Market Commentary 23rd February 2026 – from Naigil Johnson

UK consumer price inflation eased to 3.0% in January 2026, down from 3.4% in December and in line with market expectations. This represents the lowest annual inflation rate since March 2025, reflecting slower price rises across transport and food.

Public sector net borrowing posted a £30.4 billion surplus in January, more than doubling from £14.5 billion a year earlier and exceeding forecasts of £23.8 billion. This marks the largest monthly budget surplus on record, supported by higher receipts, including elevated capital gains tax inflows, as companies and individuals appeared to bring forward asset sales ahead of planned tax changes.

UK retail sales volumes rose 1.8% month-on-month in January, comfortably above expectations and accelerating from a 0.4% gain in December. This was the strongest monthly growth since May 2024, suggesting that recent interest rate cuts and easing inflation may have bolstered consumer spending.

Germany’s annual inflation rate rose to 2.1% in January 2026, slightly above the European Central Bank’s target midpoint. The increase was driven largely by higher consumer goods prices, particularly food, alongside a rebound in durable goods. In contrast, services inflation eased somewhat, though it remained elevated. In comparison, France saw annual inflation slow to 0.3% in January, marking its lowest reading since December 2020. The decline was largely due to falling energy costs and continued decreases in manufactured goods prices.

On the business activity front, the HCOB Flash Germany Composite Purchasing Managers’ Index (PMI) showed an acceleration in growth during February, reaching a four-month high. Both manufacturing and services activity strengthened, supported by rising demand and new orders. In France, the composite PMI indicated broadly flat business activity, with services still contracting, while manufacturing continued to expand, albeit at a slower pace than in January.

The US Supreme Court struck down President Trump’s sweeping global tariffs, ruling in a 6-3 decision that the law did not give the president the authority to implement such measures. Chief Justice John Roberts emphasised that “the president must point to clear congressional authorisation” to justify extraordinary tariff powers. While dissenting opinions suggested alternative legal avenues remain, the ruling marks a significant setback for the administration’s trade policy. The US president responded by announcing a new blanket 10% tariff on imports under a different statutory framework, introducing further uncertainty for global markets navigating ongoing policy shifts.

Fed officials appeared to remain divided over the future path of US interest rates, highlighting the tension between containing inflation and supporting the labour market. Minutes from the January 2026 FOMC meeting indicated that some participants see further cuts to the federal funds rate as likely if inflation continues to decline, while others argued for holding rates steady, with a few raising the possibility of increases should inflation remain persistently above target.

Economic growth in the US slowed sharply in Q4 2025, expanding at an annualised 1.4%, which was the weakest pace since Q1 2025 and well below forecasts of 3%. Consumer spending moderated, held back by a slight drop in goods purchases, while spending on services remained relatively strong. Exports fell after a robust increase in the previous quarter, and imports also declined, though less sharply.

Japan’s annual inflation eased to 1.5% in January 2026, down from 2.1% the previous month, marking the lowest rate since March 2022. Food inflation fell to a 15-month low, driven by the slowest rise in rice prices for over a year.

Japan’s S&P Global Composite PMI indicated a continued expansion in February, with both manufacturing output and services activity growing at a faster pace than the previous month. Overall sales rose at the quickest rate in nearly three years, while new export orders grew strongly, reflecting a sustained rebound in demand for goods.

GBP / EUR – Current 1.1441 Previous 1.1505

The pound fell by 1.25% against the US dollar last week, initially pressured by continued dollar strength following hawkish signals from the Federal Reserve. However, the greenback eased later in the week after the Supreme Court of the United States overturned President Donald Trump’s broad emergency tariffs, providing some relief. Against the euro, the pound fell by 0.56% over the week.