8 January 2026: Will Starmer fare any better this year?

More than half of British companies’ finance bosses expect artificial intelligence to boost their firms' output going forward, in a sign of rising optimism over the technology’s potential to transform the economy.

Accountancy firm Deloitte found that 59% of the United Kingdom’s Chief Financial Officers expect AI to improve the performance of their own company, up sharply from 39% when they were last asked in the third quarter of 2024.

While concerns linger about whether AI will trigger job losses, the technology has been hailed as a potential game-changer amid weak economic growth, which has dogged the UK for years.

The endemic lack of growth in the UK compared to its G7 partners is due to three significant, ongoing issues: chronically low investment, weak productivity, and high inflation, since the country produces far less of its own food than G7 nations.

If you throw Brexit and high energy prices into the mix, it makes for a low-growth cocktail which will be difficult to escape.

Bank of England governor Andrew Bailey has said that AI could emerge as a general-purpose technology akin to growth-driving waves of innovation in the past, such as computers and the Internet.

“We know that technology was a big driver of the US GDP in 2025, and we see real potential in the year ahead for AI to boost UK business performance and fuel growth,” said Richard Houston, chief executive at Deloitte UK.

Deloitte’s survey, covering Q4 of 2025, found that 96 percent of CFOs expect rising investment in digital technology by UK firms over the next five years.

Kier Starmer and Rachel Reeves will not care where the boost comes from, as long as they can claim a measure of the credit, although they will be concerned about potential job losses.

Aside from AI's potential, however, business confidence remains subdued in the UK.

Deloitte’s poll and a separate survey by the Institute of Directors showed that companies were still downbeat, despite some relief that tax hikes were not more severe in Chancellor Rachel Reeves’ November Budget.

Deloitte said business optimism rose to a reading of -13 at the end of last year, in line with levels seen in early 2025. The measure is derived from the difference between CFOs who are more or less optimistic about their businesses’ financial prospects.

With the New Year just one week old, the Prime Minister is already facing significant, yet unexpected, challenges that could place him in direct conflict with the U.S. Maybe there was always going to be a single issue which defies whether Starmer is a “good European, or one of Trump’s acolytes.

Greenland may well be the issue which finally deals a death blow to NATO, the aftermath of which will decide if the UK wants closer ties to Brussels or Washington.

The pound has lost the gains it made in the immediate aftermath of the U.S. adventure in Venezuela. It fell to a low of 1.3461 yesterday and closed just one pip higher.

Federal Reserve Governor Stephen Miran said the Federal Reserve will need to cut interest rates by more than a whole percentage point in 2026, arguing that monetary policy is restraining the economy.

“I think it’s very difficult to argue that policy is neutral. I think policy is clearly restrictive and holding the economy back,” Miran said Tuesday during an appearance on the breakfast television. “I think that well over 100 basis points of cuts will be justified this year.”

Fed officials cut interest rates last month for a third consecutive time, but signalled additional near-term reductions aren’t guaranteed. Policymakers are split over the outlook for inflation and the labour market, and pencilled in one cut for 2026, according to the median estimate in their latest projections.

This may change, given that Jerome Powell will no longer be the Chairman of the Fed and its rate-setting Open Market Committee after May. However, he may well stay on as Governor, which will attract the President's ire.

Miran’s comments come after other officials said this week that interest rates may now be close to the neutral level that neither boosts nor restrains economic growth. Miran has been calling for aggressive rate cuts since September, when he went on leave from his post as chair of the White House Council of Economic Advisers to fill a Fed Governor term that ends this month.

Yesterday, Richmond Fed President Thomas Barkin confirmed his belief that the current level of rates is “within the range of its estimates of neutral,” referring to the projections published in December. Minneapolis Fed chief Neel Kashkari, speaking Monday, said he guessed that “we’re pretty close to neutral right now” given resilient economic growth.

The Central Bank’s benchmark is currently within a 3.5% to 3.75% band, and the estimates of the neutral level among the 19 policymakers on the FOMC range from 2.6% to 3.9%, with a median of 3%.

“Going forward, policy will require finely tuned judgments balancing progress on each side of our mandate,” Barkin said Tuesday in his remarks to the Raleigh Chamber of Commerce.

As with most projections and estimates, only time will tell; in monetary policy outcomes, if decision-making is delayed, any opportunities are often lost.

The Labour market will stay in focus this week as regular service resumes at the Office for National Statistics. Tomorrow will see the publication of the December jobs report, which is traditionally preceded by several less significant reports.

Yesterday, the JOLTS job openings data was released. The number of job openings on the last business day of November stood at 7.146 million, the US Bureau of Labour Statistics reported. This reading followed the 7.449 million openings recorded in October (revised from 7.67 million) and came in below the market expectation of 7.6 million.

"Over the month, hires were little changed and total separations were unchanged at 5.1 million each. Within separations, both quits (3.2 million) and layoffs and discharges (1.7 million) were little changed," the BLS noted in its press release.

It is difficult to know what to say about the U.S. threat to Greenland. It is virtually impossible to make salient judgments about a U.S. President who is behaving like a cross between Dr Evil and Dr Strangelove. Donald Trump likes to surround himself with like-minded associates, labelled sycophants in certain circles. Therefore, his more hair-brained notions are not subject to the level of scrutiny one would expect.

It is understood that the U.S. will discuss the possible purchase of Greenland from Denmark as soon as tomorrow. Trump may well come to realise that some things simply are not for sale.

The dollar has appreciated in recent events from a purely economic view. The index rose to a high of 98.75 and closed at 98.74 yesterday as the part U.S. oil companies will play in the “carving up” of Venezuelan infrastructure became a little clearer.

The Eurozone’s inflation declined slightly in December, with the cost-of-living index falling to 2% from 2.1% in November.

Eurostat’s preliminary estimates, released yesterday, show a slight decrease in services to 3.4% from 3.5% in November, and in non-energy industrial goods to 0.4% from 0.5%.

The decline in energy was more pronounced -1.9%, compared to -0.5% in November, while the cost of food was up 2.6%, compared to 2.4%.

At the member state level, inflation decreased significantly in Germany, from 2.6% to 2%, Spain (from 3.2% to 3%), and France from 0.8%to 0.7%. Among the major eurozone economies, Italy bucked the trend, with inflation rising slightly (from 1.1% to 1.2%.

Eurostat will publish the final data on 19 January, clarifying the real inflation trend in the euro area.

December PMI figures show an EU economy that is still expanding, but the growth is increasingly uneven. Services are a sustaining activity, manufacturing remains weak, and export demand is soft, resulting in stability without momentum and growth without breadth.

According to the HCOB Eurozone Composite PMI, private sector output rose for a twelfth consecutive month in December, but at its weakest rate since September. The Composite PMI Output Index slipped to 51.5, down from 52.8 in November, pointing to a cooling of activity after a stronger autumn. Even so, the final quarter of 2025 still delivered the strongest average growth since the second quarter of 2023, indicating that December marked a slowdown rather than a renewed downturn.

The deceleration was driven primarily by the services sector. While service activity remained in expansion, growth eased, and new business increased more slowly, becoming increasingly reliant on domestic demand, despite Christine Lagarde’s calls for more growth to be derived from internal sources.

Export-oriented services weakened notably, with new export business contracting at the sharpest rate since September. Manufacturing continued to weigh on overall performance, with factory orders declining further and contributing to the weakest increase in total new business since early autumn.

Labour market trends remained relatively resilient at the eurozone level. Employment continued to rise, supported by services, while manufacturing headcounts declined again. At the same time, softer demand allowed firms to reduce outstanding work more quickly, with backlogs falling at the fastest pace in three months, pointing to easing capacity pressure rather than growing strain.

The race to replace Christine Lagarde as President of the ECB is heating up. As the figurative wheat is removed from the chaff, two candidates stand head and shoulders above the others. As mentioned yesterday, De Cos and Knott would appear to be the front-runners, as De Cos’ case was put in no uncertain terms by his “home” Central Bank yesterday.

The Euro is stuck in a narrow range, hemmed in by resistance above the 1.18 level and a more hawkish monetary policy favoured by the ECB. Yesterday, it fell to a low of 1.1673 and closed at 1.1678. The year has got off to a “messy” start as Europe and America jostle over Greenland, with the fate of NATO on the table.

Have a great day!