16 February 2026: Weak UK growth supports the BoE’s dovish February slant

Bank of England Chief Economist Huw Pill said Friday that U.K. consumer price inflation is falling, but not at the pace officials had hoped.

"Progress with disinflation is ongoing, but it’s not quite as rapid as we might have hoped," Pill stated. His comments run in direct conflict with BoE Governor Andrew Bailey’s view that inflation will reach the Bank’s 2% target by the Spring.

The Central Bank kept its key interest rate unchanged last week and forecast that inflation would approach its 2% target by April.

Pill 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. He has voted against the BoE's last four interest rate cuts and said interest rates were now "a little bit too low", although just about high enough to be putting some downward pressure on inflation.

Bailey has held the casting vote at every Monetary Policy Committee meeting for the past nine months and has consistently made dovish comments, even though he has on occasion sided with his more hawkish colleagues.

An increase in the minimum wage for younger workers has led to a rise in youth unemployment, according to Bank of England rate-setter Catherine Mann, as new data shows Britain’s jobless rate for young people has climbed above the European average.

The unemployment rate among 18- to 24-year-olds stood at 13.7 percent in the three months to November, up from 10.2 percent three years earlier and the highest level since late 2020.

Broader OECD figures show that the rate for 16- to 24-year-olds has risen to around 15 percent, overtaking the EU average for the first time since records began in 2000.

Over the same three-year period, overall UK unemployment has increased from 3.9 percent to 5.1 percent.

In an interview with the Sunday Telegraph, Mann said the rise in youth unemployment reflected “disproportionately large increases in the minimum wage for that age group”, rather than signalling a more general collapse in the labour market.

“I think we have to be very careful in the storyline about youth unemployment being the canary in the coal mine for a deeper deterioration in the labour market,” she said.

“The accumulation over three years of the rise in the National Living Wage for that group has been manifested in unemployment for that category of workers. Very unfortunate, but it is true. It is a fact.”

The minimum pay for 21- to 22-year-olds has risen by 33 percent over the past three years, bringing it into line with the £12.71 hourly national living wage paid to older workers.

Sterling had an overall positive week last week despite running into selling pressure as it tried to break above the previous week’s high. It reached 1.3712 before sellers emerged, driving it back to close at 1.3656.

Treasury Secretary Scott Bessent said Friday that he expects the Senate Banking Committee to begin processing Kevin Warsh’s Federal Reserve chair nomination, despite Sen. Thom Tillis’ vow to block any Central Bank nominee until the Justice Department ends an investigation into current Chair Jerome Powell.

“My understanding is that we are going to proceed with the hearings,” Bessent told CNBC. “Sen. Tillis wants to keep a hold on any vote with Kevin Warsh leaving the committee, making it to the full Senate. But I think it’s important to get the hearings underway, and I think we have an agreement to do that.”

Tillis has praised Warsh, but he has doubled down on his demand to block any Fed nominee from advancing out of the Senate Banking Committee until the DOJ ends its probe into Powell, which centres on statements he made to Congress about cost overruns at the central bank’s Washington headquarters. The retiring Republican Senator told reporters this week that his hold will remain “until the investigation is brought to a conclusion.”

Tillis previously indicated he was open to the committee holding a hearing to get the process moving.

“They can do it, but I’ll withhold the vote,” he said last week. “So it will be a hearing, and then we can set it in abeyance, I guess, and wait for this to be cleared.”

Bessent, who led the Fed chief selection process, declined to comment on the DOJ investigation but again criticised Powell’s leadership of the Fed.

Republicans have a 13-11 majority on the Banking panel, meaning that if every Democrat opposes Warsh, Tillis’s vote is needed to advance the nomination.

In December, Kevin Warsh had hinted that he might argue for lower interest rates.

AI is ushering in “the most productivity-enhancing wave of our lifetimes”, past, present and future,” Warsh, Trump nomination for the Fed chair, said in an interview with fintech entrepreneur Sadi Khan.

The technology could prove to be “structurally disinflationary”, like the internet, Warsh said, suggesting the Fed may have a clear path to continue lowering rates.

In recent years, US productivity has grown at a robust pace, according to data from the Bureau of Labour Statistics. In economics, if productivity is strong, then growth can run hot without stoking inflation. This means the Fed doesn’t have to step in with interest rate hikes.

It’s unclear whether that same logic applies to rate cuts.

Forget all the recession chatter. Goldman Sachs CEO David Solomon feels the economic backdrop for 2026 looks strong.

In a recent CNBC interview, the veteran banker feels the macro setup is “quite good,” citing robust fiscal support, significant AI-driven capital investment, and a more conducive business environment.

Moreover, Solomon said strategic activity is picking up at an impressive pace, with businesses imagining big deals again. IPO discussions are heating up nicely, while some offerings, he suggests, could be unprecedented in size.

Clearly, that’s a big shift in tone from the negative chatter we’ve seen about the economy lately.

Also, Bank of America CEO Brian Moynihan echoed that same optimism from a consumer angle.

According to Moynihan, BofA’s data showed that January activity ran nearly 5% above last year, as spending continues to climb across various income brackets. This is in direct conflict with economists who see a continuation of the K-shaped economy.

Taken together, the message from Wall Street’s top floor is that despite the uneven growth, it’s still very much alive.

The dollar index continued to trade at lower levels last week as traders remained nervous about the appointment of Kevin Warsh and the possibility that he had signed an agreement with Trump to lower interest rates.

The index fell to a low of 96.49 and closed at 96.86, although its downside does appear to be protected for now.

No matter how often economists try to ignore Germany when discussing the prospects for Eurozone growth, the economic behemoth manages to “crash the party”.

German economic ​indicators were ‌pointing to an ‌increasingly ‌stable recovery ⁠trend ​in ⁠the country's business cycle, ⁠the ​Economy Ministry said ⁠in ⁠a ​monthly report on ⁠Friday.

However, seasonally adjusted services production across the European Union contracted in November 2025, according to Eurostat.

This monthly decline of 0.5 percent in the EU and 0.6 percent in the euro area follows a brief period of growth in October 2025, where both regions saw a marginal increase of 0.1 percent.

The broader annual comparison remains slightly positive, with services production increasing by 0.3 percent in the euro area and 0.2 percent in the EU compared with November 2024.

Germany, which has “bucked the trend” for some time, is showing green shoots of recovery just as the Eurozone begins to struggle to achieve a meaningful upturn overall.

Within the euro area, several key sectors faced downward pressure, including transportation and storage, which fell by 0.7 percent, and professional, scientific, and technical activities, which dropped by the same margin.

European Central Bank President Christine Lagarde said yesterday at the Munich Security Conference that a shift in US President Donald Trump’s stance toward Europe has acted as a political jolt, pushing European leaders into closer coordination.

“The ‘wake-up call’ that we all received as a result of President Trump’s change of attitude towards Europe” is “effectively bringing the leaders of Europe, the policymakers, much closer together,” Lagarde said during a panel focused on competitiveness and the European economy. “That needs to continue,” she added.

Lagarde framed her remarks in historical terms, invoking Jean Monnet and Robert Schuman, two figures closely associated with the early architecture of European integration, to argue that Europe tends to consolidate under pressure. “Europe grows in times of crisis,” she said, adding that the bloc becomes “stronger” and more united when confronted with shocks.

Against that backdrop, Lagarde defended a “two-speed” approach inside the European Union when the full group of 27 member states cannot move at the same pace. The key, she argued, is political clarity: leaders must know what must be done, and the public must understand that differentiated cooperation is possible without paralysing the bloc.

As an example, she pointed to a €90 billion European loan plan to support Ukraine against Russia, backed by 24 of the 27 member states. Lagarde said unanimity remains the ideal but should not be treated as a veto over action. “Was it unanimous? No,” she said, noting that three member states were excluded from the arrangement, while the rest proceeded. In her view, the absence of unanimity is “not an obstacle” if the policy can still be delivered.

The argument drew a cautionary note from Estonian Prime Minister Kristen Michal, who questioned how many layers of variable geometry Europe might eventually produce. He warned that different clusters could emerge depending on the policy area, defence, technology, and finance, and asked how many “onions” of overlapping groupings the EU might end up with.

Lagarde closed by insisting that flexibility should not replace cohesion as a strategic aim. “Europe is much better off being united,” she said. “Even if we are different, that makes us stronger.”

The formidable challenges besetting the European Union have triggered a desperate search for bold, ingenious solutions that can deliver the much-needed big bang. But just how big are leaders willing to go?

"Our ambition should always be to reach an agreement among all 27 member states," Commission President Ursula von der Leyen said in a letter to leaders ahead of the informal summit on Thursday.

"However, where a lack of progress or ambition risks undermining Europe's competitiveness or capacity to act, we should not shy away from using the possibilities foreseen in the Treaties on enhanced cooperation."

The Euro continued to “shadow” the dollar. Last week, it rallied to a high of 1.1928, risking disturbing the sell orders that are well known to be placed between 1.1930 and 1.1950, before retracing its steps to close at 1.1874.

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