Andrew Bailey, the Governor of the Bank of England, has raised concerns about potential complacency in financial markets regarding AI’s productivity gains. He warned that expectations may not be met, leading to a stock market bubble. His comments align with the European Central Bank’s recent warnings about high stock valuations in the AI sector, which could threaten financial stability. He also said AI was impacting the job market in both positive and negative ways and called for a focus on education and training in AI skills. Speaking at a conference in Saudi Arabia, Bailey also warned about increased geopolitical tensions, further disruption to global trade and growing debt pressures.

The Office for National Statistics (ONS) will release the latest UK GDP data on Thursday, with economists predicting a modest growth of 0.1% for the last quarter of 2025. Victoria Scholar, head of investment at Interactive Investor, suggests that economic activity picked up after the Budget, but Pantheon Macroeconomics predicts no growth for December, with weak construction data contributing to the overall muted economic outlook. The Bank of England has revised its growth forecasts for 2026 and 2027 downwards, indicating ongoing economic challenges.

Company directors began 2026 with diminished confidence, according to a KPMG survey. Only 30% of the 1,500 surveyed expressed optimism about the economy, a drop from 42% in late 2024. Concerns over cost pressures and tax policy changes have increased, with 38% citing tax as a worry. Despite this, 87% remain optimistic about their company’s prospects, though this is down from 92% the previous year. Euan West, head of regions at KPMG UK, noted that uncertainty has led to a reassessment of expectations, stating: “Resilience is the watchword.” The survey aligns with findings from the Bank of England.

Consumer confidence in the UK has reached a grim milestone, marking ten years of negativity. The GfK consumer confidence barometer fell five points in January, indicating widespread resignation among consumers. Neil Bellamy from GfK described the economy as “an untethered boat drifting slowly out to sea.” Inflation outpaces wage growth, leading to financial strain. Megan King Diaz, a financial markets analyst, notes in the Times that breaking this cycle of caution requires a shift in attitudes towards risk and reward.

The London office market is experiencing a significant rebound, with 12.1m sq ft leased in 2025, marking the strongest year since the pandemic. Despite concerns about UK productivity, many firms are expanding their office space. Philip Hobley, Knight Frank’s London head of offices, noted: “In an increasingly uncertain world, business leaders view the office as a critical asset for success.” However, a shortage of new office developments could threaten London’s competitiveness, with 50m sq ft of leases expiring by 2030 and only 19 buildings planned for large lettings.

Recruiters report a slight improvement in hiring conditions, according to the Recruitment and Employment Confederation (REC) and KPMG. While permanent job appointments continue to decline, temporary positions are on the rise. The REC’s survey of 400 agencies shows that market confidence remains low, with total job vacancies still falling, albeit at a slower rate. Neil Carberry, REC chief executive, stated: “The ‘wait-and-see’ period seems to be ending” while Lisa Fernihough from KPMG noted that skills shortages continue to challenge the market.

The UK labour market is experiencing a significant slowdown, with the BDO Employment Index dropping to 93.30 in January, its lowest since March 2011. HMRC reported 43,000 fewer payrolled employees in December, marking the sharpest decline since late 2020. Job vacancies are at levels not seen since early 2021, and wage growth has slowed to 4.3% in December, the lowest since early 2022. Scott Knight, head of growth at BDO, commented: “What we’re seeing here is a low-hire, low-fire labour market.”

Flexible working offers significant benefits but comes with hidden costs, writes Professor Len Shackleton from the Institute of Economic Affairs. The Government’s Employment Rights Act strengthens the right to request flexible work, making it challenging for employers to refuse. Shackleton warns that this could lead to unintended consequences, particularly in the public sector, where productivity is already low. He says: “Such evaluations should be done by employers and employees who better understand the circumstances of each individual family, business or organisation.” The balance between flexibility and productivity remains a critical concern.

Union leaders are urging Sir Keir Starmer to enhance workers’ rights by guaranteeing hours for all employees. This goes beyond Labour’s manifesto commitment to ban zero-hours contracts. A union source said that all workers “had a right to a contract that reflects their regular hours – including full-time workers”. However, business leaders warn that such changes could jeopardise overtime for 8.6m part-time workers and amount to a rewriting of the Employment Rights Act that became law last year. Helen Dickinson, the chief executive of the British Retail Consortium, said: “The priority should be protecting job creation, not making recruitment more complex, risky or expensive.”

The UK Government plans to create thousands of “fast track” apprenticeships for major infrastructure projects, including nuclear power stations and railways. Currently, about 950,000 young people aged 16 to 24 are not in employment, education, or training. Labour will invest £725m to create 50,000 new apprenticeships and reform financial incentives for small businesses. Work and pensions secretary Pat McFadden said too many young people are out of work and Britain is taking too long to get things built. Under the scheme, employers will have the cost of 25 hours a week funded for six months at the minimum wage.

Many UK chief executives have revised their investment strategies due to geopolitical shifts and changes in trade flows since President Trump’s return to office. According to a report by EY, 78% of CEOs modified their plans following increased US import levies. The survey revealed that 32% delayed investments, while 31% expedited them. Silvia Rindone, managing partner at EY, said: “Chief executives are recalibrating their strategies, demonstrating remarkable resilience and adaptability.”

Brandon Lewis says in a piece for City AM that the PPI redress scheme boosted the economy by approximately 1%; and the motor finance scandal presents a similar opportunity now. He says banks and lenders “are keen to frame full redress as a threat to lending, investment and financial stability”. But that argument “should be treated with scepticism” Lewis continues, adding: “Every pound of redress that is capped, delayed or withheld by the [Financial Conduct Authority] is a pound that does not circulate through the real economy.”

Michael Healy, managing director at IG Group, has called for the UK to ease restrictions on retail investors. He noted that despite government efforts, domestic investment remains low, with only 30% of Britons investing compared to 60% of Americans. Healy said: “We have by far the most restrictive regime… it’s really hard for people to access even exchange traded products.” He also highlighted the need for innovative investment products and regulatory changes to encourage investment, particularly in digital assets. Healy praised recent moves by the Financial Conduct Authority but called for quicker action.

A £450m development at London’s Barbican Estate faces delays due to nesting peregrine falcons. Authorities warned developers that the birds are using nearby towers as nesting sites, which could lead to legal issues under wildlife protection laws. The City of London Corporation advised developers to confirm the presence of the falcons before proceeding. Although falcons rarely stop construction entirely, their presence can lead to significant delays and added expenses for developers. During the £9bn redevelopment of Battersea Power Station, builders spent over £100,000 on a purpose-built “nesting tower” nearby to entice the birds away from the chimneys and keep the project on schedule.