Closing post
Time for a recap
Factories in the UK, and across the Asia-Pacific region, have recorded a weak August.
The latest monthly poll of purchasing managers across Britain’s manufacturing sector found that new orders and new export business both fell at quicker rates in August, leading to another drop in production volumes.
Export powerhouses Japan, South Korea and Taiwan all saw manufacturing activity shrink in August too, with some factories blaming the impact of Donald Trump’s trade wars.
The head of the European Central Bank has warned that Trump’s attack on the US Federal Reserve could be a threat to the world economy.
“If U.S. monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world.”
UK government borrowing costs rose near a 27-year high today, as investors fretted about the risk of higher debt issuance and persistent inflation.
In the UK housing market, prices fell last month as potential buyers were hit by affordability challenges.
But there was also an increase in the number of mortgages approved by lenders.
The early rally in the London stock market has rather fizzled out.
Although defence stocks are still up, following the UK’s £10bn warship deal with Norway, the wider FTSE 100 index is now flat.
Even so, investors have enjoyed a solid rally since the turmoil triggered by Donald Trump’s trade war faded back in the spring.
Tom Stevenson, investment director at Fidelity International, explains:
“Bar a September stock market wobble - and history shows they sometimes happen at this time of year - investors will be celebrating a powerful summer rally by the time of next week’s St Leger Day horse race in Doncaster.
“That’s the second part of the old stock market adage that tells investors to ‘sell in May and go away, don’t come back ‘til St Leger’s Day’. It often fails to deliver - unsurprising, given the tendency of markets to rise over time - but it rarely falls over as spectacularly as it has this year.
“Since Donald Trump’s U-turn on tariffs in early April - when he paused levies for 90 days a week after imposing them - shares have soared. The S&P 500 is up from a low of below 5,000 to 6,500 last week. Here, the FTSE 100 has risen from 7,700 to 9,300. While in Japan, the Nikkei is up from 31,000 to 43,000 today.
In the automobile sector, Tesla is still proving popular in Norway.
While sales in other European countries have wilted this year, Teslas made up more than a fifth of new car sales in Norway in August.
The Norwegian Road Federation has reported that Tesla models were close to 22% of new car sales in August, with electric cars as a whole accounting for 97% of new passenger vehicle registrations.
But other markets are tougher to crack. Data from France today showed that registrations of new Tesla cars fell 47.3% in August versus the same month in 2024.
Tesla registrations fell more than 84% in Sweden - where electric vehicle sales were flat and the market overall was up 6% - and dropped 42% in Denmark.
UK bond yields rise after Downing Street reshuffle
Britain’s long-term borrowing costs are inching closer to their highest level since 1998 as the City digests a shake-up at Number 10 Downing Street.
The yield, or interest rate, on UK 30-year bonds has risen to 5.64% this morning, the highest since the 27-year high set in April.
Yields measure the cost of borrowing, and this increase threatens to eat into chancellor Rachel Reeves’s fiscal headroom as she draws up the autumn budget.
The reshuffle will see Darren Jones, the chief secretary to the Treasury, move to a new senior role in Downing Street. The former Bank of England deputy governor Minouche Shafik will become Starmer’s chief economic adviser.
The shake-up is meant to improve the delivery of Starmer’s policy goals.
But investos also see it as a signal that the government will issue more debt than previously expected, suggests Simon French of investment bank Panmure Liberum:
Posting on X, French says:
Yield spread between what UK 10Y paper trading at - and max from the rest of the G7 - is now at +50bp. That’s the highest on record and takes out the Spring Statement high. New economic team needs to show No.10 gets this dynamic, and backs their Chancellor.
The immediate market reaction is not exactly a vote of confidence on these moves. Markets seeing it as a signal of more Gilt issuance/ inflation to come. Yield spread between what UK 10Y paper trading at - and max from the rest of the G7 - is now at +50bp. That's the highest on… https://t.co/CzQTph0LWB pic.twitter.com/GP1XISqT7U
— Simon French (@Frencheconomics) September 1, 2025
Long-dated eurozone government bond yields have also risen today, as traders anticipate the likely collapse of the French government next week if it loses a confidence vote.
Long-dated yields in the Eurozone continue to rise, w/Germany's 30y yields at the highest level since 2011 as a major reform of the Dutch pension system could become a € 2 trillion headache for Europe's bond markets. https://t.co/669QKjIYBU pic.twitter.com/VOFLYKTCnf
— Holger Zschaepitz (@Schuldensuehner) September 1, 2025
Updated
Home buyer mortgage approvals rise to six-month high
The number of mortgage approvals made to home buyers jumped to a six-month high in July, according to Bank of England figures.
Some 65,352 mortgage approvals for house purchases were recorded in July, which is the highest total since January when 65,775 home loans were approved.
However, there was also a drop in the value of new mortgages approved in July – it fell by £900m to £4.5bn, having jumped to £5.4bn in June.
The Bank also reports that the ‘effective’ interest rate on new mortgages decreased for the fifth consecutive month, to 4.28% in July from 4.34% in June. However, the rate on the outstanding stock of mortgages remained at 3.88%.
Updated
Donald Trump is trying to send a clear message to the Federal Reserve by attempting to fire Lisa Cook, says Enrique Diaz-Alvarez, chief economist at global financial services firm Ebury
“Lisa Cook’s attempted firing by Trump is likely to be a long legal process. While the short term impact is limited, the message being sent to other Fed governors is unmistakable.
“Long term rates are the key for Trump, as they drive mortgage rates and hence the housing markets, and these remain stubbornly high even as expectations for rate cuts grow.”
Lagarde warns Trump’s attack on Federal Reserve is ‘a serious danger’
The head of the European Central Bank has warned that the global economy could be rocked by Donald Trump’s shake-up of America’s central bank.
Steps by US President Donald Trump to remove Federal Reserve Chairman Jerome Powell or Fed governor Lisa Cook would represent a “very serious danger for the US economy and the world economy”, said ECB president Christine Lagarde said today.
Lagarde told Radio Classique:
“If U.S. monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world.”
Last week, lawyers representing Cook accused Trump of using unconfirmed allegations of mortgage fraud as his “weapon of choice” to attack the Federal Reserve’s independence, after the president announced he was firing her.
Lagarde also told Radio Classique that a ruling on Friday by a US appeals court that most of Donald Trump’s tariffs were illegal were adding a “further layer of uncertainty” to the global economic outlook.
Trump has repeatedly blasted Powell for the Fed’s failure to cut US interest rates this year, and is expected to appoint a successor with a more dovish approach.
Updated
Eurozone unemployment dips to record low of 6.2%
Unemployment across the eurozone has dropped to its record low this summer.
New data from statistics body Eurostat show that euro area seasonally adjusted unemployment rate dropped to 6.2% in July, down from 6.3% in June 2025 and from 6.4% in July 2024.
Eurostat estimates that there were 13.025m people unemployed in the European Union, including 10.8m in the euro area.
In July, unemployment decreased by 165,000 in the EU and by 170,000 in the euro area.
Eurozone July Unemployment Rate 6.2% (est 6.2%, last 6.3%)
— Mario Cavaggioni (@CavaggioniMario) September 1, 2025
Unemployment rate remains at low levels, in line with PMI indication pic.twitter.com/D21jAnGxre
Analysts at ING say:
Falling unemployment suggests that the eurozone economy remains resilient in the face of global uncertainty.
Modest economic growth seems realistic for the coming quarters, as the strong labour market should aid some domestic recovery
UK Manufacturing PMI (AUG'25)
— Interpretiv (@InterpretivUK) September 1, 2025
Final: 47.0
Previous: 48.0
Consensus (Flash Estimate): 47.3
Key Points:
• New orders contract at fastest pace in 4 months and to one of greatest extents seen in 2 years.
• Another month of job losses, driven by tariff uncertainty and higher NI/MW… pic.twitter.com/JMSspIHY7Q
Manufacturing supply chains also remained stretched in August.
Today’s PMI report flags that the average wait to receive raw materials lengthened last month, due to a combination of shipping delays, vendor capacity issues, transportation re-routing to avoid the Red Sea and global material shortages.
UK factories also reported they cut jobs for the tenth consecutive month.
S&P Global says:
Lower employment was linked to weaker intakes of new work, tariff uncertainties and rising labour costs (particularly the ongoing impact of higher minimum wages and employer NICs).
UK manufacturing downturn continues as new orders and new export business fall
Ouch! The UK manufacturing sector shrank again last month, as factories were hit by weaker demand at home and abroad.
The latest monthly poll of purchasing managers across Britain’s manufacturing sector found that new orders and new export business both fell at quicker rates in August, leading to another drop in production volumes.
This pulled the S&P Global UK Manufacturing Purchasing Managers’ Index down to 47.0 in August, from July’s six-month high of 48.0. It’s the 11th month in a row in which the PMI has come in below the 50-point mark showing stagnation.
UK factories blamed lower new work inflows to “subdued client confidence”, citing tariff uncertainties, and cost increases due to the rise in the minimum wage and employer national insurance rates.
Rob Dobson, director at S&P Global Market Intelligence, says:
“Production volumes are still showing resilience in the face of global geopolitical uncertainty and US tariff policies, with both July and August having seen only slight contractions that were milder than those suffered earlier in the year. Business confidence has also lifted to a sixmonth high, reflecting hopes that the trading environment is starting to settle down.
However, August also saw a steep drop in UK manufacturers’ new orders, with total order books and overseas demand both falling at some of the fastest rates seen over the past two years. Weak market conditions, US tariffs and downbeat client confidence all contributed to the dearth of new contract wins. Job cuts were also reported for a tenth successive month, with factory headcounts dropping to one of the greatest extents postpandemic.
The outlook for the sector therefore clearly remains very uncertain. With manufacturers fearing that possible government policy decisions, including potential tax increases, could further hurt their competitiveness in domestic and export markets, the upcoming Budget will likely prove very important in guiding business confidence about the year ahead.
Eurozone factory output growth at 41-month high in August
Back in the manufacturing world, eurozone factory output growth has hit a 41-month high, as a long slump finally ended.
Factory production growth across the eurozone was the strongest in nearly three-and-a-half years in August, data provider S&P Global repoerts, despite the turmoil caused by Donald Trump’s trade war.
European manufacturers reported that new orders rose, driven by domestic markets as new export sales fell for a second successive month.
This lifted the HCOB Eurozone Manufacturing PMI back into growth territory. The index increased from 49.8 in July to 50.7 in August, showinng the first monthly improvement in operating conditions for eurzone goods producers since June 2022.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
“The economic recovery in the manufacturing sector is broadening, as conditions are improving in six out of the eight countries for which PMIs are recorded—compared to only four countries in the previous month.
As a result, the Manufacturing PMI for the eurozone has crossed the expansion threshold for the first time since mid-2022, mainly because companies have ramped up production more rapidly.”
Profits surge at Royal Mail's parent company
Royal Mail’s parent company has posted a surge in profits, in its first financial results since being taken over by Czech billionaire Daniel Křetínský.
International Distribution Services (IDS) has reported that pre-tax profits jumped to £429m in the year to 30 March 2025, up from £114m the previous year.
On an adjusted operating profit basis, IDS recorded earnings of £278m for the last year, up from a loss of £28m in the previous year.
This recovery in profits should cheer Křetínský, whose EP Group finalised the £3.6bn takeover of IDS this spring, and may harden suspicious that the Czech sphinx got the company at a bargain price.
Martin Seidenberg, IDS’s chief executive, says:
“It has been a year of change for IDS. Thanks to the hard work of our people and our investment in transformation, Royal Mail returned to profit for the first time in three years, marking an important milestone in the company’s turnaround.
With IDS’s acquisition by EP Group complete and Universal Service reform decided now is the time for us to drive the business forward and capitalise on our momentum.
IDS adds that Royal Mail “significantly improved its financial and operational performance”, and made an adjusted operating profit of £12m if you strip out voluntary redundancy costs. That’s its first profit in three years, following significant losses in 2022-23 and 2023-24.
IDS says:
This is in line with guidance and was achieved despite an increasingly competitive and challenging trading environment.
The company’s parcel delivery services, GLS, made an adjusted operating profit of £286m, a drop of £34m.
IDS blamed the fall on “a challenging macroeconomic and regulatory environment in Germany and Italy and foreign exchange movements”.
Updated
European Central Bank president Christine Lagarde has weighed in on the crisis in France, saying that any risk of a government falling in the euro zone is “worrying”.
Speaking to broadcaster Radio Classique, Lagarde said France is not currently in a situation that would need the International Monetary Fund (IMF) to intervene.
But she insisted that fiscal discipline remained imperative in France, and that she was looking very attentively at the French bond spreads situation.
The French government could collapse next week, when parliament hold a confidence vote over plans to slash public spending.
BAE shares rise after Norway warship deal
The London stock market has begun the new month on the front foot.
The FTSE 100 index of blue-chip shares has gained 27 points, or 0.3%, to 9213 points.
Defense firm BAE Systems are the top risers, up 2.8%, after Norway agreed a £10bn deal to buy Type 26 anti-submarine warships from the UK. They’ll be constructed at BAE’s shipyards in Glasgow.
BYD shares fall after slump in profits
Back in the world of manufacturing, China’s electric carmaker BYD is feeling the pain from a domestic price war.
Shares in BYD have fallen 4% today, after it reported a 30% drop in quarterly profits on Friday.
BYD posted a net profit of 6.36 billion yuan ($891 million) in April-June last Friday, missing estimates of 7-9 billion yuan.
BYD, which has overtaken Tesla for sales in Europe, also reported a rise in overseas sales, which helped push revenues up by 14%.
UK house prices: what the experts say
Here’s some early reaction to the news that UK house prices dipped last month.
Karen Noye, mortgage expert at Quilter, says affordability pressures are still weighing heavily on the housing market:
“Last week’s property transaction figures pointed to relatively steady buyer demand, with July seeing 95,580 residential transactions – a 4% increase compared to the same month last year. However, the most recent inflation print has complicated the outlook for interest rates. Mortgage rates have been easing slightly but typical fixed deals remain around 4%, keeping monthly payments elevated, and higher inflation will make the path to lower interest rates even longer.
“Speculation around potential reforms in the Chancellor’s upcoming budget, including possible levies on high-value homes or changes to capital gains tax on primary residences, could also cause hesitation among sellers. This would tighten supply further and paradoxically push prices higher, worsening conditions for new entrants to the market.
Tom Bill, head of UK residential research at estate agent Knight Frank, agrees that speculation over budget tax changes could cool the market.
“House prices have drifted lower since March as the market digests higher rates of stamp duty and supply continues to outstrip demand.
Steady mortgage rates mean transaction numbers have improved over that time but the recent property tax speculation risks sending both sales and prices lower as buyers and sellers deal with pre-Budget uncertainty for the second year in a row.”
According to lender @AskNationwide HPI for August: UK house prices sweated under the glare of Reeves’ property tax musings and the holiday sun. Houses prices down 0.1% month-on-month to £271,079. Moving forward they continue to “bank” on improved affordability from lower rates as… pic.twitter.com/CLcKLp7eni
— Emma Fildes (@emmafildes) September 1, 2025
Marc von Grundherr, director of estate agent Benham and Reeves, reckons the market will pick up in September….
“August’s marginal dip is no surprise, with the school holidays always proving disruptive for buyers and sellers. However, this is nothing more than a seasonal summer slump as our plans to move take a backseat in favour of holidays and longer days spent in the sun with family and friends.
Now that September has arrived it brings with it a greater degree of normality where our day to day routines are concerned and so we should see momentum return quickly, with greater consistency in both market activity and house price growth.”
Nationwide: Housing affordability could improve
Nationwide also expects income growth to continues to outpace house price growth.
That would mean that housing affordability should continue to improve, if gradually.
Their chief economist, Robert Gardner, says further cuts to UK interest could also help:
Borrowing costs are likely to moderate a little further if Bank Rate is lowered again in the coming quarters.
This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid.
Updated
UK house prices dipped unexpectedly in August
We also start the new month with news that UK house prices fell last month.
Lender Nationwide reports that the average UK house price dipped by 0.1% in August, surprising economists who had forecast a 0.2% rise.
The average price of a property sold in the month dropped to £271,079, down from £272,664 in July.
On an annual basis, house price inflation slowed to 2.1%, from 2.4% the previous month.
In July, prices had jumped by 0.5% as the market recovered from a dip in June after the end of a tax break on stamp duty. In August, though, the market softened again.
Robert Gardner, Nationwide’s chief economist, says that high mortgage costs are weighing on the market:
“The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms. House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years.
“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many. Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long run average of 30%.
Updated
Factory activity shrinks as US tariffs bite
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Factories across Asia-Pacific countries have been hit by a drop in activity last month, as Donald Trump’s trade wars hit demand.
Surveys of purchasing managers from across the region, which are being released today, show that manufacturing output declined during August.
In Japan, new export business contracted at the sharpest rate since March 2024, according to the latest survey from data provider S&P Global. with factory activity shrinking again.
The S&P Global Japan Manufacturing Purchasing Managers’ Index rose to 49.7 in August, up from 48.9 in July, but still below the 50-point mark separating expansion from contraction.
Annabel Fiddes, economics associate director at S&P Global Market Intelligence said:
The latest PMI data signalled that manufacturing conditions in Japan moved closer to stabilisation in August, helped by a softer fall in output.
Demand conditions remained sluggish, however, with overall new work continuing to fall modestly. Of particular concern was a steeper drop in new export business, which fell at the sharpest pace in nearly a year and-a-half.
In early August, Donald Trump latest swathe of country-specific tariffs came into effect, with Japan’s products now attracting a 15% levy.
In South Korea, manufacturers have reported ‘sustained and solid reductions in output and new orders’ last month, which they blamed on a subdued domestic economy and global trade uncertainty.
The S&P Global South Korea Manufacturing Purchasing Managers’ Index came in at 48.3 in August, up slightly from 48.0 in July, but showing the seventh successive month of worsening business conditions.
Manufacturing conditions also continue to weaken in Taiwan, where goods producers reported sharp reductions in both output and new orders.
Taiwanese manufacturers reported that customer demand had fallen both at home and overseas, and that uncertainty over US tariffs and the wider global economic climate also dampened confidence regarding the year-ahead.
S&P Global’s Annabel Fiddes reports:
“The latest PMI data indicated that the performance of Taiwan’s manufacturing sector continued to be dampened by weak global demand conditions amid lingering uncertainty over US tariffs.
Although firms signalled softer falls in output and new orders compared to July, rates of contraction remained historically marked overall, with businesses often noting that uncertainty over future US trade policy had led to greater hesitation among clients to commit to new projects.
China, which is locked in negotiations over a trade deal with the US, also continued to suffer from tariff uncertainty.
China’s manufacturing activity shrank for a fifth straight month in August, an official survey showed on Sunday, with its factory PMI rising to 49.4 from 49.3 in July.
The future of global trade was plunged into further uncertainty last week when the US court of appeals ruled that Donald Trump’s tariffs were unconstitutional, as the US president was not legally allowed to declare national emergencies and impose import taxes on other countries.
This is likely to lead to a showdown at the Supreme Court.
The agenda
7am BST: Nationwide’s UK house price index for August
9am BST: Eurozone manufacturing PMI report for August
9.30am BST: Bank of England’s mortgage approvals and consumer credit data
9.30am BST: UK manufacturing PMI report for August
10am BST: eurozone unemployment report
Updated
