Closing summary: Chances of Bank of England September hike fall
The Bank of England held bank rate steady at 3.75% on Thursday, but three of its nine rate-setting members said it should have tightened monetary policy to combat inflation from the Iran war.
Yet despite what some economists described as a “hawkish hold”, market-implied probabilities suggest the chances of a rate hike at the next meeting in September have gone down. The implied probability of no change in September rose from 53.6% just before the meeting to 73% by mid-afternoon.
Governor Andrew Bailey repeatedly told reporters at a press conference in London that the Bank was not preparing investors for a rate hike in the future, and that he was fairly comfortable that there was little evidence of inflationary pressures from oil prices feeding through to other goods and services in the economy.
The conflict started by the US and Israel hangs over every economic question at the moment. Iran shut the strait of Hormuz in response to the bombing campaign, shutting in millions of barrels a day of oil production. Central bankers are trying to wrestle with what that means for inflation across the world.
Catherine Mann, one of the independent members of the Bank of England’s monetary policy committee, joined her colleagues, Huw Pill and Megan Greene, in voting for a rate hike today. Mann said the collapse of a temporary truce between the US and Iran probably meant higher prices were unavoidable, so higher rates were needed to counter that.
Bailey characterised the disagreement as a reasonable divergence of judgments, but said the majority on the committee thought that evidence of second-order effects was lacking – even if inflation will rise later in the year because of higher oil prices.
In other business and economics news today:
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US GDP grew by 1.5% annualised, slower than expected
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US borrowing costs rose to their highest since the global financial crisis
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Lloyds Banking Group will cut another £2bn of costs as part of a four-year plan under which its chief executive will use new tech and AI to drive growth.
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Eurozone GDP grew faster than expected in the second quarter despite concerns over the Iran war.
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London’s FTSE 100 rose to a new high as mining companies and Rolls-Royce gained ground.
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Shell doubled its profits in the second quarter thanks to the Iran war oil price jump
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BAE Systems and Rolls-Royce upgraded profits as defence spending surges
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Airbus was fined £6.4m in the UK after the European aerospace company admitted to breaches of rules designed to stop sensitive goods such as military hardware falling into the wrong hands.
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Laptops, mobile phones and documents have been seized after officials carried out search warrants in a crackdown on claims companies plaguing people with spam text messages about the car finance mis-selling scandal.
Thanks for reading today, and please do join me tomorrow for more business, economics and financial markets. JJ
US stock markets have bounced back on Thursday after a bumpy ride yesterday as investors fretted over whether the Federal Reserve was doing enough to tame inflation.
Those inflation fears appear to have been assuaged, at least in part, with the main American stock indices gaining in the first minutes of trading.
Here are the opening snaps:
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S&P 500 UP 67.06 POINTS, OR 0.92%, AT 7,383.21
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NASDAQ UP 375.43 POINTS, OR 1.54%, AT 24,818.38
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DOW JONES UP 330.66 POINTS, OR 0.64%, AT 51,924.80
The football World Cup probably helped to prevent US GDP from slowing further. The event ran from 11 June to 19 July, bringing lots of tourists to the America (and Canada and Mexico), but the world’s biggest economy grew at an annualised rate of only 1.5%, compared with 2.1% the quarter before.
Dan Smith, an economist at the Centre for Economics and Business Research, said:
Growth was primarily driven by consumer spending growth, which accelerated in the second quarter, reflecting consumer resilience in the face of significantly elevated inflation and World Cup induced spending. However, this was offset by a downturn in government spending, easing investment growth and a growing trade deficit.
Looking ahead, CEBR expects US GDP to grow by 2.1% in 2026, demonstrating its resilience in the face of renewed hostilities in the Middle East.
The US GDP figures “seriously undersell a healthy American economy, said Bradley Saunders, North America economist at Capital Economics, a consultancy.
The 1.5% annualised rate was a significant slowdown during a period dominated by the US-Israeli war on Iran and the consequent rise in oil prices. It was well below the 2.1% growth expected by economists.
But Saunders said:
The slowdown in GDP growth to 1.5% annualised in the second quarter will not sway the Fed’s view that the economy is “expanding at solid pace”, given that final sales to private domestic purchasers rose by an impressive 3.9% annualised. With monthly spending data providing a solid handover to third-quarter consumption growth and signs that the investment boom is broadening, the second-quarter GDP figure seriously undersells a healthy economy.
Updated
The Bank of England’s Claire Lombardelli says its economists are monitoring the situation for consumers very closely. The Bank is not expecting a fall-off in consumer spending.
Bailey ends the press conference by thanking Bloomberg for lending them a venue while the Bank’s is being refurbished, as well as Nicola Heathman, a Bank employee since 1983 who retires today after years of liaising with journalists.
US GDP grows by 1.5% annualised, slower than expected
Breaking away from the Bank of England for a few seconds, US GDP growth has been reported at 1.5% annualised in the second quarter – below the 2.1% expected by economists.
Neil Birrell, chief investment officer of Premier Miton, an asset manager, said:
The US economy might not be in quite as good health as we thought it was, with, albeit slightly historic, GDP data falling short of expectations. But it’s unlikely to be improving today, with hostilities in Iran hanging heavily over the world. The Fed is worried about inflation, but we should also be worried about the growth trajectory.
The UK economy is an open economy relative to others, which means we have to spend more time considering the effect of the broader world, Bank of England governor Andrew Bailey says.
Back on inflation, the dissenting members think there will be second-round effects soon, but Bailey says his jury is out on whether the second-round effects will come through.
Asked again about the technicalities of quantitative easing, Andrew Bailey launches into a detailed discussion of how the Bank is governed, which we can probably skip…
Asked about the UK’s autumn budget, Bailey deflects the question, but adds that the Bank is not guiding about a future rate hike.
If you come out of the session talking about an insurance hike, I’m afraid you haven’t understood what we said, he says.
Asked about balancing keeping inflation down but not hitting the economy, Bank of England governor Andrew Bailey highlights that the Bank has some room to decide how quickly to return inflation to target without raising unemployment so far.
Asked about possible bank levies, Bailey says he has had no conversation about policy with John Healey yet because “frankly a week and a half is a short time” in economic policymaking, if not in politics.
Bank of England governor Andrew Bailey says the Bank is not “edging towards a hike” – just that the Bank has held rates steady this time.
Answering a question about policy transparency, he says the recent decision to give individual policymakers’ thoughts are helpful because they give an insight into the range of views of committee members.
Bank of England governor Andrew Bailey says he has exchanged views with the new chancellor – “quite a lot of chancellors now” – but he wouldn’t go so far as describing it as “advice”.
Asked about profit margins, Claire Lombardelli says inflation is another cost to businesses at a difficult time. It’s a challenging environment out there for businesses, she says.
Bailey adds that businesses will be examining their costs if they can’t raise prices.
Bank of England governor Andrew Bailey says that ultimately the interest rate is set to match the needs of the UK economy, and that they do not rely at what the Federal Reserve does or what the European Central Bank does to show them the path.
Asked about quantitative tightening (selling government bonds built up during previous asset purchase programmes), Dave Ramsden says that the programme has only had a small effect on UK bond yields.
The Bank of England’s ratesetters have differences in view on whether it is reasonable to wait and see what happens with the inflation outlook, Andrew Bailey says in response to the Guardian’s Phillip Inman.
Bailey says he is comfortable to wait and see. Three of his colleagues thought it was already time to act.
By far the biggest influence on the market in gilts (UK government debt) in recent months has been the situation in the Middle East, says Andrew Bailey.
Claire Lombardelli says the UK economy has been a bit more resilient than expected, but still relatively weak.
Bank of England governor Andrew Bailey is asked about food prices. He says so far the information suggests food inflation is lower than they had expected before.
Bailey says he was struck by the large proportion of energy costs in food costs four years ago, when inflation soared after Russia’s full-scale invasion of Ukraine.
The Bank is also watching the reporting on a possible El Niño weather system building, he adds, although he admits he is not a climate expert.
Deputy governor Clare Lombardelli is asked if it was a close call to hold rates. She says it was not a close call.
She cites the length of the conflict, but also that energy prices found something of a ceiling. But the Bank has its eye on the evidence of second-round effects on inflation, she says.
Bank of England governor Andrew Bailey says you can even look at the last week to show the uncertainty over the Iran conflict. It is hazardous to make assumptions.
There is quite a lot of evidence that profit margins are taking more of the cost pressures, but there is still a long way to go on that, he says.
Bank of England governor Andrew Bailey has now moved on to taking questions.
The world is so uncertain at the moment that it is harder to say how likely any single scenario is, he says.
The world feels as uncertain and volatile today as it did three months ago in April, he says.
There is more evidence that the disinflation process in the UK is in place, he says.
Clare Lombardelli, a deputy governor, says that the Bank has learned that the conflict could go on for longer, but also that the most extreme energy price scenarios have not come to pass.
And Dave Ramsden, another deputy governor, chips in says the balance of risks on inflation is tilted to the upside.
Bank of England governor Andrew Bailey raises the possibility of an “episodic” war in Iran.
If the conflict in the Middle East persists, it is likely we will have to tighten policy, he says. But it could be looser monetary policy if there is peace.
The situation in the Middle East is “highly uncertain”, he says. But we have to set policy now and try to look through it.
The backdrop of relatively weak household demand reduces the ability of businesses to pass on price rises to customers, Bank of England Andrew Bailey says.
The lack of spare capacity in the labour market means people may struggle to get higher pay packets, he says.
But the lack of evidence so far does not rule out that second-round effects could kick in in the future, he says. The Bank’s assessment is “tentative” at this point.
Bank of England governor Andrew Bailey is showing oil price graphs from the monetary policy report.
He says there are “significant moves” in oil markets, and highlights the fall of supply of refined products.
The size and duration of the outlook for energy prices is a key uncertainty for UK inflation, he says.
Ofgem’s price cap will rise to about £1,600 for an average household energy bill, Bailey says.
We have to watch carefully that the direct and indirect effects of inflation do not get embedded into businesses’ and households’ expectations, Bailey says.
Reassuringly, there is little evidence of those second-round effects, he adds.
Andrew Bailey: Inflation will rise but little evidence of broader price pressures
Bank of England governor Andrew Bailey says higher energy prices will push up inflation in the coming months, as he starts his press conference.
However, Bailey says there is little evidence that inflationary pressures are becoming embedded in the UK economy. In fact, there is underlying disinflation – slowing price growth – in the UK, he says.
Updated
The probabilities of a “no change” decision at the next meeting in September are still inching up as investors digest the Bank of England’s statement.
Investors appear to be looking at the Bank’s statement that it did not see much evidence of “second-round effects” from the oil price increases caused by the US-Israeli war in Iran. In other words, oil prices are up, which directly affects businesses and households, but there is not much evidence that businesses are then putting up their own prices to account for that.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said:
The committee’s guidance looks slightly less hawkish to us. The MPC inserted a sentence in the Monetary Policy Summary saying that “There is little evidence so far to suggest such [second-round] effects, and there have continued to be clear signs of underlying disinflation in recent data”.
Granted, the rest of the minutes signal that limited evidence of second-round effects so far is far from surprising given the usual lags. The committee concluded that the arguments “warranted caution in placing too much weight on initial evidence in determining the possibility of stronger second-round effects.”
Why did Catherine Mann change her vote in favour of interest rate hikes? Donald Trump’s renewed attacks on Iran were the key reason – as well as establishing “policy credibility” by raising rates when inflation rises.
In the monetary policy summary published by the Bank, she wrote:
Most indicators of nominal conditions have continued to moderate, although near-term inflation estimates skirt the inflation attentiveness threshold at which research suggests stronger second-round effects, which would build on an inflation rate that has remained above target for five years.
That said, the key change in the environment for my decision is the collapse of the US-Iran memorandum of understanding, the widening of the Middle East conflict, and the associated volatility in energy prices. This “sporadic continuance” of the conflict that I hypothesised last month appears to be the state of play.
The shocks and volatility transmit through salience and production costs to affect expectations and price setting behaviours to impart an upward ratchet to CPI inflation.
A variety of research methods concludes that Bank Rate should be higher than 3.75% to return inflation to the 2% target sustainably. Other research emphasises that the costs of leaning against upside risks that fail to materialise would be smaller than the cost of leaning too little against upside risks. Notwithstanding moderately restrictive nominal financial conditions, reinforcing policy credibility when faced with inflationary shocks implies that a 25 basis point increase in Bank Rate is appropriate at this time
Donald Trump’s renewed attacks on Iran have caused concerns that inflationary pressure may build again. But for now that has not come through clearly, leaving a majority of the Bank of England’s ratesetters content to wait before raising interest rates.
Alpesh Paleja, deputy chief economist at the Confederation of British Industries, the biggest UK business lobby group, said:
One silver lining is that the Bank is starting from a relatively more favourable position. Prior to the latest escalation, energy prices had fallen back significantly. Inflation and wage data have also come in lower than previously expected. Moreover, a looser labour market should also help limit the pass-through into broader domestic price pressures.
These competing influences on inflation mean that interest rates will likely remain on hold for now. Globally, much depends on the duration and intensity of the renewed energy price shock. Closer to home, the Bank may also wait for greater clarity on the fiscal outlook as we head towards the new chancellor’s first budget in the Autumn.
And again from Suren Thiru, chief economist at the Institute for Chartered Accountants (ICAEW), who said:
Keeping interest rates on hold is a predictably pragmatic response to the conflicting realities of softer-than-expected inflation on the one hand and renewed US-Iran hostilities threatening a fresh wave of price rises on the other.
The tighter vote split in favour of this outcome confirms a further hawkish shift within the committee with inflation worries outweighing concerns over the economy, keeping a September rate rise on the table.
There has been a bit of a move in implied interest rate probabilities: financial market investors are now pricing in a 64.3% chance there is no change at the September meeting.
That suggests the first impression is that the message is more dovish – on in favour of lower rates – than had been expected before.
The value of sterling against the US dollar has retreated slightly after the statement, although only by about a quarter cent to $1.3378. The pound is almost flat for the day against the dollar.
Bank of England governor Andrew Bailey warned that events in the Middle East mean that the short-run path of inflation is uncertain owing to volatile energy prices.
Bailey was one of the six policymakers who voted to hold interest rates. He wrote:
The possibility of repeated resumptions of conflict, combined with lower than usual European gas stock levels and a fall in global refining output, mean that risks to energy prices lie to the upside. Set against that, the process of underlying disinflation that was intact prior to the conflict remains in train. That provides some tentative evidence that inherited inflation persistence may be weaker than had been presumed.
The Bank’s chief economist, Huw Pill, voted to raise interest rates, along with external policymakers Megan Greene and Catherine L Mann.
You can read more from Richard Partington, who was locked in the Bank’s basement with the statement and report ahead of time, here:
UK economic growth to slow to halt in current quarter, says Bank of England
The UK’s economic growth is expected to grind to a halt in the third quarter of this year as the effects of the US-Israeli war on Iran weigh on demand, the Bank of England said.
Its updated forecasts said underlying GDP growth is projected to slow to around 0% in the third quarter.
Economic growth for 2026 is estimated to be 1.1% under its central scenario, with 1.1% growth again in 2027 and 1.7% in 2028.
Updated
Bank of England: Inflation expected to rise later this year
The Bank of England’s monetary policy committee said that the impact of the Iran war on prices “remains uncertain”, but that inflation is expected to rise later this year.
It said:
In response to events in the Middle East, crude and refined energy prices have remained volatile and higher than pre-conflict. The impact of the energy shock on the UK economy remains uncertain. Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy including via financial conditions.
CPI inflation has fallen to 2.6% since the previous meeting, although it is expected to rise later this year as the effects of higher energy prices continue to pass through. The risk of material second-round effects in price and wage-setting, against which policy needs to lean, is greater the longer higher energy prices persist. There is little evidence so far to suggest such effects, and there have continued to be clear signs of underlying disinflation in recent data.
Updated
Bank of England holds interest rates steady
The Bank of England has maintained bank rate at 3.75%.
However, Catherine Mann joined Huw Pill and Megan Greene in voting for rates to rise.
More to follow.
A quick check-in on markets before the Bank of England reveals its latest policy decision at noon UK time.
Financial markets are pricing in a 93% chance that there will be no change to the main interest rate, bank rate, which is at 3.75%.
The decision for September’s meeting is seen as much more of a toss-up though. The implied probability is only 53.6% for no change, versus 46.4% for a hike. We will watch to see if that changes after the statement and Andrew Bailey’s press conference.
The data watchdog has raided multiple properties across the UK, as part of a crackdown on nuisance marketing around the car loan mis-selling scandal.
The Information Commissioner’s Office (ICO) said it had executed a series of warrants this week, allowing it to search homes and business properties in Bolton, Burnley, Liverpool, London and Swansea on Wednesday. The watchdog said the properties were linked to five companies which are “subject to ongoing investigations” and thoughts to be responsible for sending a combined 170 million text messages to members of the public between September 2025 and May 2026.
Photos released alongside the notice on Thursday showed authorities having seized reams of mobile phones and gathering items into evidence bags.
The ICO was acting as part of a joint taskforce with the Financial Conduct Authority, Advertising Standards Authority and Solicitors Regulation Authority – which monitors the legal industry – after receiving 12 million complaints from consumers since last September, saying up to 100,000 had been received per day.
It is now urging all companies in the controversial claims management sector to ensure they were complying with privacy and electronic communications regulations, or risk raids that could result in mobile phones, laptops and so-called SIM farms.
The FCA has for months been warning consumers against using claims management companies to file claims against banks and other specialist lenders involved in the motor finance scandal, in which borrowers were overcharged due to lenders paying commission to car dealerships between 2007 and 2024.
Claims management companies and law firms charge consumers up to 30% of their payouts to file claims on their behalf.
Andy Curry, head of investigations at the ICO, said:
People are fed up with being bombarded by unwanted calls, texts and emails about car finance claims, and we’re taking action. This week’s searches send a clear message to the claims management sector: comply with the law or expect to hear from us.
We are working closely with our taskforce partners to make sure people are properly informed and protected and we will not hesitate to take further action where we find evidence of wrongdoing.
Two members of the Bank of England’s monetary policy committee voted to hike interest rates at the last meeting. They were chief economist Huw Pill and independent member Megan Greene.
But economists have their eyes on independent member Catherine Mann or possibly deputy governor Clare Lombardelli to potentially join those voting for a hike.
Bruna Skarica, Fabio Bassanin, David Adams of Morgan Stanley, an investment bank, wrote last week that they expected a 7:2 vote in favour of holding, and broadly unchanged messaging. But they said:
We concede that there is some chance that external member Mann joins Greene and Pill in dissenting and voting for a hike.
Deputy Governor Lombardelli voting for a hike would be more meaningful, we think. We would ‘package’ her vote into a broader hawkish risk scenario for next week, where forecasts, messaging, press conference and the vote split all prepare investors for a likely hike as early as September. To us, this remains a risk scenario, with our base case for Lombardelli to put forward another relatively balanced paragraph and vote with the majority.
Matthew Ryan, head of market strategy at payments firm Ebury, said:
We contend that economic data does not yet clear the bar for higher rates. Headline inflation fell to a 15-month low 2.6% in June, undershooting the bank’s forecasts for three months running.
Wage growth is softening rather than accelerating, and the economy continues to shed jobs rather than add them – consistent with a labour market showing slack, not tightening. The latest retreat in oil prices means the bank’s own forecasts may show inflation peaking closer to 3% than 4%, which we don’t think is high enough to warrant undue panic.
That’s not to say the MPC won’t strike a hawkish note on Thursday. As always, the voting pattern among the committee will be key.
'Hawkish hold' expected from Bank of England
The Bank of England’s monetary policy committee (MPC) will have decided whether to hold interest rates well before the US Federal Reserve announced its decision last night. However, Bank governor Andrew Bailey will be mindful of that reaction when he talks to the media later this afternoon.
The Bank’s decision is due at midday, with most economists expecting no change. But the question is whether it will be a “hawkish hold” – signalling the likelihood of future hikes.
Suren Thiru, chief economist at the Institute of Chartered Accountants (ICAEW), said:
An interest rate hold at midday looks a near certainty, as the recent run of more dovish economic data should give rate-setters enough comfort to look through the twists and turns of the US-Iran conflict for now.
While the monetary policy committee’s vote split is likely to remain 7–2 in favour of holding rates steady, elevated oil prices will likely reaffirm its hawkish stance, keeping a future rate rise on the table.
The Bank is publishing new economic forecasts in its monetary policy report. They could show an improved economic outlook, but everything will be overlaid by worries over the course of energy prices if – as seems to be the case today – Donald Trump wants to continue waging war on Iran.
Andrew Wishart, senior UK economist at Berenberg, an investment bank, said:
We expect the Bank of England (BoE) to leave its Bank Rate unchanged at 3.75% tomorrow, but threaten to raise interest rates if energy prices rise a lot more or evidence of second-round effects surfaces. This provides a convenient insurance policy for the BoE: every time the Iran conflict flares up, investors revise up their interest rate expectations and mortgage borrowing costs rise, immediately squeezing demand and reducing the risk of persistent inflation.
Some analysts say that the BoE must eventually follow through on its threat for it to remain credible. Recent history argues otherwise – immediately after the 19 March BoE meeting, the market priced in two 25pb hikes to 4.25% by this week’s meeting. Neither has materialised, yet investors continue to price in two or three hikes. We do not think that the BoE will follow through with its threat to raise interest rates for two reasons: 1) Inflation in wages and services prices – the part of inflation that the BoE can best influence – continue to trend lower. 2) We think US President Donald Trump wants to avoid high oil prices because high petrol prices would damage the Republican party’s chances in the 3 November mid-term elections.
Updated
US borrowing costs highest since global financial crisis
US government borrowing costs have hit their highest level since 2007 after the Federal Reserve voted to hold its key interest rate steady, feeding fears that the central bank may not move fast enough to tame a rise in inflation.
The yield – or interest rate – on the 30-year US Treasury bond rose 14 basis points to nearly 5.24%, a 19-year high, after the Fed announced its decision to hold its main rate at between 3.5% and 3.75% for the fifth meeting in a row.
Kevin Warsh, the Fed chair, said the bank would “not waver” in its commitment to tackling rising prices.
A prolonged period of high inflation meant that some Americans believed the central bank had an “implicit target” above its 2% target, he added. He said:
There is no soft implicit target: not on this committee’s watch. There’s only a target and it’s 2%. This Fed will not waver … Our credibility rests on performing our duties and delivering on our responsibilities.
The decision to leave rates on hold spooked investors who are worried about the US economy’s ability to absorb a rise inflation triggered by Donald Trump’s war in Iran.
You can read the full story here:
Eurozone GDP grew faster than expected in second quarter
That German GDP reading has indeed contributed to the wider eurozone hitting expectations – and then some.
The eurozone economy grew by 0.4% in the second quarter of 2026, according to the preliminary reading from Eurostat – defying the gloom caused by the US-Israeli war on Iran.
It was the fastest quarterly growth since the start of 2025, and also well above the 0.2% growth expected by economists.
Updated
In a busy day on the corporate front, and the Bank of England is due to publish its latest interest rates decision at nooon BST. But there is also important economic data across Europe.
The latest GDP figures for Germany, Europe’s largest economy, showed GDP increased by 0.2% in the second quarter, marginally faster than the 0.1% expected by economists polled by Reuters.
The German federal statistics office also revised its reading for the first quarter up to 0.4%, after previously reporting it as 0.3% growth. That means that Germany went for a whole year without its economy contracting during a quarter for the first time since the coronavirus pandemic.
That puts the broader eurozone on track to hit economists’ expectations of a 0.2% increase, after the bloc’s economy contracted in the first quarter of the year.
Carsten Brzeski, global head of macro at ING, an investment bank, said:
It’s almost too good to be true: the German economy defied the fallout from the war in the Middle East and grew by 0.2% quarter-on-quarter in the second quarter of the year, as some industrial sectors benefited from the fact that Asian competitors were hit harder by the closure of the strait of Hormuz.
This is the first time since the end of the pandemic lockdowns that the German economy managed not to shrink for four consecutive quarters. Still, we must put this into perspective: average quarterly growth over this period has been just 0.1%, and the size of the German economy is still smaller than in late 2022.
Updated
FTSE 100 rises to new high
The FTSE 100 is up 0.4%, but that is enough to push it to a record high of 10,978.87 points.
That was slightly up on yesterday’s mark of 10,951.
It appears that a few strong earnings reports – plus an oil price increase that helps the big oil players – have been enough to attract investors to the biggest British companies. But indices tracking smaller companies fell in early trading, amid global worries that the US Federal Reserve may not move fast enough to counter inflation.
Analysts at Panmure Liberum, an investment bank, said:
UK and European markets are mixed this morning, with UK large-and mid-caps rising but small-cap and Aim declining. German and Italian indices are lower, whilst French and Spanish rise. This followed yesterday’s announcement that the Fed was leaving interest rates unchanged, with three hawkish dissents.
Updated
Carmakers are delaying final decisions to invest in UK factories until electric car sales rules are relaxed, according to the head of the British car industry’s lobby group.
The chief executive of the Society of Motor Manufacturers and Traders (SMMT), Mike Hawes, said those with existing UK operations were considering building new models, but had held back so far.
The British car industry has put heavy pressure on the Labour government to weaken the rules, known as the zero emission vehicle mandate, which forces manufacturers to sell an increasing share of electric cars each year up to 2030.
Calls for the rules to be eased have come as the British car industry struggles with competition from China, US tariffs and the extra costs of investment in electric technology. UK vehicle production fell 7.5% in the first half of 2026 compared with a year earlier, with factories producing 386,000 cars and commercial vehicles, according to the SMMT’s latest figures, published on Thursday.
The electric car charging industry has strongly opposed any further changes, while environmental campaigners are aghast that the government would consider a policy that would result in millions of tonnes of extra carbon emissions.
You can read the full story here:
Updated
The FTSE 100 is still defying the global equities gloom left after the Federal Reserve held interest rates steady (rather than raising them to forestall inflationary pressures). London’s blue-chip index is up 0.3%.
That is thanks in no small part to Rolls-Royce, which is the biggest riser, up 3.2%.
Standard Chartered bank is up 2% after a couple of analysts raised their share price targets.
Lloyds Banking Group gained 1.9% after beating profit forecasts, announcing new share buybacks and an increased dividend, and a new growth strategy.
At the bottom of the table, pest control and cleaning company Rentokil Initial is down 18% after it abandoned a plan to increase profit margins in North America to 20%. The ratcatchers said there was “weakness in North America residential lead flow”, although they retained their outlook for the year.
Rentokil’s chief executive, Mike Duffy, said:
We are not yet delivering on our growth potential, leaving significant opportunities to improve.
Achieving our potential will require disciplined reinvestment primarily back into the North America business which we will fully self-fund through cost savings. Our focus is driving volume growth over short-term margin expansion and this targeted redeployment of resources will enable us, over time, to accelerate organic growth, improve margins and free cash flow and deliver on the clear opportunity for shareholder value creation.
Duffy said the company would simplify its business and cut costs to try to grow. That would include exiting several of the 90 countries in which it operates, and redirecting its spending to the all-important US market.
Updated
There has been a veritable feast of corporate earnings this morning (likely before all the bosses head off for their summer holidays).
Here are some of the top lines as reported by Reuters:
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Lloyds Banking Group reported a better than expected statutory pretax profit of £4.3bn for the first half of 2026, as chief executive Charlie Nunn also outlined the lender’s next plan to grow its core businesses and harness technology such as AI to cut costs. It also announced a £1bn share buyback, on top of £1.75bn announced in February, and increased its dividend.
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London Stock Exchange Group narrowed its full-year revenue growth forecast to between 7.0% and 7.5% after a spike in trading activity helped it slightly exceed market expectations for first-half sales.
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British American Tobacco lifted its annual earnings growth forecast as surging demand for its Velo nicotine pouches and a strong U.S. performance offset a sharp decline in Asia.
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Mining company Anglo American said its loss for the first six months of the year more than halved, raised its dividend and said it continued to make progress with a sweeping overhaul of the company and its proposed merger with Teck Resources.
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The Budweiser brewer Anheuser-Busch InBev reported forecast-beating revenue, profit and volumes in the second quarter on Thursday, but its shares fell as weakness in China tempered a sales boost from the soccer World Cup.
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French bank Société Générale posted record quarterly profit on Thursday and upped its 2026 profitability target.
Updated
Shell doubles profits in second quarter thanks to Iran war oil price jump
Shell more than doubled its profit in its second quarter of the year, as Europe’s biggest oil and gas company reaped the benefits from the jump in oil and gas prices triggered by war in the Middle East.
The FTSE 100 company’s net profit hit $9.84bn (£7.4bn) in the three months ended in June, more than double compared with the same period last year.
The surge in profit comes as wholesale energy prices have soared because of the conflict in the Middle East, boosting profit margins and activity on Shell’s trading desks.
The global oil price has climbed from about $61 a barrel in January to highs of $126 at the end of April, owing to disruptions to flows of oil and gas through the strait of Hormuz. Brent crude, the international benchmark, traded at $93.18 a barrel on Thursday.
Wael Sawan, Shell’s chief executive, said there had been “severe disruption in global energy markets” due to the war, as the company also reported a 30% drop in production from its integrated gas division on the same quarter last year.
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BAE Systems and Rolls-Royce upgrade profits as defence spending surges
Rolls-Royce is not the only weapons company to report strong demand today: BAE Systems has also said that “sustained increases” in defence budgets around the world meant it had upgraded its profit forecasts.
BAE Systems’s sales rose 9% year-on-year during the first half of the year to £15.8bn, while it recorded orders worth £16.4bn, up £3.2bn from the same period last year.
The company raised its profit outlook to an increase for the full year in the range of 10% to 12%, slightly higher than the range of 9% to 11% it had previously given.
The manufacturer makes a large proportion of the UK’s weapons, ranging from tanks and fighter jets to munitions. But it has also benefited from demand in the US, which had raised weapons spending even before its war on Iran, and other export allies of the UK such as several countries in the Gulf.
The two upgrades helped the FTSE 100 to rise on Thursday morning after initially dropping. Rolls-Royce shares gained 3.7%, while BAE Systems was up 1.1%.
Charles Woodburn, BAE’s chief executive, said:
Across the business, our outstanding teams have delivered another strong period of operational and financial performance, which gives us the confidence to upgrade our full year guidance.
The global threat picture remains highly volatile and governments are responding with sustained increases in their defence budgets. The combination of our proven execution, diverse geographic footprint and continued investment in our technology and facilities, alongside our healthy order backlog and growing opportunities across our markets, positions us to keep delivering long-term growth.
BAE said it had invested in factories in Texas and New Hampshire to support the US Government’s ambition to quadruple production of critical munitions. The company also unveiled a new autonomous fighter drone, called Brontanax, at the Farnborough air show last week. Woodburn said the “loyal wingman”, which would fly alongside a manned fighter jet, had “generated a lot of interest”.
Rolls-Royce raises profit forecasts
Rolls-Royce reported £2.5bn in underlying profits for the first half of 2026 and raised its forecasts for profits for the full year as it said its turnaround efforts had brought higher earnings in all its divisions.
Underlying profit before tax for the first half of 2026 rose to £2.5bn, up 48% from the same period a year earlier. Statutory profits halved to £1.9bn, although those figures tend to be volatile because of the timing of payments. Revenues were up by £2bn year-on-year to £11.3bn.
The FTSE 100 jet engine manufacturer has gone through an extraordinary period of growth under chief executive Tufan Erginbilgiç, who was brought in 2023 to turn the company around. Those efforts appear to have paid off so far, with investors welcoming soaring profits.
The manufacturer on Thursday said it expects £4.7bn to £4.9bn in underlying operating profit, up from previous guidance of £4.0bn to £4.2bn. The free cashflow forecast is also up from between £3.6bn and £3.8bn to between £3.8bn and £4.0bn.
The company has benefit from the recovery since the coronavirus pandemic lockdowns in long haul flights, many of which use Rolls-Royce engines. At the same time, defence spending has risen since Russia’s full-scale invasion of Ukraine in 2022, and its power generation unit has benefited from increased demand from datacentres used by AI companies.
In its civil aerospace business the company has also spent heavily on fixes to passenger jet engines to keep them in the air for longer, reducing the number of aircraft on ground (AoG) at any time. It is also pressing ahead with producing small modular reactors to generate nuclear power in the UK, Czechia and Sweden.
Erginbilgiç said:
Our transformation continues to deliver, and we are demonstrating that Rolls-Royce is now a very different company to that of the past.
We have made significant operational and strategic progress in the first half of the year. In civil aerospace, where we continued to improve our aftermarket profitability, we have also effectively eliminated aircraft on ground, providing a significant operational benefit to our customers. In defence, we continued to establish our leading position in autonomous propulsion with several key milestones achieved in the period.
In power systems, we captured further profitable growth in datacentres, including growing prime power demand. Following its recent win in Sweden, Rolls‑Royce SMR has now been successful in every competitive European nuclear tender and is uniquely positioned to become a global market leader.
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FTSE 100 set to fall after US Federal Reserve holds interest rates
Good morning, and welcome to our live coverage of business, economics and financial markets.
London’s FTSE 100 is set to fall when it opens after the US Federal Reserve held interest rates steady despite the increasing expectations of inflation, while Donald Trump’s renewed attacks on Iran promised to add fuel to the price rise fire.
Futures prices suggest the FTSE 100 will drop by about 0.6% when it opens. The UK’s blue chip index rose to a new record as high as 10,951 points on Wednesday morning, but fell back later in the day to 10,864.
Analysts at Deutsche Bank led by Peter Sidorov said the market moves were triggered by last night’s “on-hold Fed decision combined with a relative lack of detail from Chair Warsh”.
Kevin Warsh was appointed by Trump after courting the US president with an agenda to lower interest rates. That has put Warsh in a very tricky position as investors expect inflation to rise because of the US-Israeli attacks on Iran, which have caused oil prices to soar.
Bond yields rose after the Fed meeting, suggesting investors doubt whether the Fed can control inflation. Sidorov and co wrote:
This rise in yields ended up weighing on equities after some big intra-day swings. The S&P 500 went from trading more than half a percent down pre-FOMC to higher on the day during Warsh’s press conference but then saw a sharp drop in the final hour of trading to close -1.52% lower. Equities were also weighed down by another rout in chip stocks, with the Philly semiconductor index slumping by -5.33%.
The declines on the FTSE 100 are likely to be moderated by some strong results on a busy day for UK corporate news: among the reporting companies were BAE Systems, Lloyds Banking Group, London Stock Exchange Group, and Shell.
Jet engine manufacturer Rolls-Royce was also among the companies reporting. It raised its profit guidance yet again, continuing an extraordinary run in recent years. It expects between £4.7bn and £4.9bn in underlying operating profit and £3.8bn to £4.0bn in free cash flow for the full year.
More details to come.
The agenda
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9am BST: Germany GDP growth (second quarter; previous: 0.3% quarter-on-quarter; consensus: 0.1%)
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10am BST: Eurozone GDP growth (second quarter; prev: -0.2% quarter-on-quarter; cons: 0.2%)
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10am BST: Eurozone unemployment (June; prev: 6.2%; cons: 6.2%)
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12 noon BST: Bank of England interest rate decision (prev: 3.75%; cons: 3.75%)
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1pm BST: Germany inflation (July; prev: 2.3%; cons: 2.7%)
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1:30pm BST: US core personal consumption expenditure index (June; prev: 0.3%; cons: 0.2%)
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1:30pm BST: US GDP growth (second quarter; prev: 2.1%; cons: 2.1%)
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