7 January 2026: The backbench revolt is real

No one is doubting the Government’s commitment to creating a more dynamic economy that achieves a level of growth that would generate significant corporate tax revenue, which businesses would gladly pay since their profits increase exponentially. However, the Cabinet and Labour backbenchers seem to have different priorities.

Winning an election, which is still more than three years from happening, is the primary goal of backbenchers, several of whom have only been MPs since July 2024, with a single goal: to ensure that they are MPs for an extended period. They have quickly established their ability to mould policy to suit this objective, and are willing to be significantly more “left-wing” than their Cabinet colleagues.

The embarrassing U-turns that Keir Starmer has had to make in the eighteen months in which he has been Prime Minister simply confirm this unpalatable truth.

This May, the Government will face a rigorous test of its credentials as a viable Centre-Left alternative to the populist brand of politics promised by Nigel Farage’s Reform UK Party.

Farage has cleverly reduced the level of rhetoric he has delivered over the past few months, allowing Starmer and his Chancellor, Rachel Reeves, to demonstrate their lack of competence, while the Conservatives are mired in a lack of strong leadership.

The next few months will shape the next 3½ years of policy, particularly if growth remains as elusive as it has been over the previous 1½ years.

Sir Keir Starmer is preparing a bill that would hand ministers the power to bring the UK into alignment with EU law, as part of an attempt to reduce paperwork and boost growth in Britain.

The bill, which will be brought forward this year as part of the government’s Brexit reset, would give ministers overarching powers to align the UK with EU law in certain areas, such as food standards, animal welfare and pesticide use, a process known as dynamic alignment.

It is understood that the new powers could be used to implement deals struck with the EU, such as agreements to align electricity and carbon markets, or plant and animal standards.

Some Ministers argue that dynamic alignment would have little material impact, as UK food manufacturers have been forced to follow EU rules since Brexit. Still, it is hoped that it would reduce expensive and time-consuming paperwork for suppliers who want to export to the single market.

The pound drew back from its recent highs as traders have seen monetary policy take a back seat to American expansionism, which has favoured the dollar. Sterling retreated to a low of 1.3482 yesterday and closed at 1.3498.

Since his second term began around this time last year, Donald Trump has made several outrageous claims, which have been viewed globally as little more than a “wish list” of how he will “make America great again.”

However, the blatant disregard for America's elected Congressmen and women that he has demonstrated by believing that he did not need their approval to “invade” another sovereign state and “kidnap” its elected President, beggars belief.

Venezuela’s President and his wife appeared in court in New York yesterday on weapons and drug trafficking charges. Nicolás Maduro rightly told the court that he is a “prisoner of war” as he pleaded not guilty to the charges that can genuinely be called “Trumped up”.

We are witnessing a truly global shift in what is considered the rule of law, which, apart from a few disgruntled members of the United Nations, is going virtually unchallenged. Trump may not be finished with Latin America, as the Presidents of Colombia and Cuba have both expressed fears of invasion.

And then what?

Members of the Administration have said Greenland is strategically vital to America’s defence from China and Russia. At a meeting of primarily European Leaders in Paris yesterday, ostensibly called to support peace efforts in Ukraine, plenty of the talk was about Greenland, following U.S. Presidential aide Stephen Miller saying ‘no one will fight the U.S. militarily over the future of Greenland.

Federal Reserve Chair Jerome Powell has claimed that interest rate cuts alone will not resolve the nation’s housing affordability problems. He warned that the U.S. faces a deep, long-running housing shortage that monetary policy cannot fix. Powell said the Central Bank lacks tools to address what he described as a “structural” housing shortage.

Powell further stressed that limited supply remains the primary obstacle for many would-be buyers. Housing economists estimate that the U.S. is short by roughly 1.5 million to 5.5 million homes.

Powell said, “Housing is going to be a problem.” He added, “We can raise and lower interest rates, but we don’t really have the tools to address a structural housing shortage.”

Analysts noted that closing the current deficit could take a decade or longer, even under favourable conditions.

JPMorgan economists noted that about half of mortgage holders are paying rates below 4%, and roughly 80% are paying under 6%

JPMorgan economists wrote, “About half of current U.S. mortgage borrowers are still enjoying sub-4% rates, and about 80% are paying under 6%, creating a ‘locked-in’ effect; there’s little incentive to sell and take on a higher payment, keeping existing home inventory at historic lows.”

Powell’s remarks pushed back against claims that lower interest rates alone would restore affordability.

The dollar index is being driven by something very few saw at the end of 2025. This is a real-time example of the market’s unpredictability.

The index rallied to a high of 93.60 yesterday and closed at 98.60.

In December, inflation in Germany fell notably, reflecting a broader trend across the Eurozone. This drop reinforces the ECB’s confidence in the region’s economic stability. However, a delicate balance is developing: should inflation fall substantially below the 2% level, the Central Bank may be forced to consider further rate cuts. This would see the currency lose ground, in turn driving inflation higher.

According to statistics released by Destatis, German consumer prices rose by 2.0% year-on-year in December. This marks a decline from the 2.6% increase recorded in the previous month.

The decreasing inflation rates in Germany align with similar trends observed in France, suggesting a positive economic outlook for the Eurozone. The ECB has expressed that this indicates the region is in a “good place.” However, the Eurozone economy remains highly fluid, with many levers, and the ECB must be mindful of both growth and inflation, as control of one does not naturally drive the other.

Spain’s former Central Bank governor Pablo Hernández de Cos and his Dutch counterpart Klaas Knot are European economists’ preferred picks to become the next president of the European Central Bank, according to a Financial Times poll. A German has never held the job of presiding over the Eurozone monetary policy, and there has been little progress on promoting Bundesbank President Joachim Nagel to succeed Christine Lagarde. If it were considered to be “Germany’s turn”, Nagel would be the overwhelming favourite, since current ECB Board and Governing Council Member, Isabel Schnabel, whose “hat is in the ring” is considered by many to be too one-dimensional in her outlook.

The top job at the Frankfurt-based institution will become available in November 2027 when Christine Lagarde’s non-renewable eight-year term expires. But several contenders are already positioning themselves for the role amid a significant reshuffle of the ECB’s top ranks over the next two years.

The Eurozone economy stayed in growth mode through December, closing out 2025 with twelve straight months of expansion. But the last stretch came in weaker than expected. The final reading for December dropped to 51.5, down from 52.8 in November.

The numbers came from HCOB’s composite PMI, compiled by S&P Global, and remained above the 50 line, indicating the economy continued to expand. It just did it more slowly.

At the meeting in Paris yesterday, attended by most of Europe’s Heads of Government, including Denmark’s President, there was strong support for Greenland as an autonomous region of Denmark.

It was agreed that any incursion into the world’s largest island by the U.S. would, at the very minimum, spell the end of NATO. Sadly, this may not be much of a deterrent since Trump is looking for ways to end the Alliance, so its demise would make very little difference.

The Euro slid further yesterday as traders saw the invasion of Venezuela as “dollar positive” even if it violates congressional rules, UN protocols, and the Rule of Law.

The single currency fell to a low of 1.1684 and closed at 1.1686.

Have a great day!