20 February 2026: BoE’s Mann expresses concerns over the rising unemployment rate

The UK’s plummeting net migration numbers will add billions to the nation’s borrowing, Rachel Reeves has been warned.

Successive governments have announced crackdowns on migration since the figure hit nearly a million in just 12 months in 2023.

But these attempts have proved so successful, with numbers dropping by two-thirds in a single year, driven by a huge fall in the number of people coming for work or study, that they now risk affecting the Treasury, a leading think tank has warned.

Lower migration, especially of working-age people, can reduce the tax the government collects without necessarily decreasing the cost of public services.

The Resolution Foundation warned that “migration really matters,” noting that recent statistics pointed to a “much sharper fall” in net migration than economic forecasts had predicted.

The drop will add around £3bn to government borrowing, an event in London was told, looking ahead to Ms Reeves’ spring statement at the start of March.

The warning comes after the Chancellor was told she should scrap her self-imposed rules on debt and borrowing to halt the “dysfunctional” policymaking behind Britain’s economic uncertainty.

A Resolution spokesman said the migration figures “have pointed to a much sharper fall in net migration than the OBR had built into their forecast”. This would “add about £3bn to borrowing”, he added.

Huw Pill’s assertion that interest rates may have been cut too quickly has caused quite a stir in the City’s financial markets. The Bank of England’s Chief Economist told reporters last week that "progress with disinflation is ongoing, but it’s not quite as rapid as we might have hoped." He noted that much of the expected decline in inflation stems from government measures to reduce energy prices rather than from underlying economic factors. Pill has consistently supported higher interest rates than many of his colleagues at recent Bank of England Monetary Policy Committee meetings.

In the most recent decision, he was among the five members who voted to maintain current rates, while four committee members favoured implementing another rate cut.

After cutting rates six times since August 2024, the BoE's Monetary Policy Committee has now reached a stalemate on how much further, if at all, rates should fall.

The MPC's last three meetings have resulted in 5-4 splits, and financial markets see just one or two more cuts this year. However, the narrow majority favoured a hold last week, and remarks by Governor Andrew Bailey led some economists to think the next cut could come as soon as March.

Bailey, either by accident or design, has held the casting vote at every meeting since last summer, indicating just how close the fight with inflation is. The Bank’s mandate is one-dimensional; its overarching goal is the maintenance of financial stability and not the promotion of growth.

Catherine Mann, considered the most hawkish member of the MPC, told reporters yesterday that British inflation data published this week represented "good numbers". However, there was not as much improvement in the underlying figures as the central bank had hoped.

Mann told the Central Bank Central podcast, a recent rise in the unemployment rate was "very much of a concern", and the BoE was getting close to some sense of where monetary policy is balanced between the inflation objective and full employment. This presents a more “rounded” view of the economy than most of her colleagues.

The pound continued its recent decline yesterday, falling to a low of 1.3434 but recovering to close at 1.3459. The market is still coming to terms with the employment slump and what it will mean for monetary policy and next month's spring statement.

Federal Reserve Bank of Minneapolis President Neel Kashkari has said recent comments by National Economic Council Director Kevin Hassett, critical of a New York Fed study on tariffs, further undermine the Central Bank’s independence.

“This is just another step to try to compromise the Fed’s independence,” Kashkari said yesterday at an event in Fargo, North Dakota. “Over the last year, we’ve seen multiple attempts to try to compromise the Fed’s independence.” He added, “It’s really about monetary policy.”

Hassett on Wednesday said the New York Fed economists’ study, which found US companies bear most of the burden from President Donald Trump’s tariff hikes, was “an embarrassment” and that the researchers associated with it should be “disciplined.”

Kashkari said research conducted by Fed district banks reflects efforts “to gain more knowledge and learn about the economy, by having a wide breadth of opinions.”

“We are doing our very best to make the best assessment of the economy based on data and analysis,” the Minneapolis Fed chief said.

Kashkari also pointed to the current Justice Department investigation of the Fed over building renovations as evidence of Trump administration pressure. Chair Jerome Powell, in January, said that when served subpoenas, the reasons for the investigation were a pretext to punish him for not cutting interest rates quickly enough. Trump has repeatedly said the Fed should cut rates aggressively.

“The louder the noise gets turned up, the more we hug the mast of what is our mission,” Kashkari said, citing the Fed’s mandate to achieve price stability and maximum employment.

The Minneapolis Fed chief was also asked about Kevin Warsh, whom Trump has said he’ll nominate to be the next Fed chair. Powell’s term expires in May. Warsh has repeatedly criticised various elements of the Fed and said he wants to revamp the institution.

“I look forward to working with him and hearing his ideas,” said Kashkari, who worked with Warsh during the financial crisis. “We can always do better. If we’ve got good ideas on how to improve things, let’s go take them forward.”

Warsh has said he wants to reduce the Fed’s balance sheet, which surged in size during both the financial crisis and the pandemic, when the Fed was buying assets to shore up the economy. Kashkari argued that there are many technical reasons why the balance sheet, currently at $6.6 trillion, is much larger today than it was before those crises, including foreign demand for US currency and the amount of reserves banks must maintain at the Fed for liquidity purposes.

Kashkari is a voting member of the FOMC this year, while his colleague and the next-most-outspoken member of the Committee, Austan Goolsbee from Chicago, is not.

Warsh may want a smaller Central Bank balance sheet, but he’s unlikely to get it without major tinkering with the financial system, and even then, it might not be possible.

That’s because the system the Fed now uses to achieve its monetary policy goals depends on the banking system holding large amounts of money. The level of liquidity in the financial system and the tools the Fed uses to manage it ultimately limit how far the Fed can contract its holdings and keep money markets on an even keel.

Warsh may want a smaller Central Bank balance sheet, but he’s unlikely to get it without major tinkering with the financial system, and even then, it might not be possible.

That’s because the system the Fed now uses to achieve its monetary policy goals depends on the banking system holding large amounts of money. The level of liquidity in the financial system and the tools the Fed uses to manage it ultimately limit how far the Fed can contract its holdings and keep money markets on an even keel.

The US Dollar Index is demonstrating formidable momentum, trading decisively higher and approaching the significant 98.00 threshold. This relative surge comes as global financial markets brace for the imminent release of two key US economic indicators: the Advanced GDP report and the Personal Consumption Expenditures Index.

Consequently, traders and analysts are scrutinising every tick for clues about the Federal Reserve’s future policy trajectory.

Yesterday, the index reached a high of 98.07 but fell back to close at 97.84 as traders considered the implications of today’s data releases.

ECB President Christine Lagarde has told colleagues she remains focused on her job, and she would tell them first if she were about to step down, a message they took to mean she is not about to resign, four sources told Reuters.

The Financial Times reported on Wednesday that Lagarde plans to leave her job early ahead of next year’s French presidential election, a vote which the eurosceptic far right could win.

An early resignation aimed at giving outgoing French leader Emmanuel Macron a say in picking the new ECB president would rekindle a debate about Central Bank independence from politics. This principle has come under threat in the US from President Donald Trump’s attack on the US Federal Reserve.

Two further members of the Central Bank’s Executive Board, Philip Land and Isobel Schnabel, are also approaching the end of their terms in office. Still, neither has given any indication of their intention to leave early, despite market rumours.

It is hard to determine if Lagarde's leaving her post early can be considered Government interference, since staying for her full term may also encourage political interference, just from a different direction.

With the Head of the French Central Bank saying he would end his term early, using the flimsy excuse is a clear indication of the political change coming in France.

Several economic policy measures provoke an almost instinctive rejection from a majority of French people. As if they were taboo, several reforms that could improve economic and social conditions can hardly be discussed without drawing public condemnation.

Emmanuel Macron is racing to put guard rails around a potential far-right president of France.

The French leader is accelerating key personnel appointments and placing loyalists in top positions to cement his influence and prevent the National Rally from executing its populist agenda, according to four French officials and two former officials.

Polls show the far-right party is the front-runner for next year’s presidential election, and Marine Le Pen and Jordan Bardella, its potential candidates, have signalled they would try to undo Macron’s economic reforms and pull back on French commitments to the EU and NATO.

Meanwhile, the German economy continues to recover. However, expansion in the first quarter will be weak, with a pickup expected only from spring, the Bundesbank said in a monthly economic report yesterday.

Europe’s largest economy has been stagnant for the past three years, but a government spending spree, a strong labour market and pent-up household savings are fuelling optimism for a rebound.

“The economy is expected to continue its recovery in the first quarter, albeit with weak momentum,” the Central Bank said.

“From spring, the German economy is expected to grow more dynamically, driven primarily by fiscal stimulus.”

Construction is likely to take a hit from poor weather in the current quarter, and private consumption is unlikely to remain elevated, it added.

While the industry has secured some large orders, they are likely related to higher government spending on defence and infrastructure, and the sector’s competitiveness in export markets remains relatively weak.

The Bundesbank earlier forecast German economic growth to be below 1 percent this year, with most of it expected in the second half.

The recent rise in the dollar index has given the ECB cause to “celebrate” the Euro's relative weakness. Yesterday, the single currency fell to a low of 1.1742 and closed at 1.1768, marking its tenth decline in the last sixteen trading sessions.

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