Economic Update

12 January 2026

Will this week’s UK data avalanche clarify or confuse?

The UK data calendar intensifies this week, and the volume of releases may generate more noise than clarity. Overnight, the January Rightmove figures showed house prices rising 2.8% month on month and edging marginally higher year on year, ending four consecutive months of annual declines. Markets paid limited attention to the update, with focus already shifting to tomorrow’s labour market indicators for November.

The labour market remains weak. The November data may show a further slowdown in wage growth, another lift in unemployment and a decline in the December payrolled employee count. I will also watch job vacancy numbers closely. The October figures suggested vacancies may have stabilised, although the late‑November Budget could have disrupted this trend.

On Wednesday, December CPI is expected to show a slight increase in the headline rate as tobacco duty rises take effect. The lift should be modest, but any indication of underlying inflation drifting higher would strengthen the Bank of England’s caution over future rate cuts.

Thursday brings December public finance figures. Budget changes generally take effect from April, so meaningful shifts this month remain unlikely. Consensus points to a sizeable improvement in the deficit compared with December 2024, although the November numbers may have provided an overly optimistic signal. Friday delivers a dense cluster of releases: January GfK consumer confidence, December retail sales and the January provisional PMIs.

Key questions persist. Has confidence remained under pressure following the Budget and recent comments from President Trump? Did retail activity recover in December, or do consumers remain cautious? Will the early‑year PMIs indicate any revival in activity?

Should the data point to weaker growth while inflation firms, sterling could face renewed domestic pressure—although FX markets may also be guided by global developments following the weekend’s US announcement.

How will the US react to the latest tariff threat?

Over the weekend, President Trump issued an ultimatum to NATO allies, stating that the US should be allowed to purchase Greenland for national security reasons or face new tariffs from February. The proposal raises legal questions, particularly over whether the President can invoke the International Emergency Economic Powers Act for a territorial dispute. Historically, the Act has been used to sanction totalitarian regimes and designated groups rather than allies.

If implemented, the tariffs would apply to eight European economies, including the UK and Denmark, immediately increasing the cost of goods imported to the US — unless those goods are already in transit. The tariff rate is scheduled to rise to 25% on 1 June.

Because the announcement came after US markets closed, today’s trading session will provide the first clear reaction. The US dollar weakened initially, the Federal Reserve’s path toward further interest rate cuts could be complicated by the changes to the inflation outlook and could weigh further on investment activity. Previous tariff rounds have already raised food prices and risk pushing up the cost of European cars in US dealerships.

Euro Area focused on sentiment this week; ECB speeches in Davos also important

The Euro Area calendar includes data throughout the week, but two releases stand out: Tuesday’s January ZEW survey and Friday’s provisional January PMIs. These indicators will test whether sentiment is improving or whether geopolitical and trade uncertainty continues to constrain activity.

If the surveys show little sign of progress, the euro may soften against the US dollar. However, the single currency could still gain ground against sterling if the UK’s dataflow disappoints. Meanwhile, ECB officials in Davos will draw close attention, particularly President Lagarde’s panel sessions on Wednesday and Friday, which will address longer‑term global and European economic challenges.

Canada consumer prices and Mexican retail sales unlikely to alter the course of currencies

The Canadian dollar ended last week on the defensive, while the Mexican peso continued to strengthen. I do not expect Canadian CPI to materially shift sentiment toward the CAD, especially as markets have shown little reaction to recent announcements on economic and trade cooperation between Canada and China, and Canada and Qatar. Concerns from Ontario’s Premier Ford over the vehicle‑trade agreement underscore ongoing uncertainty.

With Canadian yields continuing to fall, the CAD may remain under pressure, particularly if US yields rise in response to the latest tariff threat. As for the Mexican peso, November retail sales may show some upside risk, which could extend the MXN’s appreciation against the US dollar. However, the peso is now trading near a significant technical level that may limit near‑term gains.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.