Closing post
Time to wrap up:
Chancellor Rachel Reeves has pledged to stick to her fiscal rules, despite UK borrowing rising faster than expected last month.
Reeves told the House of Lords economics affairs committee that the government showed the “political courage and strength” to stick to those fiscal rules, adding:
“We will continue to do so.”
Reeves also resisted an invitation to rule out a wealth tax in the autumn budget, and warned that the UK was still reliant on “the goodwill of strangers” willing to buy its debt, saying:
“We are still very reliant on the goodwill of strangers in buying our government bonds.
“I’m a Labour politician. I don’t think there’s anything progressive about spending 100 billion pounds a year, often to U.S. hedge funds, when I would rather spend that money on the health service or on defence or on better schools.”
Reeves was speaking just hours after the latest UK public finances data showed a jump in borrowing last month. Public sector net borrowing rose to £20.7bn, up by £6.6bn from the same month a year earlier to reach the second-highest June borrowing figure since monthly records began in 1993.
The UK’s fiscal watchdog, the Office for Budget Responsibility, pointed out that borrowing so far this financial year was in line with its forecasts.
But, several economists still predicted that Reeves would raise taxes in the autumn, given the opposition from Labour MPs to spending cuts.
Reeves also urged businesses to hire unemployed and economically inactive members of the UK labour market, rather than relying on migration.
Bank of England governor Andrew Bailey warned the chancellor against watering down City banking rules, warning it risks repeating the mistakes that led to the 2008 financial crisis.
Members of the Bank’s FPC told MPs that financial stability was crucial to achieving growth.
Bailey also hinted that he might not support the introduction of a digital pound, if the Bank’s efforts to embed digital payments technologies into commercial bank payment systems succeeded.
And in other news:
It’s also been another historic day in the London stock market, where the FTSE 100 share index has hit a new intraday high of 9035 points.
Lord Razzell probes chancellor Reeves over her controversial increase in employers’ national insurance contributions.
Q: If you had the time to go into your local pub, they’d complain to you about the impact. Did the Treasury model the impact of the NICs changes?
Rachel Reeves says the Labour government discovered a number of unfunded spending commitments when it entered office, so she decided to increase taxes on businesses and the wealthiest by £40bn in the budget.
She says the government took steps to protect smaller firms from the NICS increase, such as increasing the Employment Allowance, which cut the cost of employing people on the minimum wage.
She concede that the NICS increase has been painful for businesses. But the counterfactual, she insists, would either have been higher taxes on working people, cuts to public services, or higher borrowing.
Reeves declines to rule out wealth taxes
Former chancellor Lord Lamont then asks the present chancellor if she will rule out a wealth tax, something which some Labour MPs are demanding.
Q: Doesn’t the whiff of a wealth tax undermine confidence? Wouldn’t it be better to just rule it out?
Rachel Reeves says the government made commitments before the last election about various taxes related to working people, such as income tax, national insurance and VAT.
But she declines to speculate about tax changes, reminding Lamont that he took a similar view about future fiscal policy in his time at Number 11. She says:
If you start saying no to other taxes, then as soon as you don’t say no people will assume that’s the one you’re going to increase.
It is right, and with respect this is what you did in my position, you rightly said that taxes are a matter for a budget, and we’ll set out our policy there.
Rachel Reeves, asked by Norman Lamont why she won't say no to a wealth tax: "As soon as you don't say no, people will assume that that is the one you're going to raise"
— John Rentoul (@JohnRentoul) July 22, 2025
Yesterday, The Times reported that Reeves was expected to reject pressure from left-wing Labour MPs to implement a wealth tax, due to fears it would not raise any money because wealthy people would simply leave the UK.
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Reeves then tells their Lordships that she wants to retilt the system so more young people can get an apprenticeship, or go to an FE college.
The chancellor points out that those who don’t go to university are missing out, saying:
At my school, where I went - quite a lot of years ago now - I was in the very small minority who went to university. The government carried on investing in my education for years, very expensively.
In contrast, many of the girls at Reeves’s school left at 16, or 18, despite being bright “because they didn’t have those aspirations” and didn’t get the same opportunities.
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Q: How can we get the “British dream” going, to lift productivity?
Rachel Reeves cites her reforms to savings, to encourage people to put their spare cash into investments, and to provide “long-term, patient capital” for the nation’s entrepreneurs.
The chancellor also suggests part of the British dream is to own your own home – that’s why the government is aiming to raise housebuilding levels.
Reeves: Nothing progressive about UK's debt servicing bills
Q: What are the fiscal consequences of the government’s u-turn on the welfare bill?
Chancellor Rachel Reeves says the changes to the welfare bill will have a cost – probably around £5bn, but the Office for Budget Responsibility will do the calculations.
She reiterates her commitment to the fiscal rules, explaining:
We are still very relient on the goodwill of strangers in buying our government bonds. One in every ten pounds of government spending is spent servicing government debt.
Reeves says there’s nothing “progressive” about spending £100bn per year on debt servicing, which she says often goes to US hedge funds, rather than on health, defence, or schools.
Reeves: unforgiveable of Tories to make unfunded commitments
Rachel Reeves then criticises the previous government of committing to delivering “lots of lots” of projects, without working out how to pay for them.
She tells the House of Lords economic affairs committee:
That is how you end up in politics with the levels of distrust of politicians and the democratic system.
I do think it is unforgiveable to make a load of commitments without having a single clue about where the money was going to come from. I’m not going to do that.
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Reeves adds that immigration will continue to play an important part in creating the UK’s "skills mix”, before repeating that “we can’t just turn to the immigration lever”.
Reeves says UK businessses shouldn't always reach for 'the immigration lever' to fill vacancies
Chancellor Rachel Reeves is now urging businesses to hire workers from the ranks of the unemployed and economically inactive, rather than relying on migration.
She is asked about demographics, with Lord Turnbull citing the “severe worsening” of the dependency ratio.
This ratio compares the number of people in a population who are typically not in the workforce (ie, are dependent) with the number of people who are typically in the workforce.
Turnbull points the finger of blame at the young, saying it can take people until their mid-20s to get into work today, rather than finding a job at 16. The birth rate is very low, creating a shortage of workers, leading to “very high levels” of net migration, he says.
Q: How do you balance protecting the public finances and addressing the needs of the labour market against the social pressures this migration is causing?
The chancellor tells the House of Lords economics committe that countries around the world face demographic challenges – the UK’s situation is not the worst by a long way, she says.
She says the major independent commission on the pensions system launched yesterday will help address this.
Reeves then urges businesses not to turn to migration to fill vacancies.
She says there are “a lot of people here in Britain who are not working”, citing that 20% of people of working age are classed as economically inactive, and an unemployment rate of over 4%.
I do not think that businesses should always resort to the immigration lever to fill vacancies. We need to do a lot more to train up people who are already in this country.
ONS data last week showed there were 736,000 vacancies in March to May.
Reeves says:
There are plenty of people of working age in this economy, with the right support they should be able to work.
The Lords turn to tax.
Q: Since the war, no government until now managed to bring in more than 35% of GDP in taxation. It’s now around 37.5% – what level do you think is sustainable?
Reeves says the Office for Budget Responsibility (the fiscal watchdog) forecasts tax will hit 38% of GDP at the end of the parliament – that’s not a target though!
Increasing GDP is the best way to reduce that ratio without cutting investment in public services, she says.
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Rachel Reeves is then asked why the UK economy is suffering from slugging growth, rising unemployment, stubborn inflation.
Q: What’s your diagnosis of the ills of the UK economy?
The key problem is productivity, and investment is the answer, the chancellor replies.
Reeves adds that trade policy is another important area of reform.
She cites the UK becoming the first country to reach a trade deal with the US, plus the “reset” with the European Union and a trade deal with India.
Rachel Reeves then cites the government’s changes to the planning system, which are currently being considered by the House of Lords.
She urges the Lords to pass the planning and infrastructure bill quickly, so that the UK can get on with “getting things done”, such as transport and energy infrastructure, or new data centres.
The chancellor also points to her pensions review, and yesterday’s review of the water sector, as areas where the government are pushing reforms through.
Reeves: We'll stick to fiscal rules despite geopolitical challenges
The House of Lords economic affairs committee begins with Lord Wood asking chancellor Rachel Reeves about her growth plans:
Q: What is your strategy to achieve growth, without borrowing more than your fiscal rules allow or by boosting current spending more than your tax commitments allow?
Reeves says we are living in an “age of insecurity”, and economic policy has to respond to that.
She also points to her “challenging economic inheritance”, with high levels of tax as a share of GDP, historic high levels of government debt, and “very poor” economic growth over the last 15 years due to weak productivity growth.
So the growth strategy has to address this.
Reeves says the government’s growth strategy is about building “resilience and stability”.
Stability means fiscal rules which the government sticks to – the pledge to fund day-to-day spending through tax receipts, and to have debt falling as a share of GDP while still delivering investment.
Reeves says this stability has allowed the Bank of England to cut interest rates four times in the last year.
We have faced challenges this first year. The international geopolitical backdrop is probably not one that any government would want, but that’s what we have.
Despite that, Reeves insists that the government showed the “political courage and strength” to stick to those fiscal rules in the budget, in the spring statement and in the spending review.
“We will continue to do so,” she pledges.
[Reminder: economists believe Reeves may need to raise taxes in the autumn budget, after borrowing surged over City forecasts in June].
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Reeves appears before Lords economic affairs committee - watch it here
Back in parliament, the House of Lords Economic Affairs Committee are holding a session with chancellor Rachel Reeves.
You can watch it here:
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The IMF are also warning that tariffs are not the answer to widening current account balances.
In their latest External Sector Report, just released, the Fund says:
A further escalation of trade tensions, including with tariffs, would have significant negative macroeconomic effects, with limited efficacy in correcting global imbalances.
The IMF also note that higher tariffs would reduce global demand in the short term and add to inflationary pressures through rising import prices.
It would be better, they suggest, for countries to address their own domestic imbalances.
IMF: Global current account balances have widened
The International Monetary Fund is concerned that global current account balances are widening, potentially putting strain on the international monetary system (IMS).
In a new report, just released, the IMF show that global current account balances widened by “a sizable 0.6 percentage points of world GDP in 2024”.
That is a notable reversal of the narrowing since the global financial crisis and may signal a significant structural shift, they warn, with some countries running up larger deficits and others piling up larger surpluses.
In a blog post, IMF chief economist Pierre-Olivier Gourinchas says that around two-thirds of the widening in global current account balances in 2024 was “excessive”, writing:
The increase in excess balances is the largest in a decade, driven primarily by China (+0.24 percent of global GDP), the US (-0.20 percent) and more modestly by the euro area (+0.07 percent).
Gourinchas adds that “a growing asymmetry in global trade and financial networks” is taking hold, and identifies three factors to watch:
First, while global imbalances are resurfacing, geopolitical considerations are increasingly shape bilateral trade, direct investment and portfolio flows, reducing direct interactions between more geopolitically distant jurisdictions. Ultimately, this could open the way for a fragmented multipolar IMS. While it is debatable whether an integrated unipolar or integrated multipolar system would be more beneficial to the global economy—history provides little guidance and theory is ambiguous—a fragmented multipolar IMS would almost surely be less desirable than an integrated one, with a potential for increased global financial volatility and greater misallocation of resources.
Second, the recent escalation of trade tensions coupled with the threat of possible financial tensions, rising US debt levels and a softening of the US exorbitant privilege may have caused some global investors to reassess the extent of their dollar exposure. So far, markets developments have been orderly, with an increase in demand for dollar hedging and an 8 percent depreciation of the US dollar since January, the largest halfyear decline since 1973, albeit after the multi-decade high of 2024.
Third, digital innovation for cross border transactions, such as the rise of US dollar stablecoins, could reinforce dollar dominance but could also create financial stability risks.
Coca-Cola says new cane sugar drink is coming
Another US stalwart, Coca-Cola, has reported sales growth in the last quarter.
Coca-Cola has reported that its second-quarter organic revenues grew 5% in April-June, due to a 6% rise in prices while global unit case volume declined 1%.
James Quincey, chairman and CEO of The Coca-Cola Company, says:
“Amid a shifting external landscape in the second quarter, the ability of our system to stay both focused and flexible enabled us to stay on course in the first half of the year.”
The company has also announced it will launch a Coca-Cola offering “made with US cane sugar”, as part of its “ongoing innovation agenda”.
Last week, president Trump pre-empted this announcement, posting on Truth Social:
I have been speaking to Coca-Cola about using REAL Cane Sugar in Coke in the United States, and they have agreed to do so. I’d like to thank all of those in authority at Coca-Cola. This will be a very good move by them — You’ll see. It’s just better!
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GM profits fall as after $1.1bn hit from trade war
Over in the US, carmaker General Motors has reported that its profits fell by a third in the last quarter, after Donald Trump’s trade war cost it more than a billion dollars.
GM made a profit of $3bn in the second quarter of this year, on an EBIT-adjusted basis, down from $4.4bn in April-June 2024.
GM told shareholders that tariffs had a net impact of $1.1bn on its earnings in Q2, “reflecting minimal mitigation offsets” It also warned that it expects the net impact of tariffs to be higher in the third quarter of 2025, due to the “timing of indirect tariff costs”.
A 25% import tax on engines, transmissions and other key car parts is now in force in the US, while manufactures also face new tariffs on steel and aluminium imports.
GM is sticking with its estimate that the gross impact of tariffs will be between $4bn and $5bn this year, adding that it is making “solid progress to mitigate at least 30% of this impact through manufacturing adjustments, targeted cost initiatives, and consistent pricing”.
CEO Mary Barra reminded investors that it is investing more in its US manufacturing, telling them:
For example, in June we announced $4 billion of new investment in our U.S. assembly plants to add 300,000 units of capacity for high margin light-duty pickups, full-size SUVs and crossovers. This will help us satisfy unmet customer demand, greatly reduce our tariff exposure, and capture upside opportunities as we launch new models.
The capacity begins coming online in just 18 months, after which we project building more than 2 million vehicles in the U.S. each year as we scale.
[Reminder, yesterday fellow carmarker Stellantis cut its 2024 profit forecast and warned it will burn through more cash than expected, after being hit by tariffs].
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BoE governor questions need for digital pound
The Bank of England governor has cast doubt on whether the UK’s central bank will introduce a digital currency, having worked on the project for several years.
Andrew Bailey told the Treasury committee that he would need “a lot of convincing” to push through the plan, if existing work to push digital technology into the commercial bank payment systems is a success.
He tells MPs that the BoE will work with banks and the market to develop digital technology in the commercial bank payments systems, particularly the faster ones, which are the main payment systems of the country.
Bailey explains:
That’s a sensible place to do it because that’s where most of our money is.
My view is, if that’s a success I quesion why we need to introduce a new form of money.
Bailey says improving commercial banks’ digital payments systems could lead to “huge benefits”, such as smart contracts, reducing fraud, reducing costs, and improving late payments to small firms.
This could be the best way to get digital technology into the payments system, he suggests, compared to the alternative of a retail central bank digital currency (CBDC, or digital pound) or the growth of stablecoins (eg non-bank money).
Bailey insists he is “not saying no” to a CBDC, but adds:
If the work with the commercial banks is successful, I would need a lot of convincing that the use case was made.
Bloomberg reported this morning that Bank of England officials are mulling whether to set aside plans to create a digital pound for households amid growing skepticism about the project’s benefits.
Bailey also reminded MPs that China has launched a CBDC, while the European Central Bank is pressing ahead with its plans for a digital euro.
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Bailey: Success in financial stability is when nothing happens
Q: Do you have red lines about the deregulation of UK financial rules, governor?
Andrew Bailey says he has two very strong red lines.
1) he repeats that there isn’t a trade-off between financial stability and growth
2) he shows exasperation about people who say the financial crisis is deep in the past, and solved, so we can move on.
Summing up the challenge of protecting the UK financial system, Bailey says:
Success in financial stability is when nothing happens. The fact we’ve had market volatility this year and we haven’t had a financial stability problem, we’re not worrying about banks failing or worrying about the markets, is of course a success.
Bailey then declines to back Rachel Reeves’s comment that regulation is acting as a “boot on the neck” of financial firms, saying:
“I don’t use those terms, let me say that... It is not a term I use.”
Q: But is there a problem with overregulation of financial services firms?
Bailey repeats that the Bank is open to looking at the rules, but insists:
We can’t compromise on basic financial stability. That would be my overall message.
BoE governor warns government against watering down bank ringfencing rules
Bank of England governor Andrew Bailey has warned MPs that watering down post-2008 financial crisis bank ringfencing rules would be bad for British households, and would not help banks either.
Testifying to the Treasury Committee this morning (highlights start here), Bailey insists that there isn’t a trade-off between financial stability and growth in the economy.
He reminds MPs that Parliament created a great deal of detail when they legislated the ringfence rules after the financial crisis. Perhaps some of that detail could be improved, but he insists the ringfence mustn’t be torn up.
Ringfencing protects UK retail banking from shocks originating elsewhere in the group and in global financial markets.
Last week, chancellor Rachel Reeves promised “meaningful” reforms to the UK’s ring-fencing rules, prompting warnings from some of the architects of the UK’s post-2008 reforms.
Today, Bailey says the ringfence rules are an important part of the structure of the financial system. Crucially, he explains, they make it easier to resolve a failing bank.
He tells MPs:
“It has benefits, particularly, in terms of UK customers and UK consumers; businesses and households. I think that is a helpful feature of it. I don’t think it hinders banks fundamentally in terms of their business models.
“Again, at the margins, I am sure there are things that can be improved and we will work constructively to go through that process.
“It has established itself as part of the system and to me it would not be sensible to take it away at this point.”
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Bank of England governor Andrew Bailey then reminds MPs about the surge in certain tech stocks this year, to explain the rebound in markets since their April wobble.
He tells the Treasury committee:
Here’s a striking fact. The market cap of Nvidia is now larger than the UK’s GDP.
Nvidia’s shares are up 27% so far this year, giving it a market capitalisation of $4.18tn (or £3.1tn), thanks to strong demand for its high-powered chips to power artificial intelligence systems.
Q: Why have US and global equities bounced back from the initial shock of Donald Trump’s tariffs?
FPC committee member Professor Randall Kroszner replies that it is always “very difficult” to assess market movements (indeed!).
One factor is that the markets weren’t expecting the level and the breadth of the tariff proposals which Trump announced on 2 April, even though the president had talked about them before.
It was then “very helpful for the market” that the president pushed back the date when tariffs will come in, and offered more flexibility for negotiations, Kroszner adds.
[that’s a polite way of pointing to the TACO trade]
Kroszner also points to the passing of the president’s budget bill, which extends previous tax cuts to investment. That has supported investment in the US.
Q: are there any elements in the Leeds reforms that make you nervous, in terms of financial stability?
FPC member Randall Kroszner says the committee will weighs up the costs and benefits of the measures, to assess the impact.
He doesn’t see “a necessary clash” between the reforms and financial stability, but it will depend on the detail of what is changed.
Kroszner also points to risks from the non-bank financial sector.
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Undermining financial stability would hurt growth agenda, government warned
Two Bank of England policymakers have warned the government against undermining the financial system through its deregulation push.
Professor Randall Kroszner, external member of the Bank’s Financial Policy Committee, told the Treasury Committee that it is important to maintain resilience in the financial system.
Asked about the “Leeds reforms” announced by Rachel Reeves last week, Kroszner says that snything that challenged that stability would be a red line, (but he doesn’t have any concrete examples of concerns).
Kroszner explains that undermining financial stability would hurt the government’s growth agenda, saying:
“If you don’t have financial stability it is going to be a major challenge to have economic growth”.
Reeves’s package of measures, unveiled in Yorkshire, include cutting out “unnecessary” red tape and encourage more financial risk-taking by companies and consumers.
Fellow FPC member Carolyn Wilkins points out to MPs that “a lot of the reforms” made since the great financial crisis of 2008 have worked out well, as illustrated by the stresses which the banking sector has experienced since without collapsing.
Wilkins adds:
“There are ways we can look at those regulations and maybe simplify them, maybe alter them in some way, and still achieve a very good financial stability outcome, with more efficiency”.
Part of the FPC’s work is looking at specifically how that can happen to help the growth agenda, Wilkins explains.
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BoE governor: Uncertainty pushing up long-term borrowing costs
Over in parliament, the Treasury Committee are starting to question members of the Bank of England’s Financial Policy Committee (FPC) on financial stability.
As well as governor Andrew Bailey, two external members of the FPC, Randy Kroszner and Carolyn Wilkins, will also give evidence to the Committee.
The committee asks Bailey about the rising cost of government borrowing….
Bailey replies that the cost of long-term borrowing has risen, globally. It’s not unique to the UK, and there have been steeper rises elsewhere.
These moves are being driven by increased uncertainty, particularly around trade policy, Bailey explains, and also by global uncertainty around fiscal policy.
He says:
“It is greater uncertainty, clearly. On two fronts: one is uncertainty around what is going on in trade policy at the moment. The second thing is uncertainty globally around fiscal policy. That’s again a global phenomenon.”
If you look over the last decade, Bailey adds, there has been a shift towards greater government borrowing but a smaller increase in business and personal borrowing.
Q: Are you unconcerned?
Bailey says the moves reflect conditions, both in geopolitics and on pressure on fiscal policies.
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Britain’s manufacturing sector contracted last year, new sales figures show.
The total value of UK manufacturers’ product sales fell byy 3.1% in 2024, to £452.2bn, the Office for National Statistics reported.
That included a 2.4% drop in motor vehicle sales.
The ONS reports that the manufacturing of fresh or chilled cuts of beef and veal showed the largest value increase, up by £964million or 18.6% to £6.2 billion.
Other products showing noticeable increases were beer made from malt, which increased by £793m (17.1%) in 2024 to £5.4bn, and ‘aeroplanes, helicopters or unmanned aircraft’, which rose by £527m (7.8%) to £7.3bn.
OBR: Borrowing since April is in line with our forecasts
Britain’s fiscal watchdog isn’t panicking about the jump in government borrowing in June.
The Office for Budget Responsibility points out that borrowing in the first three months of this financial year (April to June) is “exactly in line” with its forecast in March, at £57.8bn.
Central government receipts and spending are both broadly in line with the forecast profile, the OBR point out, adding:
In the monthly profile consistent with the forecast in the March Economic and fiscal outlook we expect lower borrowing in the second half of 2025-26 relative to 2024-25.
This is based on a sharp expected rise in capital gains tax around the end-January due date, lower debt interest payments in the second half of the year, and lower central government net social benefits which were unusually backloaded last year.
Borrowing in line with forecast in first quarter of 2025-26 – our monthly commentary on the public finances will be published later this morning 📊 pic.twitter.com/d8h3FZVEey
— Office for Budget Responsibility (@OBR_UK) July 22, 2025
Neil Wilson, UK investor strategist at Saxo, fears UK government bonds could come under attack this summer, saying:
The British government’s borrowing rose more than expected in June – second-highest since records began in 1993 for the month...tax hikes are coming.
Gilt yields rose with the 30-year jumping after sliding on Monday – we’re not yet back to yesterday’s highs so nothing to get jumpy about. But I do worry that we could see bond vigilantes hit gilts this autumn.
FTSE 100 hits new intraday high
Despite the gloomy UK borrowing data, the London stock market has hit a new record peak this morning.
The blue-chip FTSE 100 index jumped to 9025 points in early trading, a day after closing above the 9,000 point mark for the first time.
The rally was led by food services group Compass, which raised its profit forecast for this year and announced the acquisition of European premium food services business Vermaat Groep. Compass’s shares are up 4.2%.
They’re followed by Centrica (+4%), following this morning’s confirmation that it is taking a 15% stake in the Sizewell C nuclear power station.
Mining stocks are rallying too, lifted by higher commodity prices.
FCA warns insurers to stop poor practices
Insurers need to improve the way they handle home and travel claims, the financial regulator said this morning.
The Financial Conduct Authority has uncovered “concerning evidence” of poor practice among some home and travel insurers, which has led to delays in settling claims and high numbers of complaints. There has been a “lack of oversight of outsourced services” in some cases, the regulator said, as well as “insufficient management information”.
The FCA also found high rejection rates for storm damage claims, with only 32% of claims in its sample receiving a payment in 2024. The regulator also found cases of cash settlements being used “without sufficient consideration of whether they are most suitable”.
The watchdog is also reviewing high premiums in the car insurance industry, although it found the rise in costs has been driven by factors largely outside insurers’ control, such as higher prices for cars, parts, labour and energy. The cost of hire vehicles, as well as the number and cost of theft claims and uninsured drivers, have also risen significantly, it said.
However, it found evidence in the car insurance market that referral fees from credit hire firms and claims management companies were “associated” with slower claims processing and higher costs.
Sarah Pritchard, deputy chief executive of the FCA, said:
“External cost pressures are primarily to blame for recent motor premium increases, not increased firm profits, but there is some more work to do on claims handling, particularly in home and travel.
That’s why we’re stepping up - making sure claims are handled promptly and fairly and pushing for a coordinated effort to tackle the root causes of rising motor premiums.
A well-functioning insurance market helps consumers navigate their financial lives and supports growth by building people’s resilience to financial and personal shocks.”
UK bond yields rise after jump in borrowing
UK bond prices are weakening, which pushes up the cost of borrowing, as traders digest this morning’s public finances report.
The yield, or interest rate, on 10-year UK bonds has risen by two basis points (0.02 percentage points) to 4.634%.
Longer-dated, 30-year, bond yields have risen by almost three basis points to 5.463%, towards the 27-year highs above 5.5% reached in April.
Yields rise when bond prices fall. Although these are small moves, they add to the pressures on the UK public finances, as higher borrowing costs eat into Rachel Reeves’s limited headroom against her fiscal targets.
UK grocery inflation jumps to 5.2%
More bad news: UK grocery inflation has jumped to its highest level since January 2024, as the cost of living squeeze intensifies.
Data provider Worldpanel by Numerator, has reported that grocery inflation accelerated in the last four weeks, to 5.2% year-on-year. That’s up from 4.7% in the previous month.
Fraser McKevitt, head of retail and consumer insight at Worldpanel, says the annual cost of household shopping is rising sharply:
With the average household spending £5,283 each year at the grocers, this latest rise could add £275 to bills if people’s shopping habits stay the same.
Just under two thirds of households say they are very concerned about the cost of their grocery shopping, and people are adapting their habits to avoid the full impact of price rises. Own label products, which are often cheaper, continue to be some of the big winners and, in fact, sales of these ranges are again outpacing brands, growing by 5.6% versus 4.9%.
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What the experts say: Higher taxes likely
Despite public borrowing overshooting official forecasts by £3.6bn in June, to over £20bn, borrowing is still in line with the OBR’s forecasts after the first three months of the fiscal year, points out Alex Kerr, UK economist at Capital Economics.
But… Kerr fears things will probably get worse for the Chancellor, forcing her to raise between £15-25bn at the Budget later this year, probably mostly through higher taxes.
Kerr told clients:
Admittedly, the better-than-expected start to the fiscal year means that borrowing is still on track to meet the OBR’s existing forecasts after the first three months of the 2025/26 fiscal year.
But the government’s u-turns on spending cuts and potential upward revisions to the OBR’s borrowing forecasts means the Chancellor will probably need to raise £15-25bn at the Autumn Budget to maintain the £9.9bn of headroom against her fiscal mandate.
And given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, she will probably have to raise taxes instead.
Dennis Tatarkov, senior economist at KPMG UK, has warned that June’s higher borrowing piles more pressure on public finances, which could mean spending cuts or tax rises.
Tatarkov explains:
“Higher than expected interest payments as well as weaker revenues have pushed borrowing above the OBR’s projection for the second month in a row.
“Furthermore, the longer-term outlook for public finances remains difficult. Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget. To the extent that ongoing deficits point to lingering budgetary pressures, we would expect the OBR to acknowledge these at the next fiscal event.”
Richard Carter, head of fixed interest research at Quilter Cheviot, says today’s UK public sector finances “highlight the parlous state of the government’s fiscal position”, adding:
“Recent events have shown how hard it is for the government to bring spending down. Welfare reform was heavily watered down, while winter fuel payments have been reinstated for millions. As we approach the summer recess this is all going to result in additional speculation of what tax rises will be coming down the line given the need to plug the holes. Bond markets are craving some fiscal discipline, so without any spending cuts, taxes will have to rise.
“This is all going to negatively impact the UK’s growth position. Labour continually speaks about achieving economic growth but if taxes do need to keep rising to cater for an ever increasing debt, that growth is going to prove elusive.”
UK strikes deal with private investors to build £38bn Sizewell C nuclear power plant
Britain’s monthly borrowing in June would have paid for half a nuclear power station!
The UK government has, thiss morning, struck a deal worth more than £38bn with private investors to back Britain’s biggest nuclear project in a generation at the Sizewell C site on the Suffolk coast, my colleague Jillian Ambrose reports.
The long-awaited multibillion-pound deal brings together investment from the UK government and Sizewell C’s developer, the French energy group EDF, with a consortium of three other investors including the British Gas parent company Centrica.
The UK government’s stake in the project stood at 84% at the end of last year compared with EDF’s 16% share of the project. Under the final deal, the government will remain the project’s largest shareholder, with a 44.9% stake, while the French utility’s share shrinks to 12.5%.
Centrica will take a 15% share of the project while the Canadian investment group La Caisse will hold 20%, and investment manager Amber Infrastructure will take an initial 7.6%.
The final agreement marks the end of a 15-year journey to secure investment for the nuclear plant since Sizewell C was first earmarked for new nuclear development in 2010…
More here:
As this chart shows, the UK’s national debt (estimated at 96.3% of GDP) is its highest since the early 1960s.
The picture is a little better, though, if we use the chancellor’s favoured debt measures, Public sector net financial liabilities (PSNFL). “Persnuffle” excluding public sector banks was just over £2.5tn at the end of June, or 83.8% of GDP, £178.9bn more than a year ago.
PSNFL take into account all the government’s financial assets and liabilities, including student loans and equity stakes in private companies, as well as funded pension schemes.
It gives the chancellor room to increase borrowing for investment in long-term infrastructure.
Updated
How government spending rose faster than income in June
Borrowing jumped in June because UK government spending rose rather faster than its income.
Central government’s current receipts did rise last month, by £5.7bn, to £86.8bn.
That increase was due to higher tax receipts, namely:
central government tax receipts increased by £2.3bn to £63.6bn; this included increases of £1.0bn in Income Tax, £0.7bn in Value Added Tax (VAT), and £0.5bn Corporation Tax receipts
compulsory social contributions increased by £3.1bn to £17.4bn, on 6 April 2025 changes to the rate of National Insurance contributions paid by employers came into effect
But this was more than eaten up by a £12.4bn jump in central government’s current expenditure, to £97.1bn, because:
central government debt interest payable increased by £8.4bn to £16.4bn, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index (RPI)
central government departmental spending on goods and services increased by £2.0bn to £37.2bn, as pay rises and inflation increased running costs
net social benefits paid by central government increased by £1.5bn to £26.5bn, largely caused by inflation-linked increases in many benefits and earnings-linked increases to state pension payments
payments to support the day-to-day running of local government decreased by £0.4bn to £12.3bn, these intra-government transfers are both central government spending and a local government receipt, so they have no effect on overall public sector borrowing
Updated
Interest payable on central government debt rose to £16.4bn in June
Most of the UK government’s borrowing last month was to service existing national debt.
The interest payable on central government debt more than doubled to £16.4bn in June 2025, £8.4bn more than in June 2024.
That’s £2.4bn more than the £14.0bn forecast by the Office for Budget Responsibility (OBR), and the second-highest for any June apart from in 2022.
The increase is driven by index-linked gilts, where the interest rate on the bonds rises and falls in line with the RPI measure of inflation.
Updated
UK borrowing jumps to £20.7bn in June
Newsflash: Britain borrowed more than expected last month, as the pressures on the public finances grow and debt interest costs rise.
Borrowing jumped to £20.7bn in June 2025, some way over City forecasts for £16.5bn, which will add to the pressure on chancellor Rachel Reeves.
That’s £6.6bn more than in June 2024 and the second-highest June borrowing since monthly records began in 1993 (beaten only by June 2020, when the Covid-19 pandemic drove up government spending).
Worryingly for the chancellor, it’s also £3.5bn more than the £17.1bn forecast by the Office for Budget Responsibility, which may fuel speculation that the government will breach its fiscal rules unless it raises taxes or cuts spending.
The jump was partly driven by higher interest payments on the UK’s national debt, on bonds linked to inflation, which wiped out the recent increase in businesses taxes.
Public sector net borrowing excluding public sector banks was £20.7 billion in June 2025.
— Office for National Statistics (ONS) (@ONS) July 22, 2025
This was £6.6 billion more than in June 2024 and the second-highest June borrowing since monthly records began in 1993, behind that of June 2020.
Read more ➡️ https://t.co/WBro41C2I8 pic.twitter.com/vIH9h3r21D
ONS acting chief economist Richard Heys said:
“Borrowing in the month of June was over £6bn higher than during the same time last year.
“The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and National Insurance contributions, causing borrowing to rise in June.”
Concerns about the state of the public finances have been rising since the government rowed back on reforms to welfare spending after a revolt among its own MPs, a move that will eat into the chancellor’s fiscal headroom.
Updated
Glenn Youngkin, governor of the Commonwealth of Virginia, has cheered AstraZeneca’s decision to build its new multi-billion dollar drug substances plant in his state.
Youngkin, who appeared alongside AstraZeneca’s CEO Pascal Soriot at last night’s signing ceremony, says:
“I want to thank AstraZeneca for choosing Virginia as the cornerstone for this transformational investment in the United States. This project will set the standard for the latest technological advancements in pharmaceutical manufacturing, creating hundreds of highly skilled jobs and helping further strengthen the nation’s domestic supply chain.
Advanced manufacturing is at the heart of Virginia’s dynamic economy, so I am thrilled that AstraZeneca, one of the world’s leading pharmaceutical companies, plans to make their largest global manufacturing investment here in the Commonwealth.”
Updated
AstraZeneca's new US investment plans
Here’s where AstraZeneca plans to spend its $50bn:
Expansion of its R&D facility in Gaithersburg, Maryland
State-of-the-art R&D centre in Kendall Square, Cambridge, Massachusetts
Next-generation manufacturing facilities for cell therapy in Rockville, Maryland and Tarzana, California
Continuous manufacturing expansion in Mount Vernon, Indiana
Specialty manufacturing expansion in Coppell, Texas
New sites to supply clinical trials
Introduction: AstraZeneca unveils $50bn US investment
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
AstraZeneca has become the latest multinational company to announce a major investment in the US since Donald Trump began his trade wars.
AstraZeneca announced last night it will invest $50bn in the US by 2030, building new manufacturing facilities and expanding existing sites.
It says the plan – which has the seal of approval from the White House – will create tens of thousands of new, highly skilled direct and indirect jobs across America. It could also help AstraZeneca to reach a point where half its revenues are generated in the US.
The plan includes building a new drug substance facility in the Commonwealth of Virginia, which will produce small molecules, peptides and oligonucleotides. That would be AstraZeneca’s largest single manufacturing investment in the world.
The move comes as the pharmaceuticals industry braces for Trump to impose new tariffs on their wares entering the US, possibly as soon as 1 August.
Pascal Soriot, chief executive officer at AstraZeneca, says:
“Today’s announcement underpins our belief in America’s innovation in biopharmaceuticals and our commitment to the millions of patients who need our medicines in America and globally. It will also support our ambition to reach $80 billion in revenue by 2030.”
This investment splurge also comes amid reports that Soriot has been considering shifting AstraZeneca’s stock market listing from the UK to the US. AstraZeneca is currently the second most valuable company on the London stock exchange, shortly behind HSBC.
Howard Lutnick, US Secretary of Commerce, has welcomed the plan, saying:
“For decades Americans have been reliant on foreign supply of key pharmaceutical products. President Trump and our nation’s new tariff policies are focused on ending this structural weakness.
We are proud that AstraZeneca has made the decision to bring substantial pharmaceutical production to our shores. This historic investment is bringing tens of thousands of jobs to the US and will ensure medicine sold in our country is produced right here.”
The agenda
7am BST: UK public finances for June
10.15am BST: Bank of England governor Andrew Bailey to be grilled by Treasury committee MPs about financial deregulation
1.30pm BST: Fed chair Jerome Powell speech at the Integrated Review of the Capital Framework for Large Banks Conference, Washington, D.C.
2pm BST: Rachel Reeves to appear before Lords economics affairs committee
