14 January 2026: Bailey pledges ‘solidarity’ with Fed chief amid Trump row

The Chancellor of the Exchequer, Rachel Reeves, has been plagued by anaemic levels of growth in her eighteen months in the role, and she appears to have given up trying to inject more dynamism into the economy. The latest monthly GDP data will be published later this week, and it is expected to show that the country returned to growth after two months of decline.

However, that growth will be minimal at 0.1%. Reeves will expect to be questioned by financial journalists. She will trot out the now-jaded lines about investment, then use her fallback strategy of highlighting her meagre achievements while continuing to blame the previous Government for the current economic malaise.

Early indicators suggest the UK economy struggled to bounce back in the weeks after Reeves’ budget, with a deepening labour market downturn the biggest threat to hopes for a pickup in early 2026.

While official data on Thursday is expected to show Britain eked out 0.1% growth in November, real-time signals from card spending to business confidence point to a weak December that could spill into the new year.

Key to the outlook are the labour market and whether cautious consumers will finally begin loosening the purse strings. Forecasters, on the whole, expect the economy to accelerate as temporary headwinds fade, including speculation about tax rises in the months before the budget and the cyberattack at Jaguar Land Rover.

Barclays Plc card spending data showed a 1.7% year-on-year plunge in December, the worst fall since February 2021 when the country was in lockdown. It also found that over half of consumers planned to scale back discretionary spending, particularly on clothing and dining out. Several retailers, including Tesco Plc and J Sainsbury, reported disappointing trading results covering the Christmas period.

Labour was not completely honest about its plans to raise taxes during the General Election, the former head of Britain's economic watchdog has suggested.

Richard Hughes, the former chair of the Office for Budget Responsibility, said that Labour's manifesto was 'nothing like' what the party has actually done in Government.

Hughes, who was forced to quit in December after the OBR accidentally leaked the Budget's contents, used his first public appearance since resigning to apologise to the Chancellor.

However, he hit back at attacks against the watchdog. He insisted people can 'trust' it, telling the Lords Economic Affairs Committee: 'The OBR is led by human beings and human beings make mistakes.'

Mr Hughes also criticised all political parties for being 'inclined to be less honest' about their economic plans for Government during General Elections.

He said: 'If you look back at Labour's manifesto, the costed part of the Labour manifesto had them raising and spending around £8billion-£9billion, you know, over the course of this Parliament.

'If you look at their first Budget, they raised £40billion in tax, and they spent £70billion, so it was nothing like what their actual fiscal plan turned out to be in Government.'

And the former OBR chief suggested that political parties should have their manifestos scrutinised by an independent body, as he doubted that 'any political party presented a comprehensive and costed financial plan for government' in the run-up to the 2024 election.

Central Bankers from around the world said yesterday they "stand in full solidarity" with U.S. Federal Reserve Chair Jerome Powell, after President Donald Trump dramatically escalated his confrontation with the Fed, with the Justice Department investigating and threatening criminal charges.

Powell "has served with integrity, focused on his mandate and an unwavering commitment to the public interest," read the statement signed by nine national Central Bank Governors and Presidents, including the European Central Bank and Bank of England.

The pound returned to its familiar range yesterday as the market digested the effect of the ramping up of the pressure on Jerome Powell. Sterling fell to a low of 1.3424 and closed at 1.3430.

President Trump criticised Federal Reserve Chair Jerome Powell ahead of a scheduled economic visit to Michigan, renewing attacks on interest rate policy and Federal Reserve leadership. The remarks add to the ongoing debate over inflation, monetary policy, and political pressure on the Central Bank as economic issues remain central to the campaign trail.

The news that Federal Reserve Chair Jerome Powell is now the subject of a Justice Department criminal investigation, a move that follows persistent public pressure from President Donald Trump, marks an extraordinary moment in American economic governance.

On the surface, the probe centres on congressional testimony about a building renovation, a matter of budgets and oversight. But in the broader context of the administration’s campaign to reshape the federal bureaucracy, the action transcends a simple political scandal.

It represents a direct and deliberate stress test of one of the most carefully guarded principles in modern economic policy: the operational independence of the U.S. central bank, or, for that matter, any Central Bank.

For decades, this independence has served as a bulwark against short-term political interference in monetary policy. Now, that bulwark is facing its most serious and overt challenge in the Fed’s 110-year history.

The news that Federal Reserve Chair Jerome Powell is now the subject of a Justice Department criminal investigation, a move that follows persistent public pressure from President Donald Trump, marks an extraordinary moment in American economic governance.

On the surface, the probe centres on congressional testimony about a building renovation, a matter of budgets and oversight. But in the broader context of the administration’s campaign to reshape the federal bureaucracy, the action transcends a simple political scandal.

It represents a direct and deliberate stress test of one of the most carefully guarded principles in modern economic policy: the operational independence of the U.S. central bank, or, for that matter, any Central Bank.

For decades, this independence has served as a bulwark against short-term political interference in monetary policy. Now, that bulwark is facing its most serious and overt challenge in the Fed’s 110-year history.

The matter has overshadowed the issues growing in the jobs market, although Trump believes that a simple cycle of rate cuts would solve them. That may well be true, but any Central Banker would counter that one sector of the economy cannot be considered in isolation and a more “centred approach is necessary. There is little point in having full employment if inflation at 10% is destroying the buying power of workers’ wages.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said that the US Justice Department’s attacks on the Federal Reserve have the potential to undermine the independence of the central bank and possibly boost borrowing costs.

“Everyone we know believes in Fed independence,” Dimon said on a conference call with members of the media after his company reported fourth-quarter earnings. “And anything that chips away at that is probably not a great idea. And, in my view, will have the reverse consequences. It’ll raise inflation expectations and likely increase rates over time.”

Federal Reserve Bank of St. Louis President Alberto Musalem said yesterday that inflation risks are moderating, and he expects prices to begin converging toward the central bank’s target later this year.

Musalem said monetary policy is well-positioned after last year’s rate cuts to respond to risks to either price stability or employment. He said rates are now right around the neutral level that neither boosts nor slows the economy, and reiterated there is little need to lower rates further while inflation remains elevated.

“I expect inflation to resume its convergence toward our 2% target over the course of this year. The current inflation reading is encouraging in that respect. I think policy is really well positioned right now, balancing both the expected path of the economy and the risks on both sides.”

The dollar index retraced its steps yesterday, regaining the ground it had lost as the market shock over Trump’s actions towards the Fed was digested. The Greenback rallied to a high of 99/23 and closed at 99.19.

The Reserve Bank of Australia has shown its support for the embattled chairman of the US Federal Reserve, Jerome Powell.

Australia is named in a statement of support released by the central banks of Europe, Asia and the Americas yesterday.

Fourteen Central Banks have been named in the statement, including those of the UK, Brazil, New Zealand, South Korea, Switzerland, Denmark and the European Central Bank.

“We stand in full solidarity with the US Federal Reserve system and its chairman, Jerome H. Powell,” the statement reads. “The independence of Central Banks is a cornerstone of price, financial and economic stability. “It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.”

The statement goes on to say Powell “has served with integrity, focused on his mandate and an unwavering commitment to the public interest.

“To us, he is a respected colleague who is held in the highest regard by all who have worked with him.”

The statement notes that other Central Banks may be added to the list of signatories at a future date.

The woman who calls herself Europe’s “Mrs Crisis” is approaching the final stretch of her career, with the world barely recognisable from the one she once knew.

Two decades after first entering public service, President Christine Lagarde of the European Central Bank can take heart from an outlook for stable inflation and some resilience in economic growth. But the rise of populism and the continent’s struggles to navigate global power politics weigh on her mind.

Those are some of the insights Lagarde offered in an interview with Bloomberg. She described how inequality is fuelling support for political extremes, while slow decision-making is hampering Europe’s ability to forge its own destiny.

“We will live in a more volatile world, which is more prone to shocks, and which has clearly fragmented under our eyes. I hope we come to a moment of reckoning.”

German Chancellor Friedrich Merz is considering the near collapse of Germany’s export market and has decided that the growth path may lie outside the EU. On a much-publicised visit to India, Merz has signed several accords with Indian Prime Minister Modi and members of his Government, which it is hoped will restore Germany’s position in the subcontinent.

Merz floated on Monday the possibility that the European Union and India could sign a landmark free trade agreement by the end of January, a move that could reshape global trade ties as protectionism rises and U.S.-India talks remain stalled.

Top EU leaders would travel to India to seal the deal if negotiations wrap up in time, Merz told reporters in the western Indian city of Ahmedabad on Monday.

This is not a shift in German economic policy, merely a reinvigoration of its commitment to markets outside the European Union.

The Euro is forming a reverse head and shoulders pattern on medium-term charts that should limit its losses, although the nature of the market currently is that it has become reactive as investors worry that another seismic event is just around the corner.

The single currency fell to a low of 1.1634 yesterday and closed at 1.1645.

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