29 January 2026: Bailey warns of an ‘urgent need’ to improve the resilience in non-bank finance

Keir Starmer arrived in Beijing on Wednesday, confident that he can improve the country’s relationship with China without annoying U.S. President Donald Trump.

It says a great deal about the current state of global politics that Trump believes that he has taken control of every significant relationship between major economies and has the power to bend them to his will.

Military power has become a tool to threaten less developed countries with; witness Trump’s threat to Iran yesterday, but the real power comes from trading relationships.

“I’m often invited to choose between countries simply,” Starmer said in an interview with Bloomberg before departing London for four days of talks with officials, including President Xi Jinping and Premier Li Qiang, on Thursday. “I don’t do that.”

Would that he had the genuine choice.

The UK leader is bringing a delegation that is heavy on British banking executives from HSBC Holdings Plc, Barclays Plc, and Standard Chartered Plc, as well as cultural emissaries representing the arts and sports. A range of manufacturers are also making the trip, including Airbus SE, AstraZeneca Plc, Brompton Bikes, Jaguar Land Rover, and McLaren Automotive Ltd. Starmer arrived in the Chinese capital mid-morning Wednesday, UK time.

Starmer’s goal of opening up more export business for British industries is the same, whether it applies to the US or China. But his successes with Trump meant catering to the US President's ego. China takes a much more methodical approach to deals and decisions, often taking years to negotiate.

Trump has changed the world view to such an extent that he views deals between nations as not involving the U.S. as a personal affront, particularly if he is not asked his opinion.

The UK’s effort to “split the economy into ‘things we can trade with China’ and ‘things we can’t trade with China’ makes sense for now.

Longer term, however, those separate tracks will be increasingly difficult to manage in areas such as digital commerce, where the world’s biggest economies are jockeying for supremacy and “where concerns around data and access to data spread across every sector.

The Bank of England Governor is taking the time between MPC meetings to voice his concerns about non-bank finance. While this is hardly the new frontier or the “Wild West” of finance, it is less regulated than traditional sources of funding, and that scares Bailey.

He argues that financial stability remains the essential foundation for sustainable economic growth, drawing lessons from history while warning against complacency in an increasingly complex financial system.

Reflecting on the interwar period following Britain’s return to the gold standard, Bailey notes parallels with the global financial crisis of 2008. In both episodes, systems that appeared robust in calm conditions proved fragile when exposed to large, globally transmitted shocks. Mispriced assets, hidden interconnections and misplaced confidence amplified the damage, leaving long-lasting economic scars.

Bailey contends that the reform agenda introduced after the Global Financial Crisis marked a turning point. Capital and liquidity standards were strengthened under the Basel framework; structural reforms, such as the UK’s ringfencing regime, were introduced; and stress testing became central to supervision. International coordination was also enhanced by bodies such as the Financial Stability Board. As a result, banks today are significantly better capitalised and more resilient.

The Pound experienced something of a reality check after a seemingly “endless flight” to the upper levels of its longer-term range. It fell to a low of 1.3749 but closed at 1.3799, showing marked resilience.

It’s a curse to live in interesting times.

Central Bankers have certainly learned that, of late, the Federal Reserve and its governance have become a red-hot political issue.

Generally, they want to keep things dull and predictable to minimise the risk of financial accidents. On that basis, Jerome Powell is probably happy with his day’s work. Amid the institution's most significant turmoil in decades, he and his colleagues on the Federal Open Market Committee issued a truly uninteresting announcement on monetary policy.

Powell is trying to completely ignore the threats of legal action emanating from the White House, simply getting on with his job calmly and peacefully.

It may be that below the surface, he is peddling furiously, but on the surface, all appears to be serene.

Rates are unchanged. There is no new steer as to the future. There are no new adjustments to the balance sheet. And there are no new projections or dot plots from the committee members. When Powell faced the press, he declined to answer a series of questions on the political issues at the top of everyone’s minds.

He doubtless plans to leave the comments to his colleagues, particularly the Regional Fed Presidents who are doubtless being lined up for interviews, beginning with today’s breakfast news programmes in the U.S.

It is unusual, possibly unique, to report on an FOMC meeting in which literally nothing was said beyond the announcement of no change in interest rates.

This will not have slipped under Donald Trump’s radar, and scathing words can be expected later today as the White House Press Corps will try to fan the flames of his anger.

Job cuts and other changes at Amazon, the second-largest private employer in the U.S., have rippled through the economy this week, throwing workers at the company and some of its partners into a tough job market.

Yesterday morning, thousands of corporate employees at the online retailer learned they will lose their jobs, part of ongoing layoffs first announced in October.

The day before, Amazon said it would shutter its Amazon Fresh grocery stores and lay off retail workers across dozens of locations. That same day, UPS said it would be slashing 30,000 delivery jobs this year, in part because Amazon was sending it less business.

The layoffs and closures underscore weaknesses in an economy that is doing well by some measures but in which workers face a tough job market, making 2025 the second-worst year for job creation since the Great Recession. Long-term unemployment in the United States is now at a four-year high, according to Bureau of Labour Statistics data.

The U.S. is now the epitome of a K-shaped economy.

Amazon’s moves to shed workers and lines of business also demonstrate how ongoing belt-tightening in the tech sector can cascade to other industries.

The dollar index took a day off from its recent beating yesterday, attempting a recovery. However, as it reached 96.80, sellers re-emerged, pushing it back down to close at 96.35.

The European Central Bank is closely watching how an appreciating euro is affecting inflation. It will consider the impact of its decisions when setting monetary policy, according to Governing Council member Francois Villeroy de Galhau.

While reiterating that officials have no target for the exchange rate, the French Central Banker joined others in warning that further euro strength could weigh on consumer prices.

“We are closely monitoring this appreciation of the euro and its possible consequences in terms of lower inflation,” he told the press. “This is one of the factors that will guide our monetary policy and our decisions on interest rates over the coming months.”

Euro-zone inflation is currently a touch below the ECB’s 2% target. It is projected to remain below that level this year and next, making some policymakers particularly sensitive to any additional downside dangers.

Given the effect of a strong Euro on inflation over the past two years, something that the ECB has not been shy in taking credit for, several economists are now seeing a fall to 1.5% or even 1.2% in the coming months as the dollar remains weak and possibly weakens further.

Austrian Central Bank Governor Martin Kocher said the ECB must monitor whether the euro continues to appreciate.

“We don’t see that at the moment,” he said. “But, of course, events that have been happening over the last couple of days contributed to some concern.”

Kocher spoke hours before President Donald Trump said he’s not concerned with the currency’s decline, prompting the euro to briefly climb above 1.20 on Tuesday for the first time since June 2021.

While it was trading just below that level on Wednesday, it has rallied 2% against the greenback this year.

Last July, De Guindos described an exchange rate of $1.20 as “perfectly acceptable,” but cautioned that anything above that level “would be much more complicated.”

Still, Lithuanian Central Bank Governor Gediminas Simkus told Econostream in an interview that it would be an “oversimplification” to say that a euro above 1.20 would trigger a policy adjustment.

Central Bank independence is a subject that has leapt from the dusty halls of academia to centre stage because Donald Trump attacked the Federal Reserve.

Jerome Powell’s Western peers have rallied to his cause. They fear that a hostile Fed takeover would destabilise markets, drive up the cost of US debt, and cast doubt on whether the country would provide dollar liquidity abroad in any future crisis.

But something else is at play for worried Central Bankers: whether their own freedom from political meddling can be maintained in a Trump-driven world.

Rather than simply complain, they should be ready to debate their policy positions at such a charged historical moment.

The battle is particularly significant in the euro area, where Christine Lagarde’s reluctant team at the ECB is under pressure in a new era of hard power, ushered in by the US President’s constant threats of punitive tariffs.

With this backdrop, politics will at times take precedence over monetary niceties. Vulnerable centrists and upstart populists alike share the need to resuscitate the continent’s moribund economy. For example, France’s far-right RN wants massive ECB stimulus to ease the country’s budget woes.

The Euro retraced most of its steps from the day before yesterday, falling to a low of 1.1895 before recovering to close at 1.1945.

Have a great day!