The US dollar has climbed to its highest level in over a year, after America’s central bank indicated it could raise interest rates later this year.
Half the policymakers at the Federal Reserve predicted there would be at least one increase in US interest rates this year. The Fed also left rates on hold last night, as expected.
This has pushed the dollar index up to its highest level since May 2025.
Badenoch pledges City reforms in economic 'revolution'
Conservative leader Kemi Badenoch has called on City firms to back her at the next election, promising sweeping reforms to boost risk-taking, at a time when, she says, “the rest of the world is eating London’s lunch”.
She has told executives gathered in Westminster’s QEII Centre this morning that a Conservative government would usher in an economic “revolution”, that would involve scrapping:
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ring-fencing – the protections that her Conservative party brought in after the 2008 financial crisis to protect everyday bank customers from riskier operations; and
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the Financial Ombudsman Service (FOS), which is a key adjudicator when consumers feel they have been mistreated by financial firms.
Badenoch said this is part of a UK growth plan that will revitalise the UK’s powerhouse financial sector, which she says is “smothered in red tape”, being burdened by taxes, and has lost a quarter of its stock market listings over the past decade.
She added:
Every great enterprise is built on risk. The desire for a zero risk environment means Britain’s financial services sector is now more regulated in any of the major markets in the world. It is cheaper and easier to do business elsewhere. The rest of the world is eating London’s lunch.
Reception to Badenoch’s speech was mixed, with some people in the audience grimacing at her proposals, and others nodding in enthusiastic agreement as her assessment of the red tape and taxes holding back the City.
It’s worth keeping in mind that the Labour government is currently planning to reform the ring-fencing regime, and that there isn’t a consensus among bankers – with Barclays having been a vocal opponent to changing the protections that cost so much to implement in the first place.
The Labour government is also looking at reforming the FOS, following heavy lobbying by banks embroiled in the motor finance scandal, in part by aligning it more closely with FCA rules.
Badenoch clearly believes this does not go far enough.
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The Bank of England may not be unanimous in its interest rate decision, due in just over an hour’s time.
A Reuters poll found that City economists predict seven of the nine MPC policymakers will vote to leave interest rates on hold, with two pushing for a rise.
At last month’s meeting, the Bank voted 8-1 to hold rates, with BoE chief economist Huw Pill the lone vote for a rate hike.
Kathleen Brooks, research director at XTB, says:
At the last meeting, one member dissented and voted in favour of a hike. We could see a similar 8-1 split in favour of no change, later today.
Hawks at the BOE, including Megan Greene, are likely to point to the high levels of input inflation, which could eventually boost consumer prices. Added to this, inflation will rise in July, due to the 13% rise in the energy price cap.
The market will hope that the spike in price pressures caused by the energy price cap is temporary and does not lead to a wage-price spiral in the UK.
IEA: All actors know strait of Hormuz could be closed again
The head of the International Energy Agency has warned that the Iran war has shown that the strait of Hormuz could be closed again in future.
Speaking in Istanbul, IEA chief Fatih Birol welcomed the interim agreement to end the Iran war and called for the strait of Hormuz to be reopened without conditions.
He added:
We will now see the details of the agreement and the negotiation process, and what happens next.
Echoing comments made to the Guardian in April, Birol added:
The vase is broken.
Now all actors know that the strait of Hormuz was closed once and it can be shut down again.
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Britain 'strongly minded' to nationalise British Steel
The UK government has declared it is “strongly minded” to nationalise British Steel, having taken control of the company from its owners Jingye Steel.
Nationalisation of the Scunthorpe steelworks already looked likely, after the Steel Industry (Nationalisation) Bill was introduced to Parliament earlier this month.
In a written ministerial statement today, the government says:
The government is strongly minded to use the powers in the bill to bring British Steel into public ownership in the future, subject to the public interest being satisfied.
Jingye, though, won’t let the steelworks go lightly, or indeed cheaply. It has begun a formal process under an international treaty to win compensation from the UK government.
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Lloyd’s: Practical steps needed before strait of Hormuz traffic can resume
Insurance market Lloyd’s say six “practical steps” must be taken before vessels that have been stranded in the Gulf for the last 110 days can resume transiting the strait of Hormuz.
Sheila Cameron, CEO at the Lloyd’s Market Association and Neil Roberts, head of marine and aviation at the Lloyd’s Market Association, say:
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The first step is the importance of cooperation between Iran, US and other states such as Oman on navigational safety and the prioritisation of vessel passage.
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The second is verified mine clearance and ongoing surveillance. The threat of mines remains a significant barrier to the resumption of trade in the region. Ongoing monitoring of the seaways is required to provide reassurance and confidence to shipowners and their crew, particularly when it comes to vessels who are considering re-entering the Gulf in the future.
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The third is clarity of provision of emergency services support in the event of a vessel or crew requiring rescue whilst in Iranian territorial waters. In order to return to the ‘shipping as usual’ state, ordinary salvage and maritime services, including for incoming vessels, should be readily available.
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Fourth, vessels will need to be fully restored to a seaworthy state prior to transiting the Strait, including GPS services, and there are reports of issues, such as stores, fuel and bottom scraping, from vessels as a result of being at anchor for such an extended period.
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Fifth, there needs to be a full reopening of the port infrastructure system, including pilotage, berthing and bunkering, to enable the safe loading and discharge of cargos.
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And finally, clarity around sanctions, terrorism legislation and toll payments. There must be clear advice and consistency of approach from the UK, EU and US on the extent to which sanctions and designations of Iranian entities have been amended. The MoU refers to shipments of Iranian oil and that there will be no toll payments. However, a greater level of detail will be required before insurers and insureds can be clear as to what trade can safely take place.
Gas price fall to lowest since start of Iran war
UK wholesale gas prices have fallen to their lowest level since the start of the Iran war.
The month-ahead UK gas price fell as low as 95p per therm this morning, following the signing of the interim peace deal by the US and Iran.
That’s the lowest since 2 March, the Monday after the conflict began. Reminder: Brent crude oil has also fallen to its lowest since 2 March today (see earlier post).
However, this still leaves UK gas prices above their level just before the start of the war – 78.57p per therm.
Continential European gas prices have also fallen today, down 3% to €40.6 per megawatt hour.
Hopes for a resumption of traffic through the strait of Hormuz are pushing down energy costs, despite concerns that it will take time for the situation to return to pre-war levels.
Oxford Economics say:
With the new US-Iran ceasefire including an agreement to reopen the Strait of Hormuz, Oxford Economics anticipates an initial surge in traffic as ships that have been stuck are finally able to exit. Flows are then expected to slow until confidence builds that the ceasefire is durable. The firm expects the recovery in shipping to be gradual as logistics are adjusted and oil and gas production restarts
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Three Saudi-flagged supertankers sail through Hormuz after Iran deal signed
In a sign that oil flows from the Middle East are returning to normal, three Saudi-flagged supertankers with six million barrels of crude onboard have sailed through the Strait of Hormuz, ship tracking data showed on Thursday.
The sailings from Saudi ports were the biggest departures through the strait in weeks, according to Reuters analysis of shipping movements.
Oil prices to ease, not plummet, after US-Iran deal, IMF chief predicts
The head of the International Monetary Fund has predicted that oil prices are likely to ease, not plummet, as the U.S.-Iran interim peace deal lets shipments through the Strait of Hormuz resume.
IMF chief Kristalina Georgieva pointed out that countries will want to replenish oil reserves which were run down during the conflict, and that it will take time for maritime traffic through the Strait to return to normal, Reuters reports.
Georgieva was speaking at a “fireside chat” at a conference hosted by the Austrian National Bank.
Oil has already eased quite a long way in the last week. Brent crude is now trading around $78 a barrel, down from $95.50 a week ago, having hit a peak over $126 a barrel at the end of April. Before the Iran war began, Brent was trading around $72 a barrel.
Norway follows Switzerland by leaving rates on hold
It’s a busy day for central bankers.
In Oslo, Norway’s central bank has kept its policy interest rate on hold at 4.25%, but hinted that rate rises could be on the way.
Governor Ida Wolden Bache says:
Inflation is too high, and the rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead. New information indicates that inflation pressures are slightly stronger than we had anticipated earlier.
We expect that a somewhat tighter monetary policy stance will be needed to bring inflation down to target within a reasonable time horizon. If developments turn out as currently envisaged, the policy rate will be raised at one of the forthcoming monetary policy meetings”.
Switzerland’s central bank has left interest rates on hold.
The Swiss National Bank voted to keep its key interest rate at zero for a fourth quarterly meeting, after inflation rose to 0.6% in May, saying:
Inflation has risen in recent months as a result of higher energy prices. Medium-term inflationary pressure, however, is virtually unchanged compared with the last monetary policy assessment.
The SNB’s monetary policy is appropriate to keep inflation within the range consistent with price stability and it supports economic development. The SNB will continue to monitor the situation and adjust its monetary policy if necessary, in order to ensure price stability.
Tesco’s UK sales growth has more than halved as it said the conflict in the Middle East had created “ongoing uncertainty for many households”, knocking its shares in early trading.
The UK’s biggest retailer said comparable sales rose 1.8% to £13.4bn in the three months to the end of May, below both the 4.2% reported in the previous quarter and the 2.3% growth City analysts had expected.
The numbers were, however, lifted by an 8.9% rise in online sales and group sales rose 1% to £16.8bn.
The slowdown in UK sales growth reflected dampened consumer confidence in the face of higher fuel prices linked to the conflict in the Middle East. Exceptionally warm and sunny weather during the same period last year helped to increase sales of food and drink, distorting comparisons with this year.
More here:
Shares in Tesco are down 2.8% in early trading, among the larger fallers on the FTSE 100 share index this morning.
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The Resolution Foundation have calculated that private sector pay in the UK continues to shrink, once you account for inflation.
That’s because annual average regular earnings growth was 2.9% for the private sector in February to April, slightly behind the pace of price rises.
Louise Murphy, senior economist at the Resolution Foundation, explains:
The UK labour market is weaker than it has been in recent years. This weakness is showing up through rising irregular work in the form of self-employment and zero-hours contracts, higher youth unemployment and lower wage growth.
The real wages of private sector workers have now been falling since last October. With further inflation rises expected over the coming months, these workers should brace themselves for this squeeze to continue over the summer.
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Oil lowest since early March after Trump signs Iran peace plan
The Bank of England will also be pleased to see that the oil price has dropped again today.
Brent crude has hit its lowest level since 2 March – the first week of the Iran war - down over 2% to as low as $77 a barrel.
Oil prices added to their recent losses after Donald Trump signed a 14-point agreement with Iran that will reopen the strait of Hormuz, and hand Tehran a series of political and financial concessions.
It’s clear that the labour market is not out of the woods yet, argues Sanjay Raja, chief UK economist at Deutsche Bank.
And as such, he sees little reason for the Bank of England to rush into raising interest rates.
Raja says:
Survey data remain weak. HR1 advanced redundancy notifications have jumped in April and May. The claimant count rate is also back to its highest level since March last year. And still falling vacancies point to more slack in the jobs market.
We expect the labour market to remain a bit sluggish through the coming months. But there is some light at the end of the long enduring US/Iran conflict. Should the MoU [memorandum of understanding] hold, we would expect employment trends to pick back up on the margins.
For now, today’s mixed data buys the MPC (monetary policy committee) more time to wait and see how the economy evolves and how geopolitics play out. We see little rush for the MPC to push for rate hikes just yet. Instead, the Bank can let the dust settle on the energy conflict before recalibrating policy again.
Worryingly, the number of vacancies in the UK economy has dropped to a five-year low.
The Office for National Statistics estimates that vacancies fell by 19,000 in March to May, to 707,000 – the lowest level since February to April 2021.
Anna Leach, chief economist at the Institute of Directors, blames the government, saying:
“Low levels of employer demand for labour unfortunately reflect a combination of government policies which have increased the cost and risk associated with hiring employees. This is choking off work opportunities for young people in particular, as jobs continue to decline in important youth employment sectors such as accommodation and food and retail.
“The cost of doing business has risen sharply in recent years, driving persistent weakness in hiring.
On the face of it, the latest UK jobs report doesn’t look so bad, says ING economist James Smith:
The unemployment rate ticked down to 4.9%. Payrolled employment rose after three consecutive monthly declines (it increased by a marginal 2000 workers). Average weekly earnings growth was higher than expected.
But the details still look dovish for the Bank of England. And the report is another reminder that the case for higher rates is far from the clear cut.
Take those payroll numbers. April’s atrocious 100,000 fall in employment has been cut in half, after revisions. That’s not a surprise; the latest reading is always prone to change – and usually in an upwards direction. But the newly revised April figure, showing a 53k drop in workers, is still pretty bad. The better May figure should be read in that context – and if you strip out government, private-sector payrolls still fell.
Another encouraging sign in today’s UK jobs report – fewer people fell off company payrolls than first feared in April.
The Office for National Statistics has halved its estimate for payroll losses in April to 53,000, down from its first estimate of a decrease of 100,000.
For May, the ONS estimates payrolls rose by 2,000.
Pay growth stronger than forecast
UK wage growth was stronger than expected in the three months to April, this morning’s labour market data shows.
Basic pay (which excludes bonuses) rose by 3.4% year-on-year in the quarter, while total pay (including bonuses) rose by 4.4%; both measures were unchanged compared with a month earlier.
Average pay rose by 5.1% for the public sector and 2.9% for the private sector. “Public sector pay growth is once again affected by the timing of pay awards varying this year,” the ONS explains.
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Unemployment rate falls to 4.9%
Unemployment across Britain has fallen back, as more people either found work or dropped out of the labour market.
The UK unemployment rate dipped to 4.9% in the three three months from February to April, down from 5% a month ago, easing fears that the energy crunch could drive up job losses.
The Office for National Statistics reports that the number of people unemployed dropped by 105,00 in the quarter to 1.764m.
The number of people employed rose by around 100,000 to 34.410m, while the number economically inactive (neither in work nor looking for a job) rose by 137,000 to 9.136m.
ONS director of economic statistics Liz McKeown says:
The labour market remained broadly stable in the latest quarter, with further softening evident in some measures. Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years. However, overall employment was little changed, with some signs of workers moving into self‑employment.
Vacancies also continued to fall, further suggesting that firms are becoming more cautious about taking on new staff. The decline has been most persistent among lower‑paying sectors and smaller employers, although the largest fall this quarter was in professional services.
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Introduction: Bank of England interest rate decision today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK households and businesses could be spared a rise in borrowing costs today, as the British economy creaks under the strain from the Iran war.
The Bank of England is widely expected to leave interest rates unchanged at 3.75% at noon today, after its latest monetary policy committee meeting.
Policymakers at the BoE will try to balance the challenge of containing imported inflation from the Middle East conflict, while avoiding intensifying the squeeze on firms and consumers who have been hit by the rise in energy costs.
With the economy shrinking slightly in April, and inflation lower than forecast in May (we learned yesterday), a hike in borrowing costs appears unnecessary. The City of London money markets indicate there’s a 98% chance that interest rates are left on hold, and just a 2% chance of a rise.
Tomasz Wieladek, chief European macro economist at investment management firm T. Rowe Price, argues that the Bank may not need to tighten monetary policy at all in the coming months.
Monetary policy in the UK appears to be finally working. A prolonged period of restrictive monetary policy has, to a degree, weakened inflation dynamics.
Given the good news on inflation and the recent decline in oil prices, the MPC will likely conclude that no more hikes are necessary to stabilise inflation in the UK.
The agenda
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7am BST: UK labour market data
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Noon BST: Bank of England interest rate decision
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1.30pm BST: US initial jobless claims
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1.30pm BST: Philadelphia Fed Manufacturing Index
