AI productivity boom coming, CEPR finds broad adoption and anticipated employment and productivity effects
Across the US, UK, Germany and Australia, senior-executive surveys point to widespread AI use with expectations of material medium-term gains alongside a modest near-term employment drag.
The CEPR column synthesises results from Yotzov et al 2026, drawing on the US SBU, UK DMP, German BOP-F and Australian BOSS surveys conducted between November 2025 and January 2026. The headline result is that about 69% of firms report using some AI technology today, with adoption strongest in the US (78%) and weakest in Australia (59%). The dominant current application is text generation via LLMs, used by around four in ten firms, with data processing and other AI functions also on the rise. Looking forward, around 75% of firms expect to be using AI within three years.
Employment effects so far have been modest, with most firms reporting no clear impact. Yet the authors model a more consequential medium-term path, estimating an average employment decline of roughly 0.7% over three years, with the UK expected to see the largest drag at around 1.4% and the US around 1.2%. Productivity has already risen modestly, by about 0.29%, and is forecast to climb by roughly 1.4% over the same horizon, led by the United States where gains could exceed 2%.
A notable gap exists between executives and employees. December 2025 surveys of US workers show optimism on job creation and resilience in earnings, contrasting with executives who foresee job reductions even as productivity improves. The piece flags the need for ongoing, comparable data to confirm whether these expectations translate into observable labour-market outcomes. The policy takeaway is nuanced: AI could sustain productivity growth without precipitating large-scale displacement, but sectors with tightly constrained labour supply or high skill intensities may bear the brunt of adjustment first.
The column closes by stressing the importance of continuing cross-country monitoring and methodological consistency to verify how AI adoption translates into employment and productivity in the real world. If the medium-term gains materialise in a broad, inclusive way, the policy agenda may prioritise workforce transition and skills development alongside investment in AI-enabled productivity. If not, more targeted labour-market policy and market design may be required to manage the distributional consequences.
The role of spending rigidity in fiscal adjustment
The wage bill and rigidity of current spending shapes capacity for debt stabilisation and long-term growth.
The article examines a paper by de Mello and Jalles (2026), using a global panel spanning advanced, emerging and low-income economies over 1980-2023. It highlights that general government gross debt sits high by historical norms and that population ageing, climate change and defence needs complicate fiscal choices. The central finding is that the structure of spending matters as much as the level: when governments are encumbered by a large and sticky wage bill, their room for manoeuvre is constrained, reducing the effectiveness of debt stabilisation efforts.
The authors embed spending rigidity in a fiscal reaction framework and find that higher wage-bill shares are associated with a weaker response of the cyclically adjusted primary balance to rising debt. The probability of entering a consolidation episode falls as wage bills rise, a result most pronounced in emerging economies. When consolidations do occur, they tend to involve larger cuts to public investment rather than reallocations across tax bases or other expenditures. This pattern is particularly evident outside advanced economies, and it raises questions about the long-term growth implications of consolidation episodes driven by rigidity.
Policy recommendations stress that flexibility in payroll and staffing policies should be built into medium-term fiscal plans. Options include payroll management reforms, transparent hiring and remuneration practices, and targeted attrition and redeployment strategies alongside performance-based pay. The analysis argues that simply cutting the wage bill is politically and administratively costly and risks impairing state capacity. The goal is to create fiscal space in ways that preserve investment in infrastructure and social resilience, while maintaining responsible debt dynamics.
Overall, the piece casts doubt on the inevitability of deep contraction as a route to debt stabilisation. It points to a path where better payroll governance and targeted investment reallocation can enable more durable consolidation without sacrificing long-run growth prospects. The authors also note that the politics of fiscal adjustment-legislative cohesion and ideological orientation-shape how flexibly a government can respond to rising debt.
Gilt yields jump on Middle East conflict; oil shock feeds inflation risk
Geopolitical stress feeds into UK financing conditions and inflation uncertainty, with policy implications for rate paths.
Gilt yields on the 10-year note rose from 4.23% at end-February to a peak around 4.7% before easing to about 4.58%. Brent crude surged above $100 as Hormuz-related disruption and regional tensions tightened global supply. Analysts warn the Monetary Policy Committee could delay rate cuts or even raise rates if energy prices stay elevated, given the inflation risk.
The movements illustrate how geopolitical risk channels into domestic financing conditions. Higher yields raise the cost of government borrowing and can influence mortgage rates and corporate funding conditions, potentially slowing investment at a time when energy price dynamics are already under strain. The spillovers depend on the persistence of disruption in the Gulf and its impact on global demand, supply and exchange-rate stability.
Market participants will be watching BoE guidance in the coming weeks for any signs of tone or policy recalibration in response to evolving energy prices. Oil price trajectories, particularly if Brent maintains elevated levels, could anchor expectations about inflation and the pace of any future policy normalization or tightening. The broader macro backdrop-growth, wage dynamics and consumer prices-will shape how aggressively markets price the path of interest rates over the near term.
Observers stress the uncertainty around the duration and breadth of the Middle East disruption. If supply constraints tighten further or if demand continues to hold robustly, energy price pressures could linger. Conversely, if supply responses materialise or if demand softens, gilt markets could stabilise. The near-term indicators to monitor include gilt yield curves, oil price levels, and the BoE’s communications on energy price risk and policy response.
Real assets seen as a hedge against AI disruption with three top picks
Real assets offer inflation-linked, long-dated cashflows and portfolio resilience amid AI-driven disruption and macro uncertainty.
Momentum Global Investment Management argues that real assets provide a degree of insulation from the AI disruption that threatens some traditional tech-heavy asset classes. Its case rests on diversification benefits and inflation-linked income streams that can temper equity market volatility. The note highlights three top holdings: Primary Health Properties, which forms a large healthcare platform with a long dividend track record following its merger with Assura; SUPR, a supermarket REIT with non-discretionary demand; and INPP, a diversified infrastructure company with exposure to energy, transport, education, healthcare and digital links such as offshore wind transmission.
The analysis frames real assets as a stabilising sleeve for multi-asset portfolios facing disruption from automation and the evolving structure of the digital economy. The focus on assets with predictable cashflows, defensive demand and long-dated liabilities aligns with investors seeking resilience in uncertain environments. A related thread notes that developments in healthcare infrastructure, logistics and energy transmission could provide durable income streams as the energy transition accelerates.
Investors should monitor how real-asset allocations perform in practice, including the sensitivity of NAVs to interest-rate moves and inflation surprises. The three highlighted names offer diversified exposure across healthcare, retail and infrastructure, but the sector’s sensitivity to financing costs and policy incentives means continued scrutiny of leverage, tenant quality and regulatory regimes is essential. Portfolio managers may also watch for shifts in allocations as data on AI-driven productivity materialises and as macro conditions evolve.
NextEnergy Solar Fund dividend cut to bolster balance sheet
Dividend discipline signals a shift toward storage and balance-sheet strengthening amid evolving market dynamics.
NextEnergy Solar Fund has announced a dividend cut to 75% of operating free cash flow, reducing from 8.43p per share to an estimated 4p-4.6p for the year ending March 2027. The move is designed to free about £40m of cash flow over five years to strengthen the balance sheet, with gearing targeted at 40-45% of gross asset value and storage allocation rising to 30% of GAV to support NAV growth. The plan also allows for the recycling of up to 120MW of solar assets.
The decision signals a prioritisation of capital discipline and resilience in a changing power market. By reallocating capital toward storage, the company aims to enhance flexibility and mitigate exposure to volatile power prices, potentially improving NAV trajectories in a market where solar assets face evolving price and policy dynamics. Investors will monitor the dividend trajectory, debt ratios and deployment of energy storage assets as the plan unfolds.
Market observers will look for the impact on the stock’s valuation and for any follow-on actions, such as financing of new storage capacity or adjustments to portfolio mix. The dividend reduction means income-focused investors may reassess exposure, while others may view it as a prudent step to strengthen balance sheet risk management in a sector undergoing rapid structural change.
Law Debenture trims Rolls-Royce and defence stocks, shifts into property and infrastructure
Defensive rotation gathers pace as real assets gain weight in a UK-focused portfolio.
Law Debenture trimmed Rolls-Royce by 24 million in value, retained 18.7 million, and reduced exposure to Babcock, deploying proceeds intoUK property names including British Land, Segro, Workspace and Hammerson, plus listed infrastructure holders Greencoat UK Wind and HICL Infrastructure. The firm’s UK weighting rose to 89.9% from 87.6%.
The rotation mirrors a broader investor preference for income-generative, asset-backed returns in the face of cycles in manufacturing and defence. Real assets and infrastructure may offer steadier cashflows and relative defensiveness during periods of macro uncertainty, even as the equity cycle shifts. Market participants will watch NAV performance, dividend yields and sector rotations across UK equities and infrastructure assets.
Strategic implications include how pension funds and other long-horizon investors calibrate exposure to cyclical manufacturing versus steady, regulated income streams. The move also underscores a potential reweighting away from heavy industry exposure toward assets with predictable income, inflation-linked potential and government-backed or regulated revenue models.
IEA 400m barrel reserve release largest in history
Coordinate emergency stock release aims to temper price spikes amid Hormuz disruption.
The IEA announced a record release of 400 million barrels from emergency reserves, with the United States contributing up to 4.4 million barrels per day if needed. The total pile, around 1.2 billion barrels held by IEA members, is intended to stabilise prices during a period of significant geopolitical risk and supply fragility in the Gulf.
The plan illustrates the scale of international co-ordination to address a potential supply shock. Analysts caution that the impact may be limited in duration unless disruptions persist or demand remains robust. The release is designed to provide liquidity and time for producers to respond, but the real question remains how effectively the market absorbs the additional supply and whether prices adjust in line with expectations.
Traders will scrutinise draw rates, price reactions, and any shifts in Hormuz transit since the announcement. The effectiveness of the IEA action will depend on whether the disruption persists and how other producers adjust production and export routes in response to the initiative.
Europe faces jet fuel price surge and supply constraints as Gulf dependency bites
Jet fuel markets in Europe face structural tightness and price spikes as Hormuz disruption persists.
European jet fuel prices have surged with the jet regrade rising to around $45-48 per barrel and jet crack around $78 per barrel. Roughly 30% of Europe’s jet imports come from the Gulf, and outages at major Gulf refineries have compounded the problem. The Al Zour refinery outage in Kuwait has contributed to the supply squeeze in recent months, while parallel bottlenecks in distribution and refinery throughput reinforce the structural risk.
The consequences for Europe’s aviation sector are material. Airlines face higher fuel costs that feed into ticket pricing and profitability, even as hedging programmes offer some relief for major carriers. The scarcity of jet fuel adds a layer of vulnerability that differentiates this shock from prior price spikes, in that physical availability could become a binding constraint alongside price.
Observers highlight potential policy responses, including diversifying supply sources, accelerating regional refining capacity, and increasing strategic storage of middle-distillate fuels to cushion seasonal and geopolitical shocks. The near-term indicators to watch include jet fuel crack spreads, import mixes into European hubs, and refinery throughput data.
North America rig counts drift lower as Canada weakens, US pace holds
Drilling activity cools in North America, with regional divergence masking an overall steadier US trajectory.
Baker Hughes reports a total North American rig count of 756 in March 2026: US 551, Canada 205. YoY totals are down by 70 rigs, with the US down 41 oil rigs and Canada down 31. Texas and Eagle Ford lead basin-level changes, suggesting a softer near-term pace of oil production growth, even as some basins show resilience.
The softer drilling activity aligns with more cautious capex expectations in a market squarely focused on energy transition assets and a higher price environment. The data imply a slow but steady approach to sustaining supply growth, while the near-term impact on oil production remains subject to price volatility and the return of investment certainty for producers.
Market commentary links rig counts to broader price signals, with a watchful eye on how capex plans align with energy price expectations and policy signals. The evolving supply landscape will interact with demand in shaping the trajectory of oil markets over the coming weeks and months.
Two oil tankers ablaze near Iraq’s export terminals amid wider Strait of Hormuz disruption
Maritime risk intensifies as vessel attacks raise supply-security concerns.
Two tankers near Basra’s Al-Faw port, Vishnu and Zefyros, were reported damaged and subsequently ablaze in territorial waters. 38 foreign crew were rescued, and Iraqi authorities halted operations at export ports temporarily as tensions escalate. Iran reportedly claimed responsibility for the attacks.
The incident underscores the fragility of supply chains in the Gulf and the potential for further volatility in global energy markets. The disruption compounds the broader Hormuz-related constraints that have persisted in recent weeks, suggesting elevated risk premiums and possible reroutings for crude and condensate shipments.
Observers will monitor regional responses and any sanctions or diplomatic escalations. The immediate market reaction will hinge on how quickly ports can return to normal and whether further attacks or countermeasures raise insurance costs and delivery timelines for energy flows.
Aluminum price climbs as Asia premium offer spikes
London Metal Exchange aluminium futures rally on Middle East disruption; premiums rise for key regional buyers.
Three-month LME aluminium futures rose above $3,400 per tonne, extending gains into a second week as Middle East disruptions tighten supply attention. Rio Tinto has offered a premium of $350 per tonne to Japanese buyers for Q2 shipments, a 40% rise on prior proposals, alongside force majeure declarations from Qatar and Bahrain smelters.
The premium dynamics point to tight global supply and elevated freight and insurance costs, with China’s shipments also pointing to higher premiums as the Shanghai premium climbs. European and US market players could see continued pricing tension as premiums adjust in response to supply bottlenecks and the strategic importance of aluminium in the energy and defence value chains.
Observations will focus on the level of premiums for primary metal shipments to Asia, the spread between LME and SHFE pricing, and the direction of major producers’ offer strategies as regional disruptions persist.