled markets as the European Union readied economic retaliation.

Trump’s “MAGA” objective since he took office has taken a new and potentially dangerous turn since the start of the year. It was considered that the majority of his policy initiatives would be inward-looking following the upheaval his introduction of tariffs on many U.S. imports had caused last year. Still, he has already removed the Venezuelan President and demanded control of Greenland.

The President offered few details, but the deal was likely to fall far short of the full sovereign possession that he previously demanded. Denmark’s top diplomat said that the United States would not “own” the island, and Rutte is not empowered to negotiate the transfer of territory from one NATO member to another.

According to Trump, “We have formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region. This solution, if consummated, will be a great one for the United States of America, and all NATO Nations,” Trump wrote on Truth Social, saying that the proposed Golden Dome missile defence system was subject to further discussions “as it pertains to Greenland.”

It was suspected that Trump might announce the new Fed Chairman during his speech, but, in typical Trump fashion, things have moved on, leaving several loose ends hanging in the wind.

The U.S. President said he has interviewed several strong candidates for Federal Reserve chair, but complained ‍that nominees tend to change once they take office.

“Everyone I interviewed is great. Everyone could do, I think, a fantastic job. The problem is they change once they get the job,” Trump said at the World ‌Economic Forum in Davos, Switzerland.

The President ‌also renewed his criticism of current Fed Chair Jerome Powell for not lowering interest rates fast enough and said an announcement on the next Fed chair is ​coming soon.

“I’ll be announcing a new Fed chairman in the not-too-distant future. I ‍think he’ll do a very ​good job.

The leading four candidates to ‍succeed Powell are Trump economic adviser Kevin Hassett, Fed Governor Christopher Waller, former Fed Governor Kevin Warsh and BlackRock’s chief bond investment manager, Rick Rieder. Yesterday, Treasury Secretary Scott Bessent said the president has whittled the field down to four candidates.

The dollar index regained some of the ground it lost on Monday as the market expressed its relief that force would not be an option to gain control over Greenland. It rallied to a high of 98.87 and closed at 98.78.

European Central Bank President Christine Lagarde abruptly walked out of an invitation-only sit-down dinner in Davos after US Commerce Secretary Howard Lutnick started laying into Europe, several journalists reported.

The VIP event on Tuesday evening was attended by more than 100 people and featured Lutnick as the final speaker.

Lutnick’s speech to the dinner guests belittled European economies and their lack of competitiveness compared to the US’s prowess. It made several Europeans in the room uncomfortable, and as the criticism escalated, Lagarde was seen exiting.

The US official was described as having a bad seat at the back of the room, and his remarks were met with some booing. US Trade Representative Jamieson Greer was placed at the head table, which also featured BlackRock. Chief Executive Officer Larry Fink.

The ECB president is a former French Finance Minister and also served as head of the International Monetary Fund for most of Trump’s first term. She started warning in early 2024 that his return to the White House could spell trouble for Europe.

The ECB has, so far, declined to comment.

A spokesperson for the US Commerce Department said that no one left hastily during Lutnick’s three-minute speech and that only one person booed, adding that it was former US Vice President Al Gore.

“I sat and listened to his remarks,” Gore said in a statement provided by a spokesperson. “I didn’t interrupt him in any way. It’s no secret that I think this administration’s energy policy is insane. And at the end of his speech, I reacted with how I felt, and so did several others.”

One European CEO and a euro-zone official member said Lagarde was right to walk out of that dinner and that Europe needed to start standing up for itself.

The deal Trump has announced for the U.S. to take control of Greenland is likely to defuse the situation only marginally between America and the EU. Trump clearly feels that he can bend Brussels to his will in a way he cannot when dealing with China or Russia.

During the European debt crisis that began in Greece in the early 2010s, Spain was forced to seek financial assistance from the International Monetary Fund and the eurozone.

At the time, financial markets lumped struggling Southern European economies together under the derisive label “PIGS,” referring to Portugal, Italy, Greece and Spain.

Spain has since rewritten that narrative. Its recent growth performance has drawn attention across the eurozone. Spain, the European Union's fourth-largest economy after Germany, France and Italy, is estimated to have grown by 2.9% last year. That figure is 0.9% higher than the United States' growth. Spain's rebound, aided by EU support, reflects not only a revival of tourism but also active efforts to attract data centres and other high-value investments.

Measured by visitor numbers, Spain is now the world’s second-largest tourism destination after France. In 2024, France welcomed about 102 million visitors, and Spain received roughly 94 million. Visitor arrivals to Spain increased by 3 million from the previous year, driven by a surge in post-pandemic travel demand.

While Spain has posted striking growth, Italy’s economy has followed a steadier path. Like Spain, Italy benefited from a tourism rebound after the pandemic. With support from the recovery fund, Italy increased investment in infrastructure and green industries. Its growth rate in 2023 was about twice the EU average, though momentum has since slowed.

Italian Prime Minister Giorgia Meloni has pursued pragmatic policies, including tougher enforcement against tax evasion and reductions in welfare spending. One key measure was the abolition of the citizen income program, introduced in 2019 to support low-income households, which saved about 9 billion euros annually.

The Euro retreated from its recent highs yesterday as the dollar reasserted itself. The common currency fell to a low of 1.1676 and closed ten points from the low.

Have a great day!