23 February 2026: Triple boost for Rachel Reeves

Britain’s economy is bouncing back in the New Year, according to new figures, which showed a jump in retail sales, an increase in exports and a record surplus in the public finances for January. The upbeat news is a triple boost for Rachel Reeves after she was widely criticised for undermining the economy with the turmoil over her November Budget.

It comes after grim job figures, including in London, where the unemployment rate has hit 7.6%. As shoppers returned to spending in the New Year, retail sales rose by 1.8% last month, the biggest rise in more than a year and a half.

Online retailers also saw strong growth, according to official figures. The Office for National Statistics said the total volume of retail sales, which measures the quantity bought, rose by 1.8% in January, up from 0.4% in December.

In further good news for the Chancellor, growth in the UK's private sector gained further momentum this month as manufacturers were boosted by the biggest surge in export orders since 2021, a new survey shows.

The S&P Global flash UK composite purchasing managers' index (PMI), closely watched by economists, rose to 53.9 in February from 53.7 in January. This is well above the fifty mark, which indicates decline and expansion.

The rise in activity was largely driven by the UK’s giant services sector, which includes businesses ranging from hospitality and leisure to finance and healthcare.

Britain also notched up a record Government surplus in the public finances.

The rise was sparked by a jump in self-assessed tax payments and a fall in debt interest to the lowest level since March 2020.

The ONS said there was a public sector net borrowing surplus of £30.4 billion in January.

It was the highest public finances surplus, when the Government receives more in tax and other revenues than it spends, for any month since records began in 1993.

Mainly, leftist MPs want all the wrongs of the last 15 years put right and quickly. Their next opportunity to demand more cash arrives when Rachel Reeves delivers her spring statement on 3 March.

All the signs are that the Chancellor will try to marry caution about the public finances, directed at backbench MPs, with an optimistic message about the economic recovery to cheer the public.

Whatever she says, there will be many on her own side who will demand that economic orthodoxy be ditched in favour of a bolder outlook delivered with a Liz Truss-like energy. Where the former prime minister extolled the virtues of tax cuts as economic rocket boosters, Labour MPs will instead trumpet public spending as the engine of growth.

It is interesting to note that Reeves will face greater dangers when addressing her own side of the house than when addressing the other.

Last week, the pound reacted to improved data, including the fall in the rate of inflation, by losing ground, falling to a low of 1.3434, although news from Washington on tariffs provided a bounce, sending Sterling to close at 1.3489.

Having seen the Supreme Court reject his sweeping global tariffs on Friday, Trump dug his shovel out, announcing a new global tariff of first 10%, then upping it to 15%. That may have lifted the president’s mood, after a stinging rebuke from the top judges in the US, but it risks backfiring on his hopes for hefty interest rate cuts this year.

The trade war, with its demands on businesses to make their products in the US if they know what’s good for them, is one of Trump’s signature policies. The logic is to create prosperity and long-term opportunity by bringing more investment and innovation into the US, lifting incomes.

It also provided lucrative opportunities for tax collection, with the tariffs rejected by the Supreme Court estimated to have raised roughly $110bn (£81bn) in import taxes.

Capital Economics has calculated that by raising the global tariff to 15%, Trump has ensured that, at least for the next 150 days, the effective tariff rate will rise back to 14.5%, slightly above where it had settled before the Supreme Court struck down the reciprocal tariffs based on the International Emergency Economic Powers Act.

That means American importers will still be paying higher prices for goods from overseas, with a knock-on impact on inflation.

Companies that have stumped up for IEEPA tariffs are agitating for a refund. That could be a potential fiscal stimulus if they get the cash. This adds up to a headache for the US Federal Reserve, and its next leader, the freshly anointed Kevin Warsh, and may make it harder to justify a rate cut.

Trump made it clear what he wants from Warsh last Friday, declaring “interest rates should come down very substantially” on his watch. However, Warsh will be on a sticky wicket, as the Fed appears split; the minutes of its last meeting showed that some Fed officials wonder whether rate increases could soon be needed to keep inflation pegged, while others do expect cuts ahead.

For example, Lorie Logan, President of the Federal Reserve Bank of Dallas, said that upside inflation risks remain and that policy is in place to address them at a Friday event at Columbia University.

She continued, "Uncertainty in the economy continues, and one of the biggest uncertainties comes from the tech sector."

She supported the Fed's January decision to hold steady amid a stabilising job market. However, she is cautiously optimistic that the economy is on a path to inflation returning to target. Although not fully convinced, we are on a path to 2% inflation.

There is now greater uncertainty about tariffs following the court ruling. Many factors are at play in the aftermath of the decision, and it is unclear what will happen, as upside inflation risks remain, while policy is well-positioned to address risks to the mandate.

On the labour side, it currently doesn't look like AI is displacing workers. Around 30K a month is the job market break-even at the moment.”

The dollar index rallied as the Supreme Court decision left a rate cut a little more uncertain. It reached a high of 98.07 and closed at 97.75.

An early departure by Christine Lagarde could narrow the field of candidates vying to succeed her as European Central Bank President.

Lagarde will step down before her term ends in October 2027, the Financial Times reported last Wednesday, allowing President Emmanuel Macron to help find a replacement ahead of French elections that could usher in the far right.

While the ECB insisted that Lagarde is “totally focused on her mission” and that she “has not taken any decision regarding the end of her term,” it suggested she is indeed considering cutting short her mandate.

A premature exit could give the established frontrunners for her job, namely former Dutch Central Bank chief Klaas Knot and Spain’s Pablo Hernandez de Cos, who currently leads the Bank for International Settlements, an edge.

The pair, whom analysts polled by Bloomberg see as the favourites, already have a head start on others, including Bundesbank President Joachim Nagel and ECB Executive Board member Isabel Schnabel, in terms of campaigning and lobbying.

“Timing-wise, Knot has not taken a new big job yet, while de Cos has, so that an early appointment may favour Knot on the margin.”

The starting gun on Lagarde’s succession was effectively fired when a replacement was found necessary for her No. 2, Luis de Guindos, after he announced his retirement. A quicker departure for her would likely see other upcoming openings at the ECB also filled as part of a package deal between member states.

One such vacancy is Schnabel’s, though she told Bloomberg on Wednesday that she sees no need to leave before the end of her term.

The ECB presidency is subject to intense horse-trading as European Union governments haggle over potential candidates. As head of the euro zone’s second-largest economy, Macron would play a key role in the process.

Lagarde herself was appointed in 2019 as part of a mammoth batch of EU jobs that included naming Ursula von der Leyen as Head of the European Commission at the behest of then German Chancellor Angela Merkel.

The latter’s presence could now disadvantage a German candidate, should Lagarde step aside early, as it would leave Germany in control of two of the continent’s most powerful institutions for a prolonged period. Von der Leyen’s term doesn’t run out until 2029.

According to a recent interview, the Governor of the Bank of Greece stated that there is a “slightly higher” probability that the ECB will reduce rates rather than raise them.

“Unless the sky falls on our heads, do not expect exciting news from Frankfurt this year,” Stournaras said.

He stressed that the Eurozone economy remains in good shape, as inflation is projected to converge towards the ECB’s medium-term target of 2% and economic activity has proven resilient. He acknowledged, however, that risks to growth and inflation appear broadly balanced.

Stournaras once again expressed support for the issuance of common European bonds. “A few years ago, we were one or at most two members of the Governing Council supporting eurobonds,” he recalled. “The others thought: ‘You come from the European South, so it is understandable.’ But now we have all realised how important eurobonds are.”

He noted that even Germany’s Central Bank, long regarded as the de facto leader of sceptics, has shifted its stance.

Even the Euro is delivering on the Central Bank’s hopes as it slips further away from the ECB’s line in the sand, which is assumed to be around 1.20.

Last week, fell to a low of 1.1742 and closed at 1.1786.

Have a great day!