9 February 2026: Andrew Bailey: AI training is critical to the future of the UK job market

The UK economy is expected to have grown modestly again in the last three months of 2025 amid pressure from budget uncertainty, according to economists.

The Office for National Statistics (ONS) will shed light on how the economy fared when it releases the latest UK GDP data for December and the final quarter as a whole later this week.

Economists have broadly predicted that the economy grew by 0.1% in the quarter.

However, some have suggested that it could tip slightly higher after stronger-than-expected activity in November and that clarity following the autumn Budget could have supported firms in the run-up to Christmas.

Previously, ONS figures showed that the economy grew by 0.1% in the three months to September.

This was followed by a 0.1% decline in October and a 0.3% increase in November, as the manufacturing sector was boosted by recovering production at Jaguar Land Rover following its major cyberattack.

December, however, is expected to show no growth, according to estimates.

Several industry surveys also pointed to weak data for December, including the month’s construction PMI, which showed a continued deep decline across housing, commercial construction, and civil engineering.

The fourth quarter, hampered by budget worries, has seen key indicators point to an improvement in the services sector as consumer spending rises.

GDP growth could rise to 0.2%,” as a result, while most economists predict 0.1%.

The broad thrust from activity in the services sub-sectors in December indicates that budget uncertainty is fading rapidly.

Nevertheless, the broader picture for UK growth is still muted.

Concerns are growing that the authority of the UK’s independent fiscal watchdog could be weakened after the Government failed to begin the search for a new Office for Budget Responsibility Chair despite earlier pledges.

The Treasury had told Parliament that recruitment would begin “within weeks” following Richard Hughes’s departure in December, but the process has not yet started.

The delay has raised concern among parliamentarians and economists about a potential leadership gap at the body responsible for scrutinising the Chancellor’s fiscal forecasts.

The OBR could remain without a chair for several months and potentially throughout the remainder of 2026, if the recruitment process is not accelerated.

Hughes stepped down as OBR chair in December following the accidental release of Budget information.

Ministers had previously assured Parliament that the search for his successor would begin quickly.

However, Chief Secretary to the Treasury James Murray told the House of Lords Economic Affairs Committee that “external recruitment has not been launched yet”, adding that it would instead “take place in the months ahead”.

The delay means the OBR is expected to be without a chair when it publishes its next assessment of the UK’s public finances on March 4.

The report will examine whether the Chancellor’s fiscal plans remain on track, as economic pressures continue to affect the Government’s position.

The pound returned to more familiar ground last week as the dollar recovered from the battering it took in the first weeks of the New Year. Sterling fell to a low of 1.3508 and closed at 1.3618 as volatility continued to rise.

Federal Reserve Vice Chair Philip Jefferson expressed cautious optimism about the 2026 economic outlook during a Brookings Institution event on Friday.

Jefferson stated that growth is expected to remain slightly above trend, with the labour market stabilising and inflation resuming its decline toward the Fed’s 2% target. He emphasised that current monetary policy is "well-positioned" to respond to economic developments, suggesting the Federal Reserve will likely continue to pause interest rate cuts while awaiting additional employment and inflation data.

"The current policy stance is well-positioned to address the risks to both sides of our dual mandate," Jefferson said. "I believe that the extent and timing of further adjustments to our policy rate should be based on the incoming data, the evolving outlook, and the balance of risks."

The Fed maintained its policy interest rate in the 3.50%-3.75% range at last week’s meeting. Future rate adjustments will depend on labour market developments and whether inflation begins moving lower after a year of little change.

The Fed’s preferred inflation measure currently sits approximately one percentage point above the 2% target. Jefferson acknowledged that "progress on disinflation has stalled over the past year."

Treasury Secretary Scott Bessent suggested the Senate should start hearings on Donald Trump’s pick to lead the Federal Reserve despite a vow from a key Republican to block all such nominations from advancing until a criminal investigation targeting current chair Jerome Powell is resolved.

Bessent said Kevin Warsh, who was nominated on Jan. 30 to replace Powell, received widespread support from the chamber when he was previously confirmed as a Fed governor and that hearings on his nomination should proceed despite the blockade.

Senator Thom Tillis, a North Carolina Republican and member of the Banking Committee that holds hearings for nominees to the Federal Reserve, has said he will block all of Trump’s Fed nominations until the Department of Justice probe into Powell’s statements to Congress last year about renovations at the Fed’s headquarters is completed.

Kevin Warsh’s vision for reshaping the relationship between the Federal Reserve and the U.S. Treasury Department is emerging as one of the most consequential, and least clearly defined, elements of his prospective tenure as Fed chair.

Warsh has argued for revisiting the principles of the 1951 Fed–Treasury Accord, which famously restored the Central Bank’s independence after World War II by ending caps on government bond yields.

That agreement sharply curtailed the Fed’s role in directly financing government borrowing, a boundary Warsh believes has since been eroded by years of quantitative easing following the global financial crisis and the pandemic.

The ambiguity surrounding his proposal has unsettled investors. Neither Warsh nor Treasury Secretary Scott Bessent has outlined concrete terms. However, Warsh has suggested that a new framework could more clearly define the Fed’s balance sheet objectives alongside Treasury issuance plans.

With Federal interest costs running close to $1 trillion annually, and President Donald Trump openly arguing that the Fed should consider debt-servicing costs when setting policy, markets see material risks in any formalised coordination.

The latest employment report is due to be published on Wednesday, with a median forecast of 60K new jobs created in January and the unemployment rate remaining at 4.4%.

The dollar index remains in recovery mode. It reached a high of 98.03 and closed at 97.61.

France is not a marginal economy struggling on the periphery of global finance. It is the world’s seventh-largest economy, the fourth-largest sovereign debt market and home to the fifth-largest banking system. Its size has long insulated it from the kinds of fiscal discipline imposed on smaller eurozone states.

Yet that insulation is now eroding. The combination of structural indebtedness, political fragmentation and the collapse of Emmanuel Macron’s self-styled “radical centre” has left France more vulnerable than at any point since the creation of the euro.

France’s debt metrics are stark. External debt stands at approximately $7.7 trillion, equivalent to around 248% of GDP, while total debt across the economy is close to 319% of GDP. Among advanced economies, only Japan exceeds this ratio.

The difference, however, is decisive. Japan’s public debt is overwhelmingly domestically owned. France’s is not. Roughly 54% of French government bonds are held by foreign investors, exposing the state to shifts in international confidence that it cannot fully control.

For years, markets have tolerated this exposure. The assumption has been that France, as a core eurozone country, would always be protected by the European system. But that assumption rests on political as much as economic foundations, and those foundations are now visibly creaking.

Historically, large states facing excessive debt have relied on monetary sovereignty to escape fiscal dead ends. Inflation, generated through money creation, reduces the real value of outstanding debt and transfers losses from debtors to creditors. This strategy has been used repeatedly and often successfully by sovereign states that control their own currencies.

France no longer has that option. Membership of the eurozone brings clear benefits in good times, such as lower borrowing costs, reduced currency risk, and deep capital markets. Still, it also removes the ability to monetise debt in bad times. The Euro is both a shield and a straitjacket.

This constraint became brutally clear during the eurozone crisis. Countries such as Ireland and Greece were forced into sharp fiscal adjustment because they could not print money to stabilise their economies. Instead, they relied on emergency support from the European Central Bank (ECB), conditional on austerity and structural reform.

France, however, is not Ireland or Greece. Its economy is far larger, its political weight far greater, and its failure would represent a systemic crisis for the eurozone itself. This raises a question that European policymakers have so far avoided confronting directly: Is France, because of its core position in the Eurozone, too big to fail, or is the scale of its debt exposure making it too big to save?

The European Central Bank will assess the effects of the euro’s recent rally on consumer price growth in its quarterly forecasts due out in March. Still, recent moves have been rather limited, Executive Board member Piero Cipollone told reporters last week.

Officials consider the exchange rate as one element “to project inflation dynamics,” the Italian policymaker said, according to a transcript posted on the ECB’s website on Sunday. “We will see how the new projections match and the impact this will have.”

At the same time, Cipollone highlighted that the ECB doesn’t have a specific target for the Euro, and that it’s been trading around $1.17-$1.18 for almost a year now. “After the episode we saw a couple of weeks ago, it is now back to levels seen in previous months.”

The Euro briefly reached a high of 1.2082 in the wake of Trump's talk of “taking ownership of Greenland, and his “arrest” of the Venezuelan President. The market has lost some volatility recently, and the Euro has returned to a more common range.

Last week it fell to a low of 1,1765 and closed at 1.1822.

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