28 August 2026: The UK has the most exposed major economy to AI

Deutsche Bank has compared 30 economies in a study on how far AI could reach into their workforces, and Britain comes out on top. Two factors drive the ranking: an unusually high share of domestic jobs in roles that the technology affects, and an export base weighted towards the services most likely to be affected.

The report examines knowledge work and how disruption to it flows through both employment and trade balances. Its author, Deutsche analyst Shreyas Gopal, was direct about which country stood out. Britain sells the world a great deal of services vulnerable to automation while buying in goods and other services. This asymmetry turns a labour-market question into a balance-of-payments one.

That is a different argument from the usual jobs debate. Most analysis asks how many roles disappear. This goes further and deeper: what happens to a country whose principal export is the very thing being automated?

The “AI Issue” will continue as researchers study the effects of adopting the technology from every angle, but the UK economy will face massive changes over the next decade. In essence, it is all very well having a ‘non-manufacturing’, services-based economy, but the population still needs to be in a position to “kit out” their homes, buy a vehicle to get around in, and eat. Food for thought indeed.

Against the awesome backdrop of the Rocky Mountains, the world’s Central Bankers have gathered for the ‘other’ annual economic jamboree: Jackson Hole. The Bank of England’s Andrew Bailey is among the governors present, yet is definitely not the main event, presumably to his relief.

That unenviable honour goes to Kevin Warsh, who will once again face scepticism about the Federal Reserve’s willingness and ability to control US inflation. Expect repetition of the phrase “task force” as Warsh tries to focus attention on plans to reform the Fed, while sidestepping awkward subjects such as Treasury Secretary Scott Bessent’s divisive bond-buying programme or the row over Lisa Cook.

In London, we will be listening to Bailey’s words as well as those of Bank of England external rate-setter Catherine Mann, both of whom will speak later today. They are adept at speaking on a range of topics and may be asked about two things that come to mind: AI and digital currencies.

This will come as a welcome relief after Warsh’s trick of making speeches and saying nothing at all. Digital currencies, a topic currently close to the ECB’s heart, were the subject of a story last night that made one wonder whether Andy Burnham’s Labour wants to steal some thunder from Nigel Farage’s Reform, which has been extremely vocal about crypto in particular.

As summer draws to a close, although we are being threatened with ‘just one more’ heatwave, Andy Burnham will be getting down to some real leadership matters. With his Chancellor ‘beavering away’ preparing his budget to be delivered in late October, Burnham will be preparing for his debut at the Party Conference, which takes place one month earlier.

Burnham can expect something of a coronation, but will be pressed about welfare reform and the cost of living, two issues that he has ‘skated around the edge of so far’

Sterling softened modestly across major pairs yesterday, with movements driven almost entirely by external data and global risk sentiment rather than UK-specific news.

In his first three months on the job, Kevin Warsh has firmly chosen not to use the bully pulpit that comes with the title of Chair of the Federal Reserve, even as he’s hinted at an ambitious agenda to reshape the institution.

That could change this week when he takes the stage in Jackson Hole, delivering his inaugural remarks at the Central Bank’s annual Symposium (Conference), his first in his new role.

His comments will attract listeners from around the globe, including, no doubt, a certain resident of Pennsylvania Avenue who is keen to see interest rates go down. But Warsh’s most important audience later today is probably the one that will be physically in the room with him: his fellow Fed policymakers, who are increasingly divided on how to proceed in their fight against inflation and may be sceptical of some of his reform plans.

Three members of the FOMC have already spoken this week and laid out their concerns about inflation, calling for interest rates to rise.

Even as Warsh has declined ample opportunities at press conferences and congressional testimony to shed light on his plans, many of his colleagues at the Fed have continued to lay out their expectations for how the economy will unfold and what policy might be warranted. They’ve filled the silence Warsh left and reinforced the perception that he is leading from behind, which is never a good look.

The number of people filing for U.S. unemployment benefits fell last week, remaining at historic lows as layoffs are rare and most Americans currently enjoy job security.

Jobless claims slipped to 203k last week from a revised 207k the week before, the Labour Department reported on Thursday. The four-week average of claims, which smooths out week-to-week ups and downs, ticked up slightly to 205.5k.

Jobless-benefits claims are a proxy for layoffs, and economists watch them because they can provide early clues about where the job market is headed. For the past year, claims have mostly been in a historically low range of around 200k to 230k a week.

The U.S. economy and job market have proved resilient despite high gasoline prices driven by fighting with Iran. The U.S. unemployment rate is low at 4.1%. That is partly because President Donald Trump’s immigration crackdown and the ongoing retirement of baby boomers mean fewer people are competing for jobs: More than 1.3 million people have dropped out of the U.S. labour force over the past year.

For this reason, the August non-farm payrolls report, due next Friday, will be closely watched to see whether last month’s job losses were a one-off or the start of a trend.

Companies, scarred by the surprise worker shortages that followed the end of COVID-19 lockdowns, are reluctant to let go of staff. But they aren’t hiring much either. So times are tough for Americans seeking to break into the job market and for those who have lost their jobs and are looking for new work. Economists describe a “no hire, no fire” job market.

When the Labour Department puts out the August jobs report next week, it’s expected to show that employers added another 65,000 jobs, according to a survey of forecasters by the data firm FactSet.

Hiring this year remains well below the 166k monthly jobs created, on average, in 2023 and 2024, let alone the 491k a month recorded during the 2021-2022 hiring boom that followed pandemic lockdowns.

After US-Canada trade talks collapsed on Friday, the United States imposed a 50% tariff on a long list of Canadian goods under the rarely used Section 338 of the Tariff Act of 1930. US Trade Representative Jamieson Greer went on TV first thing on Monday to calm financial markets with some basic tariff figures. He said the new action affects a small percentage of Canadian exports to the US and an even smaller share of consumption, so there’s “no possible way it can really affect US well-being.”

Greer is basically right about the tariffs’ direct effects. The problem for both America’s chief trade negotiator and the US economy is that the new levies raise other, more important and troubling issues.

The spat injects significant new uncertainty into both the trillion-dollar bilateral relationship and the broader global economy. Escalation, the most common trade-war fallout, is a real risk, with Prime Minister Mark Carney announcing dollar-for-dollar retaliation beginning on Sept. 8 and President Donald Trump threatening to hike duties on Canadian automotive goods to 50% on Jan. 1.

Cooler heads can still prevail, even though Carney often appears to be the calmest man on the planet, but both the Canadian and US sides see little chance of a quick resolution. And politics will discourage a ceasefire: The now-seething Trump has staked his reputation on countries backing down from a trade fight, but polls in Canada consistently show that fighting Washington is a political winner. It’s a tinderbox, with vocal match-throwers on each side of the border. Another sidebar is that the spat has done nothing for Trump’s popularity rating, which remains in the low thirties.

The dollar was slightly firmer overall yesterday, with moves concentrated in G10 pairs and driven mainly by steady US yields and cautious risk sentiment rather than by any major data release.

German investor optimism rose for a third consecutive month, a sign of hope that Chancellor Friedrich Merz’s economic reforms will spur growth. The ZEW Institute in Mannheim's expectations index rose to 26.3 in July from 10.5 in June. That’s well above the 15.3 median estimate of analysts in a Bloomberg survey. The measure of current conditions also increased.

The results reflect heightened optimism for Europe’s biggest economy following pro-growth measures unveiled in Berlin earlier this month. Investor sentiment rose even as renewed hostilities in the Middle East raised the prospect of further energy supply disruptions that could hurt German industry.

“It seems that the reforms are having an effect,” ZEW president Achim Wambach said earlier this week in a statement, highlighting sustained growth in export-oriented sectors and domestic demand. “Nevertheless, the uncertainty associated with the developments in the Iran conflict and the oil price remains a crucial factor affecting the prospects for a recovery of the German economy.”

Earlier this month, Merz vowed to “break out of this slump in our economy” by announcing measures, including reforms to the pension and health systems. He predicted the package could generate more than 1% economic growth in 2027.

The reforms helped push the DAX, Germany’s benchmark stock index, higher at the beginning of July, when the Iran conflict also appeared to have abated. Those gains have since been erased.

Germany’s economy is still showing signs of stabilising, despite the outbreak of new hostilities in the Middle East, the Economy Ministry said in its monthly report.

However, higher energy prices and raw-material costs are still expected to weigh on companies through higher input costs, the report said.

The German economy imports far more from Spain than the distance between Madrid and Berlin would suggest. A share of Spanish exports, numerous industrial chains, and one of the main tourist markets depend on German demand, so a prolonged slowdown affects Spanish companies and workers.

The exposure is especially visible in industry. Germany is one of the largest markets for Spanish products. It plays a central role in European supply chains, where the same component can cross several borders before becoming a finished product.

The automotive sector offers the clearest example. Spain is a major European manufacturer of vehicles and components. Many plants built in the country produce vehicles for the entire European market, while manufacturers of parts, electronic systems, metal components, tyres, and other equipment supply brands and industrial groups with a strong German presence.

A sustained reduction in production or sales in Germany can therefore translate into fewer orders for Spanish suppliers, even if those companies do not sell directly to the German consumer.

The effect extends to logistics companies and second- and third-tier businesses in the supply chain.

Spanish public debt has reached 1.763 trillion, a new record, but the most important thing for the Government is that the debt-to-GDP ratio has fallen from 103.4% to 101.5% in one year. It forgets to mention that inflation in the first half of the year stood at 3.2%, meaning GDP is “inflated” by price increases that do nothing but erode Spaniards’ purchasing power.

Spain’s public deficit has become chronic. And while Spain boasts the highest growth in Europe (2.7%), public debt, which accounts for more than 100% of GDP, continues to rise faster than GDP, at 4.14%.

As a result, over the last 12 months, the State has taken on another 70 billion euros in debt, representing a rate of 5.833 billion per month, or 191.7 million per day.

The Euro was essentially flat yesterday, trading in one of the tightest ranges among the major currencies, with price action dominated by steady US dollar strength, ECB minutes, and pre-Jackson Hole positioning.

Have a great day!