Market Commentary 17th February 2026 – from Jamie Annand

The UK economy expanded by 1.3% in 2025, improving slightly from 1.1% growth in 2024, with all major sectors contributing to the increase. However, the outcome fell short of the OBR’s 1.5% growth projection and remained modest by historical standards. The economy faced significant headwinds throughout the year, including substantial tax increases, trade tensions linked to US President Donald Trump’s policies, and a major cyberattack targeting the country’s largest car manufacturer. Businesses and consumers also stayed cautious ahead of Chancellor of the Exchequer Rachel Reeves’ November budget.

Although the broader UK economy posted modest gains over 2025, business investment in the United Kingdom declined by 2.7% quarter-on-quarter in the three months to December 2025, compared to market expectations of a 0.4% rise, marking the sharpest fall since the first quarter of 2021, led by a significant drop in spending on transport equipment. On an annual basis, business investment grew by 2% in the fourth quarter, the smallest increase in a year, following a downwardly revised 2.5% rise in the third quarter.

The euro area economy expanded by 0.3% in Q4 2025, confirming earlier estimates and matching the pace recorded in the previous three months. For the full year of 2025, Gross Domestic Product (GDP) expanded by 1.5%, accelerating from 0.9% in 2024. The data underscore the bloc’s resilience amid easing inflation and lower interest rates, despite headwinds from US trade tariffs on EU imports. Among the region’s largest economies, Spain delivered the strongest performance, with output rising 0.8%, supported by solid household consumption and fixed investment. The Netherlands followed with a 0.5% expansion, largely driven by exports, with Germany, Italy, and France all lagging on lower growth figures. On an annual basis, Eurozone GDP grew by 1.3%, slightly easing from 1.4% in Q3.

The number of employed persons in the Euro Area rose by 0.2% from the previous quarter to 176.13 million in the final quarter of 2025, ahead of the market expectations of a 0.1% increase, according to a preliminary estimate. It was the bloc’s 19th consecutive period of employment growth, extending the slow but consistent trend of increasing jobs in the European labour market, despite concerns that a stronger euro would reduce orders for major employers.

The annual inflation rate in the US slowed to 2.4% in January 2026, its lowest level since May, down from 2.7% in each of the previous two months and below forecasts of 2.5%. Price pressures eased notably in the energy sector, with prices falling 0.1%, after a 2.3% rise in December, led by gasoline and fuel oil. A decline was also seen in prices for used cars and trucks while inflation slowed for food and shelter. On a monthly basis, the CPI rose by 0.2%, below 0.3% in December and forecasts of 0.3%. Annual core inflation eased to 2.5%, its lowest reading since March 2021, compared with 2.6% in the prior month and in line with expectations.

The US and Taiwan have signed a trade agreement that lowers tariffs on Taiwanese exports to 15%, matching rates applied to regional allies Japan and South Korea, while granting broader access for American goods to Taiwan’s market. Taiwan have agreed to remove or cut 99% of tariff barriers on US products, following a pledge for Taiwanese chip firms to invest upwards of $250 billion in US production.

The Nikkei 225 Index soared to fresh record highs on Monday after the ruling Liberal Democratic Party, led by Prime Minister Sanae Takaichi, secured a two-thirds supermajority in the lower house in a historic victory. Takaichi’s coalition won 352 of the 465 seats in Japan’s House of Representatives, with the LDP alone securing a majority of 316. The outcome reinforced expectations for looser fiscal policy and possible tax cuts, while Takaichi promised that her stimulus plans will not strain the country’s finances further. Japanese equities also benefited from Wall Street gains on Friday, as technology stocks rebounded after several days of heavy selling.

China’s current account surplus widened to an unprecedented $242.1 billion in the fourth quarter of 2025, sharply higher than the $163.8 billion recorded a year earlier. The goods surplus widened to a record $297.3 billion, as exports climbed 6.4% year-on-year to an all-time high of $996.3 billion, proving resilient despite US tariffs on Chinese shipments, while imports rose at a more modest pace of 1.8% to $699.0 billion. For the full year 2025, China’s current account surplus surged to a record $735.0 billion, up from $423.9 billion in 2024, underscoring the strength of its external position.

Below target growth figures as well as unexpected contractions in industrial output and construction has added to the political strain on Prime Minister Keir Starmer, who has faced calls to resign over his appointment of Peter Mandelson as ambassador to the US. At the same time, markets continued to anticipate further monetary easing from the Bank of England.

GBP / EUR – Current 1.1505 Previous 1.1520

The pound rose 0.29% against the US dollar last week. Against the euro, the pound continued the previous week’s trajectory, slipping a further 0.13%.