Merryn Talks Money: Markets Weekly

Episode: Inflation Falls, Wage Growth Cools, and Bets on BOE Cuts

Date: February 20, 2026
Host: John Stepek (sitting in for Merryn Somerset Webb)
Guests: Marcus Ashworth (Bloomberg Opinion), Morwenna Coniam (Markets Today team)

Overview

This week’s market wrap episode dives into the key economic developments in the UK, focusing on falling inflation, cooling wage growth, and rising expectations for interest rate cuts from the Bank of England. The conversation also covers pressing UK labor market challenges, the impact of government policies on youth employment, market reactions to major corporate deals, and sector performance within the FTSE.

Key Discussion Points & Insights

1. Economic Data: Inflation and Wage Growth

Timestamps: 02:30 – 04:13

• The week kicked off with significant UK labor market data: wage growth was slowing down faster than expected, a key sign that inflationary pressures are abating.
  • “Wage growth slowing…put the wind in sales of those looking for the Bank of England to cut interest rates sooner rather than later.” – Morwenna (02:45)
  • Markets responded swiftly: at one point, they were fully pricing in an April rate cut, with a 70% chance as soon as March.
• The following day’s Consumer Price Index (CPI) data confirmed that inflation was indeed cooling and “in line with expectations,” solidifying the “narrative of disinflation.” (03:19)
  • Bank of England policymaker Catherine Mann commented that inflation was “better than she hoped” (03:55), further suggesting imminent rate cuts.

2. Bank of England: Is a Rate Cut Imminent?

Timestamps: 04:13 – 06:44

• The panel agreed that the Bank of England seems “behind the curve.”
  • “I think they should have cut last week…Bailey literally needs an excuse not to cut.” – Marcus (04:36)
• Catherine Mann and potentially others on the committee appear ready for a large cut.
  • Marcus expects a cut on March 19 and possibly more before June: “I think they'll almost certainly cut on March 19th… and I expect a further one later in year.” (04:54)
• References to internal Bank dynamics, particularly noting that some members (like Claire Lombardelli) are shifting toward neutrality.

3. UK Labor Market: Youth Unemployment and Policy Impacts

Timestamps: 05:16 – 10:11

• Marcus highlighted growing concerns about youth unemployment: “Youth unemployment in the UK has actually risen above the EU average. That is shocking.” (05:44)
  • He attributes rising youth unemployment in part to higher minimum wages for younger workers, particularly after recent policy harmonization.
  • “Minimum wage itself is very high… about 66% [of median wage].” – John Stepek (06:44)
  • “It's much more expensive to hire people anyway… The people who are going to be mostly joining will be the younger ones… but particularly in hospitality, retail and construction and those areas are getting killed.” – Marcus (07:24)
• Businesses with a large number of low-wage employees (like hospitality and retail) also face increased national insurance contributions, further tightening the jobs market.
  • Morwenna: “National insurance contributions going up… seems to be impacting the same group of people.” (07:38)
• The labor market is in a “slightly strange state”—job losses are not the issue as much as a lack of new hiring, especially affecting young graduates and workers. (08:01)

4. Prospects for Economic Recovery and Policy U-turns

Timestamps: 08:22 – 12:19

• Discussed whether policy U-turns are possible.
  • “It's difficult to backtrack on things that they've announced as their flagship policies.” – Morwenna (08:51)
  • Marcus noted the government’s tendency for U-turns but skepticism about immediate change: “They're at 15 now, I think, let's count on U-turns.” (08:57)
• Structural factors (including the upcoming Employment Rights Bill and Renters Rights Bill) might further increase employment costs and housing pressures, but Marcus is “quite optimistic on the UK economy despite the best efforts of this government.” (10:11)
• The state sector is showing strength, and private sector indicators (e.g., purchasing managers’ surveys) suggest the first quarter could be strong—“I’m last half full.” – Marcus (11:23)

5. Housing and Financial Markets

Timestamps: 11:35 – 13:06

• Rental inflation is cooling, especially in London—helpful for the overall market as interest rates fall.
• Bond yields are coming down, giving the government “more headroom.”
  • “Bond yields coming down… government does have more money potentially. So that's good for everybody.” – Morwenna (12:39)
  • Gilts are still priced higher due to political instability (12:56).
• Political events (by-elections, general election) are anticipated as market tripwires.

6. UK Corporate Stories: Foreign Acquisitions

Timestamps: 13:06 – 17:16

• Major news: A “monster UK asset” (Schroders) being acquired by foreign buyers (Nuveen, backed by US pension funds).
  • “Ever since Bruno Scherder died...it always looked like she wanted to sell...They found a very interesting buyer. Nuveen is not very well-known in the UK...a very long old company based in Chicago, owned by the Teachers Pension Fund.” – Marcus (13:37)
  • The panel views this as part of a dollar-hedging trend, with US institutional money seeking more offshore exposure.
  • “US money managers buying overseas money managers—I think we'll see more of that.” – Marcus (15:35)
• The fund management and wealth management sectors have been impacted by recent “AI scare trade” volatility but have largely recovered (16:39).

7. UK Equity Market Performance & Sector Trends

Timestamps: 17:16 – 19:14

• FTSE 100 is up about 8% YTD; Japan is the top performer in sterling terms.
  • “FTSE 100 has been doing quite well… driven by big international companies… miners, precious metals… defense has become another theme.” – Morwenna (17:44)
  • FTSE 250 has lagged but offers value, with mid-caps favorably viewed by strategists.
• Sectors such as energy, industrials, and “old companies that earn profits and pay dividends” are seeing renewed interest, especially given geopolitical risks in energy markets.
  • “Shell, biggest company in the FTSE 100… that's a big driver of overall success.” – Morwenna (19:03)

8. Geopolitical Risk: Middle East Tensions and Market Impact

Timestamps: 19:14 – 20:24

• Marcus warns of “momentum” towards conflict in the Middle East, likening the buildup to pre-Ukraine invasion:
  • “Two sets of aircraft carrier fleets...there is a momentum there...a high chance that this is not backing down...the more munitions have been put in the zone, it becomes almost sadly self-fulfilling.” – Marcus (19:29)

Notable Quotes & Memorable Moments

| Timestamp | Speaker | Quote | |-----------|---------|-------| | 02:45 | Morwenna | “Wage growth slowing…put the wind in sales of those looking for the Bank of England to cut interest rates sooner rather than later.” | | 03:55 | Morwenna | “Policymaker Catherine Mann, saying that the inflation was better than she hoped it would be, which suggests...a rate cut very, very soon.” | | 04:36 | Marcus | “I think they should have cut last week…Bailey literally needs an excuse not to cut.” | | 05:44 | Marcus | “Youth unemployment in the UK has actually risen above the EU average. That is shocking.” | | 07:24 | Marcus | “It's much more expensive to hire people anyway… particularly in hospitality, retail and construction… those areas are getting killed.” | | 10:11 | Marcus | “I'm actually quite optimistic on the UK economy despite the best efforts of this government.” | | 12:39 | Morwenna | “Bond yields coming down… government does have more money potentially. So that's good for everybody.” | | 13:37 | Marcus | “Nuveen is not a very well known name in the UK...owned by the Teachers Pension Fund...this is legacy money...a very interesting move for them.” | | 15:35 | Marcus | “US money managers buying overseas money managers—I think we'll see more of that.” | | 19:29 | Marcus | “Two sets of aircraft carrier fleets...there is a momentum there...the more munitions have been put in the zone, it becomes almost sadly self-fulfilling.” |

Key Timestamps

• 02:30 – 04:13: Impact of wage and inflation data on interest rate expectations
• 04:13 – 06:44: BOE decision-making and internal dynamics
• 05:16 – 10:11: UK labor market and youth unemployment
• 11:23 – 13:06: Optimism for UK economy, bond yields, and market prospects
• 13:06 – 17:16: Foreign acquisitions (Schroders), impact on fund management sector
• 17:16 – 19:14: FTSE 100/250 performance, sector rotations
• 19:14 – 20:24: Geopolitical tensions in the Middle East and potential market impact

Final Thoughts

This episode offers a rich, insightful sweep of the week’s most consequential UK market and macro moves. The panel is cautiously optimistic about growth in 2026 but flags major challenges—especially around youth employment and the consequences of recent labor-focused policies. There is consensus that the Bank of England is behind the curve and that rate cuts, believed to be overdue, are likely imminent. Market participants should also watch for foreign investment trends, sector rotations in UK equities, and global geopolitical risks as significant market drivers going forward.