Today my home country the UK is back in focus and we can start with the Bank of England. We can start with this from Thursday.
UK real gross domestic product (GDP) is estimated to have increased by 0.1% in Quarter 4 (Oct to Dec) 2025, following a 0.1% increase in the previous quarter.
It used to be the case that the Bank of England moved pretty explicitly in response to GDP movements. There is an irony here as since its mandate was changed by Chancellor George Osborne towards supporting growth and government policy as well as the inflation target over a decade ago it does not so explicitly state this. But we can be sure it will be factoring this in.
Catherine Mann and youth unemployment
There was a very interesting article in the Sunday Telegraph from Catherine Mann. For newer readers she is very prone to U-Turns and is something of a loose cannon on the decks.Also this has happened with her in February before. I looked at this on February 11th last year.
I will look in more detail later about her tendency to run in whatever direction she thinks the wind is blowing. But for now let us stay with a rather awkward ( for her) swing from being a “hawk” calling for more interest-rate rises and then a larger cut than her colleagues.
This time around she has been voting for unchanged (3.75%) for UK interest-rates but this is the Sunday Telegraph headline.
The woman who could deliver Britain’s next interest rate cut.
There is support for another change of lane for her from her subject matter as central bankers often use the labour market as a reason for arguing for lower interest-rates.
Asked why, Mann says she remains concerned about Britain’s “tepid” jobs market and what it signals for further consumer spending.
She explains: “Fundamentally, the strength of the labour market delivers me the strength of consumption. A labour market that is tepid is one that is going to yield a tepid consumer market.”
As we look further we see something unusual with a central banker attacking government policy.
Tax rises and increases in the minimum wage haven’t helped, Mann says, particularly when it comes to young people – a group Labour is desperate to get back to work.
“The accumulation over three years of the rise in the national living wage for that group “has been manifested in unemployment for that category of workers.
As you can see there is an explicit criticism of the October 2024 Budget from Chancellor Rachel Reeves and we have looked at this pretty clear case of economics 101 several times before. This has contributed to a particularly noticeable move in youth unemployment.
LONDON, Feb 15 (Reuters) – A sharp rise in Britain’s minimum wage for younger workers over the past three years has contributed to an increase in unemployment for that age group, Bank of England policymaker Catherine Mann said in a newspaper interview on Sunday.The unemployment rate for 18-24 year olds in Britain was 13.7% in the three months to November, up from 10.2% three years earlier and its highest since the fourth quarter of 2020.
There is a nuance in that the previous Conservative government started the move by raising the minimum wage pretty substantially. However then Chancellor Rachel Reeves not only raised it again she raised employer’s National Insurance and has tightened employment regulations. So we are left again with a situation where this government says one thing but acts in the opposite direction.
The House of Commons Library has also looked at this so there is political concern and shows different numbers to those used by Reuters.
In September to November 2025, 729,000 young people aged 16 to 24 were unemployed.13 The youth unemployment rate (the proportion of the economically active population aged 16 to 24 who are unemployed) was 15.9%, as shown in the table below. This is the highest level since 2015.
This is because they included 16 and 17 year olds and if you do you get this.
Unemployment among 16 to 24-year-olds jumped to 15.3pc in the three months to September, surpassing the EU’s rate of 15pc, according to data published by the OECD.
It marks the first time youth unemployment in Britain has been higher than in the bloc since records began in 2000. ( The Telegtaph)
Unfortunately the outlook is for more of the same.
LONDON, Feb 16 (Reuters) – More than one in three UK employers plan to cut their hiring of permanent staff due to costs introduced by the government’s labour law reforms, a survey showed on Monday.The Chartered Institute of Personnel and Development, a professional body for the human resources sector, said overall hiring intentions remained at their lowest level on record excluding the first year of the COVID pandemic, adding to the risks that an ongoing jobs market slowdown deepens.
So we have two factors in play. Firstly a central banker pretty explicitly and indeed correctly criticising government policy. Plus a pretty strong hint that she is moving into the interest-rate camp.
While Andrew Bailey, the Governor, has always cast the deciding vote so far, it could now be Mann who ends up deciding the next move. If she votes for a rate cut in March, she could swing the committee. (The Telegraph)
As we already thought that Governor Bailey would shift to voting for an interest-rate cut next month that is over stating things.Him doing so got more likely with the GDP outcome. But it does mean that a 5-4 vote may now be a 6-3 one. Also this morning has brought news in an area that Bank of England Governors particularly prioritise.
UK Rightmove House Prices (M/M) Feb: 0.0% (prev 2.8%) – Rightmove House Prices (Y/Y): 0.0% (prev 0.5%) ( @LiveSquawk)
A rise in UK defence spending?
The economic dial would shift if this came true.
The prime minister is considering making a significant increase in defence spending, the BBC has learned.
Downing Street is mulling over the idea of meeting an existing spending target earlier than planned at a potential cost of billions of pounds.
Sir Keir Starmer signalled his attitude over the weekend at the Munich Security Conference, telling world leaders: “To meet the wider threat, it’s clear that we are going to have to spend more, faster.”
But what the BBC Diplomatic Correspondent James Landale skirts by is that we are in the boy who cried wolf territory as for example the Defence Investment Plan was due last year, but has yet to appear. The Royal Navy is due to be down to 6 frigates whilst the Prime Minister makes fantasy fleet declarations. Whilst a lot of this is due to decisions made by the now Lord Cameron this government could have sped up the new frigates and one of its first decisions was to scrap the amphibious assault ships.
Comment
As you can see an interest-rate cut next month looks ever more likely. Plus there is something of a rift between the Bank of England and the Chancellor.
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