Closing post
Time to wrap things up.
Donald Trump says he has struck a trade deal with Vietnam - Reuters flash.
Our main story today:
The root cause of the substation fire that shut Heathrow airport was a preventable technical fault that National Grid had been aware of seven years ago but failed to fix properly, investigators have concluded.
The final report by the National Energy System Operator (Neso) on the incident said the fire that cut power to the airport on 21 March, affecting more than 1,350 flights, almost 300,000 passengers and cutting power to 67,000 homes, was “most likely” sparked by moisture entering the insulation around wires.
The state-owned body said its investigation had found that National Grid, which owns the substation that caught fire, had been aware of the issue in 2018.
“An elevated moisture reading … had been detected in oil samples taken in July 2018 but mitigating actions appropriate to its severity were not implemented,” the report said. “National Grid has since initiated an end-to-end review of its oil sampling process, with a view to ensuring that it is robust.”
Thank you for reading. We’ll be back tomorrow. Take care – JK
Rachel Reeves will stay as chancellor, says No 10 after her tears in Commons
Downing Street has said Rachel Reeves will stay in post and has not offered her resignation, after the chancellor was seen in tears at prime minister’s questions.
Reeves wiped away a tear on Wednesday after a series of questions from the Conservative leader, Kemi Badenoch, who suggested Labour MPs had said she was “toast”. Badenoch suggested Keir Starmer had failed to confirm Reeves would stay in post until the election.
Afterwards Downing Street moved quickly to give its backing to Reeves as aides said she was “going nowhere” and that there would be no reshuffle.
A spokesperson for Reeves said: “It’s a personal matter, which – as you would expect – we are not going to get into.”
UK bonds in biggest sell-off since October 2022 amid worries over chancellor
Government bonds have sold off and the pound tumbled, as the chancellor appeared in parliament looking visibly distressed – a day after the government scaled back plans to curb benefits.
Bond prices fell the most since October 2022, pushing the yield (or interest rate) on the 10-year government bond, or gilt as much as 22 basis points to 4.681%, as investors ditched UK debt. 30-year yields also rose by nearly 22bps and two-year yields rose by 11bps.
Keir Starmer’s press secretary said Reeves has his full support, and she was upset because of a “personal matter”.
Sterling dropped by 1.2% against the dollar, dropping to $1.3578.
The UK stock market has slipped a bit. The FTSE 100 index has lost 23 points, or 0.26%.
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Greggs feels the heat as shoppers shun pastries in hot June
The UK’s biggest bakery chain, Greggs, has said last month’s heatwave harmed its sales and profits as customers went off the idea of hot pastries in the unusually high temperatures.
Shares in Greggs slumped almost 13% as investors reacted to the profit warning a day after the UK experienced the hottest day of the year so far, with temperatures reaching almost 35C.
The group said sales at the 2,085 shops it operates directly grew 2.6% in the six months to 28 June. However, “good progress in May [was] followed by slower growth … as high temperatures impacted consumer spending purchasing patterns”.
Greggs said:
Sales in June were impacted as very high temperatures affected the UK, increasing demand for cold drinks but reducing our overall footfall.
Bank of England should 'cut rates five times' in 2025 – policymaker
The Bank of England should cut interest rates five times in 2025 amid mounting risks to Britain’s economy, a senior Threadneedle Street policymaker has said.
Alan Taylor, a member of the Bank’s monetary policy committee, said the UK economy’s “deteriorating outlook” warranted deeper interest rate cuts that financial markets currently predicted.
Previously, I had seen a UK soft landing in the cards, with some remaining upside risks to inflation from the bump in 2025. Now I see that soft landing as being at risk, and greater probability of a downside scenario in 2026 pushing us off track, as demand weakness and trade disruptions build.
In a speech at the European Central Bank’s annual conference in Sintra, Portgual, Taylor said five rate cuts in 2025 would be needed, rather than the quarterly pace of four priced in by financial markets.
The Bank has already cut rates twice in 2025 by 0.25 percentage points on each occasion, to stand at the current level of 4.25%, most recently in May.
Taylor said he believed rates could be cut to about 2.75-3% within the next two years to bring borrowing costs to a “neutral” level that would neither stimulate, or restrict, economic activity.
Unions are holding emergency talks with TSB morning as they try to get clarity on the fallout for the high street bank’s staff following news of its £2.65bn takeover by Spanish-owned Santander.
Representatives of Accord and Unite are hoping to secure some further info for employees, who are concerned over a fresh wave of job cuts as Santander tries to strip out any duplicate roles across the combined group.
The new TSB chief executive Marc Armengol, who started in March, updated employees about the deal last night, as the bank prepares for ownership to shift from Sabadell - another Spanish bank - to its rival Banco Santander.
TSB is expected to continue engaging with unions as the takeover - subject to approvals from regulators and Sabadell shareholders - gets underway. Neither the unions nor TSB commented on the upcoming meeting, but Dominic Hook, a national officer at Unite said in a statement regarding the Santander takeover:
This is very concerning for TSB staff who have seen massive change and job losses since the spin off from Lloyds.
Every bank merger or sale seems to lead to job losses but a good employer will deal with that by voluntary means so Unite is demanding that the bank commits to no compulsory redundancies.
Wider society should also be concerned at another reduction in choice that will also inevitably lead to fewer bank branches.
Aviva to hand £500 of free shares to all staff post Direct Line deal
Over here, Aviva has completed its £3.7bn acquisition of its smaller insurance rival Direct Line, a day after Britain’s competition watchdog approved the deal.
An Aviva spokesperson told the Guardian that the combined UK workforce of 32,000 will get £500 of free shares in September, “to recognise the milestone”.
However, the deal – which will create the UK’s largest home and motor insurer – puts up to 2,300 jobs at risk (5%-7% of the combined workforce), the companies said last year. The cuts will be spread over three years.
Aviva said it has 1,000 vacancies at the moment, which will reduce the need for job cuts.
Updated
However, speaking this morning, the chief executive of Sabadell insisted that the TSB sale has nothing to do with the BBVA takeover battle.
But, César González-Bueno Mayer noted that the sale could complicate BBVA’s bid or force its larger rival to come back with a higher offer.
He said he does not expect more hostile takeover deals in Spain’s banking sector.
Updated
Banco Sabadell has announced that it is selling TSB to Santander for an eventual sale price of £2.9bn.
The bank will ask shareholders to approve the sale of its TSB subsidiary to Banco Santander for £2.65bn, with the final price expected to rise to £2.9bn once estimated profits from that date until completion – expected early next year – are included.
The deal, announced on Tuesday night, has raised fears of job cuts and branch closures across the combined group. It is the result of a takeover tussle in Santander’s home base of Spain, with Sabadell decidig to sell TSB as it faces an €11bn (£9.4bn) hostile approach from a rival, BBVA.
The deal will still have to be approved by Sabadell’s shareholders, and is the third major ownership shake-up for TSB in just over 12 years.
Santander UK said the TSB deal would make it the third largest UK bank in terms of personal current account deposits, behind Lloyds and Natwest.
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Compensation for water customers in England and Wales to double
In other news…
Consumers in England and Wales will get far higher compensation for poor customer service from their water supplier, under new government measures to crack down on failing utilities companies.
For severe issues such as flooding, compensation will double from £1,000 to up to £2,000, while households suffering consistent low water pressure will be automatically eligible to receive up to £250, up from £25 at the moment, the government confirmed today.
The Prospect union has blamed a regulatory regime that it says promotes “short-term cost-cutting” leading to old infrastructure not being maintained.
Sue Ferns, senior deputy general secretary, said:
As Prospect’s submission to the NESO inquiry warned, the outage at the North Hyde sub-station resulted from a regulatory regime which prioritises short-term cost-cutting and artificially contrived competition.
Old infrastructure has not been effectively maintained and the workforce has been under-valued and under-invested in.
The consequences of this continued lack of investment are now becoming painfully clear. Urgent action is needed to ensure the resilience of our critical national infrastructure and the workforce that it depends on.
The Heathrow Reimagined campaign, which includes the Heathrow Airline Operator’s Committee and carriers such as American Airlines, International Airlines Group and Virgin Atlantic, said the findings support its call for a fundamental review of Heathrow’s economic regulatory model.
A spokesperson for Heathrow Reimagined said:
Over 1,300 flights were cancelled at the UK’s only hub airport leading to disruption for thousands of passengers. NESO highlights the lack of resilience and operational continuity, including known vulnerabilities in Heathrow’s private internal electrical distribution network.
This is another example of Heathrow’s lack of operational resilience which is incentivised and enabled by a flawed regulatory framework. NESO’s findings support our urgent call for a fundamental review of Heathrow’s economic regulatory model by the UK Civil Aviation Authority (CAA).
NESO report: fire suppression system inoperable since 2022
Today’s NESO report found that the fire suppression system had not been working at the substation since 2022.
The report said a National Grid Electricity Transmission (NGET) review in 2022 indicated that the fire suppression system at North Hyde substation was inoperable. A further fire risk assessment report conducted in July 2024 indicated that the fire suppression system at North Hyde substation was still out of service.
It said if a fire started on any of the three supergrid transformers, ‘it would not be suitably suppressed’. As a result, a high priority action was created on the pump of the water mist system to be appropriately serviced and maintained, but that action remained outstanding at the time of the fire, in March 2025.
The NESO report also confirmed that it took more than six hours from the NGET engineer arriving onsite to issuing the permit for the London Fire Brigade to enter the site and begin tackling the fire, and confirmed that the fire at North Hyde continued burning for nearly six days after it started.
Javier Blas, energy and commodities columnist at Bloomberg, said:
HEATHROW BLACKOUT: @neso_energy report is out.
— Javier Blas (@JavierBlas) July 2, 2025
It's very, very damming: indicative of the UK's decrepit infrastructure.
National Grid knew since 2018 there was a problem with the transformer; it did nothing. Plus, the fire suppression system was out of service since 2022. pic.twitter.com/PlW29XKa8P
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Heathrow: Fire highlights National Grid's clear shortcomings and outdated safety standards
Heathrow has also responded, saying that this incident highlights clear shortcomings in National Grid’s asset management and outdated safety standards.
It added that its own review, led by former cabinet minister Ruth Kelly, identified key areas for improvement and work is already underway to implement all 28 recommendations.
A spokesperson said:
Heathrow welcomes this report, which sheds further light on the external power supply failure that forced the airport’s closure on 21 March. A combination of outdated regulation, inadequate safety mechanisms, and National Grid’s failure to maintain its infrastructure led to this catastrophic power outage.
We expect National Grid to be carefully considering what steps they can take to ensure this isn’t repeated.
Updated
UK energy secretary: Report on Heathrow fire 'deeply concerning'
The energy secretary, Ed Miliband, described the findings as “deeply concerning”.
The report is deeply concerning, because known risks were not addressed by the National Grid Electricity Transmission, and Ofgem has now opened an official enforcement investigation to consider any possible licence breaches relating to the development and maintenance of its electricity system at North Hyde.
There are wider lessons to be learned from this incident. My department, working across government, will urgently consider the findings and recommendations set out by NESO and publish a response to the report in due course.
The fire disrupted power supply to more than 70,000 customers, including Heathrow airport.
National Grid: Action taken since fire but insists these incidents are 'rare'
A National Grid spokesperson said the company “fully supports” the recommendations in the report, and will work with NESO and others to implement them, but insisted that incidents like the Hayes substation fire are “rare”.
As NESO’s report sets out, in Great Britain we have one of the most reliable networks in the world, and events of this nature are rare.
National Grid has a comprehensive asset inspection and maintenance programme in place, and we have taken further action since the fire. This includes an end-to-end review of our oil sampling process and results, further enhancement of fire risk assessments at all operational sites and re-testing the resilience of substations that serve strategic infrastructure.
The company said it will also cooperate closely with Ofgem’s investigation.
There are important lessons to be learnt about cross-sector resilience and the need for increased coordination, and we look forward to working with government, regulators and industry partners to take these recommendations forward.”
Updated
The electricity substation fire on 20 March caused chaos at Heathrow airport, which had to shut, affecting almost 300,000 passengers around the world.
Europe’s busiest airport had more than 1,350 flights cancelled on the Friday after the fire at the substation in Hayes, west London. Flights restarted on Saturday and the airport was back to normal by Sunday, albeit with some slight delays.
The airport’s boss, Thomas Woldbye, was criticised for going to bed at 12.30am, and leaving the chief operating officer, Javier Echave, to take key decisions while the substation powering the airport burned.
The UK’s transport secretary, Heidi Alexander, said she would “struggle to sleep” if she had been running Heathrow airport.
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Akshay Kaul, director general for infrastructure at Ofgem, said:
The North Hyde substation fire resulted in global disruption, impacted thousands of local customers, and highlighted the importance of investment in our energy infrastructure.
As a result of the report’s findings, we have opened an investigation into National Grid Electricity Transmission (NGET). We have also commissioned an independent audit of their most critical assets.
Ofgem will also further examine the incident and its causes and take further action as appropriate.
We expect energy companies to properly maintain their equipment and networks to prevent events like this happening. Where there is evidence that they have not, we will take action and hold companies fully to account.
Britain has one of most reliable energy systems in the world and thankfully incidents like this are rare. We must continue to invest in the system to maintain that resilience.
Introduction: Heathrow fire caused by preventable fault, report finds, as Ofgem launches investigation into incident
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Ofgem has opened an investigation into National Grid after the substation fire on 20 March that led to the closure of Heathrow, as a review found that the root cause of the fire was a “preventable, technical fault”.
This caused a “catastrophic failure” on one of the transformer’s high voltage bushings at the North Hyde electricity substation in Hayes, west London.
The energy regulator said it had launched an official enforcement investigation into National Grid Electricity Transmission (NGET). It will examine the incident, its causes and take further action as necessary.
The final report from the National Energy System Operator said the fault had first been detected seven years ago but had not been fixed.
This review has seen evidence that a catastrophic failure on one of the transformer’s high voltage bushings at National Grid Electricity Transmission’s 275kV substation caused the transformer to catch fire.
This was most likely caused by moisture entering the bushing, causing an electrical fault. An elevated moisture reading in the bushing had been detected in oil samples taken in July 2018 but mitigating actions appropriate to its severity were not implemented.
Ofgem will review whether NGET complied with the relevant legislation and licence conditions relating to the development and maintenance of its electricity system at North Hyde.
The regulator will also commission an independent audit into NGET’s critical assets and their status to figure out whether the failings at the North Hyde substation were one-off or more systemic across National Grid.
Japanese stocks fell after Donald Trump threatened a 35% tariffs on Japanese imports, in an attempt to pressure Tokyo into making concessions during negotiations that he described as “very tough”. The Nikkei fell by 0.6% after paring earlier heavier losses.
Yesterday, markets shrugged off the US Senate passing Trump’s “big, beautiful bill,” as investors stayed glued to the outlook for US interest rates and trade deals, ahead of the US reimposing tariffs on 9 July.
Federal Reserve chair Jerome Powell, who has come under heavy fire from the president over the Fed’s failure to cut interest rates this year, yesterday told an audience in Portugal that uncertainty over the impact of Trump’s tariffs prevented the Fed from lowering borrowing costs.
The married couple behind the Prax Lindsey oil refinery awarded themselves at least $15.9m (£11.5m) in pay and dividends in the years leading up to its collapse, it has emerged, as the government urged the company’s boss to “put his hand in his pockets” to help workers.
Winston Soosaipillai, who goes by his middle names Sanjeev Kumar, jointly owned the refinery with his wife, Arani, until it plunged into insolvency on Monday.
The failure of the refinery, which is one of only five left in the UK, has put 625 workers at risk and raised fears about disruption to supplies of customers such as petrol retailers and Heathrow airport.
The Agenda
10am BST: Eurozone unemployment for May
1.15pm BST: US ADP employment change for June
3.15pm BST: ECB president Christine Lagarde speech
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