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24 Feb 2026 | 3 minutes to read
UK and European equities, which both advanced +2.6% in sterling terms
Brent crude oil, which added a further +5.9%
In a long-awaited decision, the US Supreme Court struck down the sweeping reciprocal and country-specific trade tariffs introduced by the Trump administration. The court ruled that the administration did not have the constitutional authority to impose the tariffs without approval from Congress. The ruling centred on the US President’s use of the International Emergency Economic Powers Act (IEEPA), a 1977 law which gives the President the power to “regulate” trade in response to an emergency. Trump’s assertion had been that the persistent US trade deficit – which sees the US import more than it exports – represented a “threat”. Trump has also seemingly used tariffs (or the threat of tariffs) as a foreign policy tool, suggesting they can bring warring countries to the negotiating table. Nevertheless, the court concluded that IEEPA does not grant the President unilateral powers to impose such tariffs, checking the President’s use of executive authority.
While the ruling invalidates a large swathe of existing tariff measures, Trump moved quickly to signal a policy response. Less than 24-hours after the ruling, he announced plans to use a different law to impose a temporary (150 day) tariff rate on US imports from all countries of 15%. During this window, the administration intends to work further on new tariff measures, with numerous other legal routes to rebuild tariff buffers available.
The decision may promote greater stability in US global trade policy. Alternative routes through which tariffs might be imposed are less straightforward and more limited than IEEPA. However, the ruling raises complex questions around whether billions of dollars in previously collected duties may need to be refunded to importers, an issue which is expected to be contested over the months ahead. Tariff revenue how the US government planned to partially contain its fiscal deficit and debt burden. Although, tariff income (or lack thereof) is relatively immaterial in the wider context of US public finances.
Despite the imposition of Trump’s tariffs, goods imported into the US continued to outpace exports last year, with the US trade deficit reaching a new high. The gap between the value of goods imported and those sold overseas widened by 2% compared to 2024, reaching $1.2trn, the Commerce Department reported. This runs counter the White House’s objective of reducing US reliance on foreign goods. The rise is particularly notable given a sharp fall in trade with China, which has been subject to high tariffs. Reduced Chinese imports have largely been replaced by goods from other countries such as Mexico, Taiwan and Vietnam, rather than by increased domestic production.
While tariffs raise the cost of foreign goods, they do not automatically reduce overall imports. US consumers and businesses continue to buy a large volume of overseas goods. Demand for computer chips to support massive artificial intelligence investment remains high for example. And some importers have been able to nimbly switch their supply chains away from the most highly tariffed countries. Some exporters have also rerouted shipments through third-party countries. While the US dollar weakened over 2025, it is still relatively strong on a longer-term perspective, which makes American exports more expensive abroad. Weaker global growth has also dampened demand in key export markets. But the broader effects of trade policy changes will likely only become clear in the fullness of time.
It was a bumper week for UK economic data. Headline Consumer Price Index (CPI) inflation cooled to 3% year-on-year in January, according to the Office for National Statistics (ONS). This was down from the 3.4% recorded in the 12-months to December and in line with economists’ expectations. Core inflation, which excludes more volatile, seasonal or short-term components of the inflation basket, stood at 3.1% in January, down from 3.2% in December. The figures mean inflation in the UK has fallen to its lowest annual rate since March last year. The drop was driven by lower fuel, food and airfare prices, with airfares falling back after increasing in December.
The inflation print came hot on the heels of UK jobs and wage data which suggested further labour market softness. The ONS reported that the unemployment rate climbed to 5.2% in the three months to December – up from 5.1% and the highest level in five years. Annual wage growth also weakened in the last three months of 2025. Notably, younger workers appear to be shouldering the brunt of the observed slowdown in hiring, with unemployment amongst those aged 16-24 rising to 16.1%. According to data published by the Organisation for Economic Co-operation and Development (OECD), youth unemployment in the UK now surpasses the EU average. The rise in employer National Insurance contributions and the minimum wage have increased employment costs for businesses. And younger workers are potentially being increasingly priced out of the market.
Together with an underwhelming GDP print last week, the inflation and labour market data are likely to increase confidence in the Bank of England’s (BoE) prevailing view that headline inflation will soon drop to the 2% target. Further interest rate cuts therefore seem increasingly justifiable. A cut by April is now fully priced in, with an earlier move in March thought more than likely.
While green shoots of recovery in the labour market were hard to come by, there were reasons for optimism elsewhere amongst last week’s UK data releases. Businesses and consumers showed signs of recovery in the early stages of 2026. A busy week for ONS data saw retail sales volumes rise by a better-than-expected 1.8% in January. It was the strongest monthly growth since May 2024 and comfortably surpassed expectations of a 0.2% increase. On an annual basis, retail sales volumes advanced to 4.5% – a near four-year high – up from 1.9% in December and above expectations of 2.8%. The data will make welcome reading for the Treasury, with the Chancellor keen to see the government’s economic plan start to bear fruit in 2026. However, the uptick – which was partly driven by relatively niche components like online jewellers following the rise in gold prices – could prove temporary. Over the three months to January sales volumes were close to flat, while the weaker jobs market might temper consumer enthusiasm. Nevertheless, business confidence seems buoyed in the early months of the year as pre-Budget uncertainty fades. The latest composite Purchasing Managers' Index (PMI) report for the UK suggested a further improvement in business sentiment, rising to 53.9 – its highest level since April 2024. PMIs are the result of monthly business surveys, with any reading above 50 indicating growth in activity. As such, they can serve as leading economic indicators. The PMI readings suggest economic growth will accelerate in the first quarter of the year after GDP advanced just 0.1% in the final quarter of 2025.
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