26 February 2026: BoE’s Greene: There is no need to follow the Fed

Bank of England Monetary Policy Committee member Megan Greene said it "doesn't make sense" for the United Kingdom's Central Bank to set domestic monetary policy based on decisions taken by the Federal Reserve.

Writing in the Financial Times, Greene stated the idea that other Central Banks must "follow the Fed" is overstated, adding her focus is "what the implications would be for the UK economy and inflation."

She noted that Fed moves reach the UK through "trade and financial markets," with outcomes that can offset each other: stronger United States demand can lift British exports, but exchange-rate moves can later hurt growth while reducing inflation.

She said surprise Fed rate cuts can give the UK a short-term boost via "looser financial conditions," but later weigh on growth as sterling strengthens, concluding policy should be guided by the "forces shaping the outlook for UK inflation and set policy on that basis."

The Bank of England will likely cut interest rates this year, with the first reduction potentially as soon as next month, according to its Governor, Andrew Bailey, even though recent data on services price inflation, which the Bank closely monitors, has not fallen as much as hoped.

Bailey told MPs he would need more evidence to be confident about lowering borrowing costs when the bank announces its policy on March 19, after the Monetary Policy Committee voted 5-4 to keep interest rates unchanged this month.

At recent MPC meetings, Bailey has held the casting vote as the committee has been split 50/50 between those who see sticky inflation as an issue and those who believe a rate cut will stimulate economic growth.

Bailey reiterated the Bank of England's view that headline inflation is likely to fall sharply to around the Central Bank's 2% target in the April data due to be released in May. However, it is unlikely that the Committee will wait for confirmation of the fall before acting.

On the day households learned their energy bills would fall in April, the Chancellor chose to visit the headquarters of the company that has quietly become the UK's biggest domestic energy supplier, Octopus.

Rachel Reeves was shown screens displaying real-time management of energy demand for electric vehicles, as well as lower prices for communities that had volunteered to host clean energy infrastructure, such as wind farms.

This was an attempt not just to illuminate the notable cut to energy bills announced under the Ofgem price cap, but also to start floating a broader story about the UK economy, after some rosier numbers in recent days.

As voters head to the polls today in a crucial by-election in Gorton and Denton, one of the biggest questions is “has the economy begun to turn the corner?

Reeves, of course, continues to tell the public that Labour has been hindered by the messes it inherited in many areas of Government, so what is happening now may well be six months later than it would otherwise have been.

However, as the economy improves, the question remains whether she is the right person to make the crucial economic decisions.

The result in Gorton and Denton will be the first of several that show what the public thinks of this Labour Government and how serious the threat posed by Reform UK is.

The pound rallied yesterday as the dollar lost ground, rising to a high of 1.3566 and closing at 1.3553.

The US Supreme Court (SCOTUS) has ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) are unlawful. Yet, trade policy uncertainty shows no signs of easing. Within hours of the ruling, the Trump administration responded with new and modified global tariffs.

The Supreme Court’s 6-3 decision is significant because it limits one specific instrument, not the broader strategy. The Court held that the IEEPA does not authorise the President to impose sweeping tariffs without the involvement of a congressional delegation.

Put simply, Presidential authority to regulate imports does not automatically include the power to levy tariffs. This ruling removes the most flexible pathway for deploying reciprocal and drug-trafficking tariffs. But IEEPA is only one instrument in a much larger trade toolbox. Non-IEEPA tariffs, including steel and aluminium, remain in place.

The real question, therefore, is not whether tariffs continue, but what the administration can do next and what economic and legal damage has already been absorbed.

Over the past year, tariffs have been positioned as a central economic policy tool to raise revenue, reduce the trade deficit, and strengthen domestic manufacturing. The results have been mixed at best.

While tariff revenue surged, underlining their fiscal impact, structural outcomes lagged. The trade deficit has persisted. Domestic production has not returned. Instead, trade flows were rerouted, and production shifted across countries rather than back to the United States.

I always believed the terms POTUS, FLOTUS, and now SCOTUS were products of Hollywood. Still, it seems they have now become part of everyday language, even though each sounds like a particularly nasty skin condition.

Kansas City Fed President Jeffrey Schmid has said he'll miss Fed Chair Jerome Powell when he leaves the Federal Reserve.

"I'll miss Jay. I think he's a principled, committed American," he said in a moderated conversation at the Economic Club of Colorado. "I guarantee you he wants to do the right thing on behalf of our economy and the people in this country."

That doesn't mean the two always agreed on monetary policy. At the December meeting, Schmid voted to keep the federal funds rate unchanged, dissenting from the majority that decided to cut the rate by 25 basis points to 3.50%-3.75%. "I think he respected where I was coming from," he said.

"Dissents aren't necessarily bad," he added. "They can actually enhance the debate."

Regarding Kevin Warsh, whom President Donald Trump picked to succeed Powell as Fed chair, Schmid said he doesn't know him personally, but "from what I know about it and heard, he's bright and approachable."

Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin addressed the impact of artificial intelligence on the labour market during a panel discussion. The FOMC member stressed that the Fed's monetary policy cannot resolve AI-driven business volatility. Barkin cautioned against the immediate assumption that AI will lead to widespread worker displacement, noting that technology will provide opportunities for workers to move into higher-skilled tasks.

The dollar index finished lower yesterday, although well within its recent range. The scant reference to what Trump will do to improve his approval rating before the November midterm elections prompted some investors to exit long-dollar positions.

The index slipped to a low of 97.62 and closed at 97.66.

Christine Lagarde is expected to leave the European Central Bank before her term ends, paving the way for Klaas Knot to succeed her as President, according to a Bloomberg survey of economists.

More than half of respondents expect the incumbent to step down this year. Less than 30% predict she’ll see out her eight-year term, which ends next October.

Should she exit prematurely, Knot, a former Dutch Central Bank Governor, would be best placed to get the top job, according to about 57% of economists. If she completes her tenure, Bank for International Settlements chief Pablo Hernandez de Cos is favoured to take over.

It is interesting to note that in a position that commands such gravitas, the timing of Lagarde’s departure may well be the primary deciding factor.

Questions over Lagarde’s future are swirling after a report that she’ll step aside before French elections so President Emmanuel Macron can help find her replacement. An ECB statement failed to quell the speculation, as did remarks from Lagarde herself that staying on is her “baseline.”

The political dimension is proving controversial. Some applaud what looks like an attempt to shield a functioning European institution from a possible far-right victory in France’s ballot next spring. Others, including some inside the ECB, fret about the implications.

It is hard to justify the political machinations taking place in the “shadows” of Frankfurt and Paris, as they appear to be a blatant attempt to ignore the will of the people.

The business climate has deteriorated across almost all sectors, reducing the likelihood of a growth acceleration in early 2026.

This decline affects all sectors except construction, where the indicator remained stable. The deterioration is particularly worrying in services: all sub-indices fell over the month and, at 95, the business climate is now clearly below its long-term average.

Opinions regarding future activity and demand have weakened sharply. The decline in confidence is visible across all service sub-sectors. Moreover, firms in the sector are anticipating weaker hiring momentum, which is weighing significantly on the employment climate in France. The latter fell by a further point, reaching its lowest level since March 2021.

In the industry, the business climate also declined, although it remains above its long-term average. The deterioration is especially pronounced in chemicals and metallurgy, while conditions remain very favourable in the production of transport equipment (excluding automobiles).

As a whole, however, the weakening of order books and production prospects nevertheless constitutes a negative signal for the months ahead.

Meanwhile, Germany returned to growth at the end of 2025, but consumers are acting like a recession is still around the corner.

Germany’s economy grew 0.3% quarter over quarter in Q4 2025, following flat output in Q3, according to Destatis. The boost came from higher household and government spending and a jump in construction investment, a hint that parts of the real economy are thawing.

But GfK’s March consumer climate index slipped to -24.7, as purchasing willingness fell and economic expectations worsened. Add that households’ intent to save is the highest since the 2008 financial crisis, and any consumer-led rebound could stay muted.

The euro remains becalmed as the ECB studiously avoids any reference to changes in monetary policy, preferring to concentrate on the "succession."

The common currency reached a high of 1.1814 and closed at 1.1806.

Have a great day!