Closing post
Time to wrap up….
The chair of the Federal Reserve, Jerome Powell, has blamed Donald Trump’s tariffs for preventing the immediate interest rate cuts the president has demanded.
Trump has repeatedly urged Powell to reduce borrowing costs in the US economy, and on Monday posted a hand-scrawled note on his Truth Social platform saying: “You have cost the USA a fortune – and continue to do so – you should lower the rate by a lot!”
But Powell told an event hosted by the European Central Bank (ECB) in Portugal on Tuesday that the Fed was waiting to assess the inflationary impact of the president’s trade policies.
Speaking on a panel of central bankers in Sintra, he said:
“In effect we went on hold when we saw the size of the tariffs.
“Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. We didn’t overreact, in fact we didn’t react at all. We’re simply taking some time.”
Shortly after Powell’s comments in Sintra, Trump claimed that “anyone” could do a better job as Fed chair.
In other news…
UK house prices fell in June, as the rise in stamp duty tax deterred buyers
The governor of the Bank of England has warned that the UK economy, and the jobs market, are softening – which may clear the way for further cuts to UK interest rates
The downturn in UK manufacturing eased last month, but the sector is still shrinking
Marks & Spencer’s online business should be running “fully” within the next four weeks, its boss has said, as the retailer recovers from a damaging cyber-attack.
Trump: Anyone would be better than J Powell
Over at ‘Alligator Alcatraz’, a detention facility in Florida, Donald Trump has taken another bite at Jerome Powell.
Our US Politics Live blog reports that Trump was asked if he intends to announce his pick for the next Fed chair’.
In response, the US president gestured to Florida governor Ron DeSantis and US Secretary of Homeland Security Kristi Noem to imply they would both be good candidates, before adding:
Anybody would be better than J Powell.
He’s costing us a fortune because he keeps the rate way up.
There’s an amusing moment at the ECB’s central bank forum, where Christine Lagarde declines to offer any advice to her eventual successor.
Lagarde resists, telling the event in Sintra that she remembers being told by her predecessor that “it would be a walk in the park”.
Lagarde became ECB president in November 2019, shortly before the Covid-19 pandemic struck the world economy, posing unprecedented challenges for central bankers.
Top central bankers in Sintra are also asked what keeps them awake at night.
European Central Bank president Christine Lagards says she is worried about “the truth”.
Lagarde reveals she is “more and more concerned about the role that artificial intelligence is going to play”, about how things can be distorted, and how public opinion can be manipulated.
That extends to fears that the data which the ECB relies on could be changed, she adds, saying:
I do have this fear that things can be distorted, and we can fall prey to that. That is of great concern to me.
Jerome Powell says that he is kept awake by the challenge of handing on a strong US economy to his successor.
Powell explains that he has around 10 months of his term as chair left.
All I want, and all anyone at the Fed wants, is to deliver an economy that has price stability, maximum employment, financial stability.
What keeps me awake at night is how we get that done, and are we on a path to do that.
I want to hand over to my successor an economy in good shape.
Korea’s Rhee says he is worried about the perception gap between how fast the economy can grow, and how fast people think it should grow.
Andrew Bailey explains that he want to deliver UK inflation sustainably at target. He became chair of the Financial Stability Board (an important watchdog) today, so that creates more vulnerabilities to keep him awake.
Powell: We'll keep providing dollar swap lines
Federal Reserve chair Jerome Powell also reassured the ECB’s conference today that the Fed isn’t planning to change how it offers dollar liquidity to other centra banks.
Powell explained that the Fed’s dollar swap lines are “a big contribution” to global financial stability, and doesn’t plan to change that, saying:
“We still have the same authorities, and we’re still prepared to use them in situations where it’s within our legal authorities and where we think it makes sense.”
Powell was responding to Bank of Korea Governor Governor Rhee Chang-yong. who noted that countries such as South Korea need to build up dollar reserves in case they are needed.
Fed dollar swap lines offer loans to eligible central banks to ensure dollar liquidity is not an issue for the global financial system and have been heavily used in times of crisis.
The Financial Times reported last week that central banks are concerned the US could turn off this flow of dollars.
Andrew Bailey then calls for policymakers to look at the causes of the problems of the world economy that have led to trade wars and threaten to lead to fragmentation.
Christine Lagarde then offers Jerome Powell her support, insisting that all the panel would have acted exactly the same as the Fed chair this year.
“Right?” she directs the Bank of Korea’s Rhee Chang Yong, firmly.
“Yes,” replies Rhee, who worked under Lagarde at the IMF.
Updated
Powell applauded after not rising to Trump bait
Jerome Powell also refuses to respond to the outpouring of criticism from the White House.
Bloomberg’s Francine Lacqua, who is moderating today’s session:
Q: You get attacked by the president a lot on a personal basis. Does it make your job harder?”
Powell insists that he is “very focused on just doing my job”.
Sticking to the Fed’s mandate, Powell says:
The things that matter are using our tools to achieve the goals that Congress have given us – maximum employment, price stability, financial stability. That’s what we focus on, 100%.
At this point, Powell wins a supportive round of applause from the audience in Sintra, and from his fellow panelists – BoE governor Andrew Bailey, ECB president Christine Lagarde, Bank of Japan governor Kazuo Ueda, and Bank of Korea governor Rhee Chang Yong.
Asked later if he would remain at the Fed after his term as Chair expires next May, Powell said: “I have nothing for you on that today.”
Jerome Powell has also warned that America’s fiscal path is not “sustainable”, even though the current level of debt is sustainable.
Fed's Powell: US federal fiscal path is not a sustainable one. Level of debt is sustainable, but the path is not.
— FinancialJuice (@financialjuice) July 1, 2025
Andrew Bailey then fends off a cheeky question about how low the Bank of England could cut rates:
Q: Will interest rates be closer to 3% or 4% at the end of the easing cycle?
BoE governor Bailey says there is huge uncertainty about what the neutral rate of interest (r*) is.
The more important thing to realise, Bailey argues, is that UK monetary policy is currently restrictive, and will continue to remain restrictive, but that level of restrictive-ness will come down.
Fed chair Jerome Powell weighs in too, saying he thinks US interest rates are “modestly restrictive” at their current levels'; it doesn’t feel that the US economy is suffering from very tight policy.
South Korea’s central bank chief fears that an escalation of the Trump trade wars would have a serious impact on its economy.
Speaking on the ECB’s panel, alongside Jerome Powell, Rhee Chang-yong explains that global fragmentation has a serious impact on Korea’s economy as it is export-driven.
That includes the direct impact of US tariffs, but also indirect impacts through the China, Mexico and Canada.
Rhee explains that the Bank of Korea is watching for what happens when Trump’s 90-day tariff pause expires:
It really depends what happens on July 9th… We don’t know what’s going to happen.
He explains that if Trump reimposes the 26% retaliatory tariff announced on 2 April, added to sectoral tariffs on aluminium, steel, and cars, the impact could easily be more than 1% of Korea’s GDP.
Updated
Jerome Powell says he can’t say whether the Fed could cut interest rates as soon as this month.
It all depends on the data, he insists, adding that the Fed is going ‘meeting by meeting’.
Christine Lagarde declines to comment on the strength of the euro, beyond suggesting that it is a reflection on the state of the eurozone economy.
She suggests that there are two factors – the depreciation of the US dollar (which had its worst first half to a year since 1973), and an appreciation of the euro.
Looking ahead, Jerome Powell says economic data will determine whether US interest rates are cut this year (as Trump has been loudly demanding).
Powell explains that “a solid majority” of members of the rate-setting FOMC committee think it will be appropriate to reduce rates later this year (there are still four FOMC meetings scheduled].
But, Powell adds, this will depend on the incoming data, so the Fed will be monitoring the inflation data slowly, as well as the labour market.
Kazuo Ueda, governor of the Bank of Japan, resists commenting directly on Donald Trump’s threat to impose more tariffs on Japanese imports.
Ueda says the issus is being negotiated by the relevant minister, so he is “yrying to avoid making any specific comments on this.”
Trump claimed it was unfair that Japan doesn’t buy US rice (it does, though, as CNN shows here) despite having a massive rice shortage, and hinted the White House will simply sent Toyko a letter laying out the tariffs it will face.
Andrew Bailey, governor of the Bank of England, tells the ECB’s forum in Sintra that he is seeing some “softening” in the UK economy and “softening in the labour market”.
That means Bailey believes “the direction of UK interest rates continues to be downwards.”
Bailey agrees it’s too early to see the price effects from recent action on tariffs; endorsing Jerome Powell’s explanation for not having cut US interest rates this year.
Fed chair Jerome Powell blames Trump tariffs for failure to cut US interest rates this year
The top US central banker has indicated that Donald Trump’s trade war has prevented the cuts to interest rates which the president has been demanding.
Jerome Powell, who has been repeatedly criticised by Trump for the Federal Reserve’s failure to cut interest rates this year, has told an audience in Portugal that uncertainty over the impact of Trump’s tariffs prevented the Fed from cutting rates.
Powell explains that the US economy is “healthy” and in a good position, with inflation down to 2.3%, core inflation is at 2.7%, and an unemployment rate is 4.2%.
Powell explains that “if you ignore tariffs”, inflation is behaving as the Fed expected and hoped.
He says:
We haven’t seen effects much from tariffs, and we didn’t expect to by now. We’ve always said the timing, amount and persistence of the inflation would be highly uncertain and it’s certainly proved that.
We’re watching. We expect to see over the summer some higher readings, but we’re prepared to learn that it can be higher, or lower, or later or sooner than we’d expected.
Q: Would the Fed have cut more by now if it wasn’t for the tariffs?
Powell replies that “I think that’s right”, before explaining that the Fed is waiting until it knows the impact of the Trump trade war.
He explains:
In effect we went on hold when we saw the size of the tariffs.
Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. We didn’t overreact, in fact we didn’t react at all, We’re simply taking some time.
Powell concludes by explaining that “the prudent thing to do” is to wait and see the impact of imposing tariffs on US imports, given the US economy is “in solid shape”.
Trump has repeatedly accused Powell of being ‘too late’ to cutting rates, pointing out that other major central banks have lowered rates more quickly. The Fed hasn’t cut rates since last December.
On Monday, Trump produced a hand-written note showing how US interest rates are much higher than many other countries.
Trump wrote that the Fed “should be ashamed of themselves for allowing this to happen to the United States”, and claimed they had “cost the USA a fortune” by not lowering borrowing costs.
Updated
Lagarde: Not saying 'mission accomplished' after inflation hits target
The session in Sintra begins with Christine Lagarde welcoming this morning’s news that eurozone inflation rose to 2% in June, from 1.9% in May.
Lagarde reminds her audience that 2% inflation, in the medium term, is the European Central Bank’s target.
I am not saying ‘mission accomplished’, but I say ‘target reached’, OK.
The ECB president then warns that “we are facing a lot of uncertainty”, including the risks of fragmentation, and worrying geopolitical developments that are causing a ‘two-sided risk to inflation’.
We have to continue to be extremely vigilant, and remain committed to delivering on the inflation target, Lagarde says, insisting:
We are well-equipped to navigate the tormented waters that we should anticipate.
EU-US trade talks could result in four options
EU member states have been advised there could be four options emanating from this week crunch talks between trade commissioner Maroš Šefčovič and US trade representative Jamieson Greer over tariffs.
One option is no deal but another more likely scenario of the three remaining is a deal in which both signs are aligned “in broad brush strokes” but centre, like the UK’s deal, on a limited number of sectors such as cars and steel.
This would leave the threat of future tariffs on other sectors open, risking new crises emerging without warning during the remainder of the Trump term.
A third option is a delay, extending talks beyond 9 July. This carries the risk of Donald Trump’s threatened 50% unilateral tariffs being imposed on all imports from the EU from 10 July.
And a fourth option is an “imbalanced deal”, the type that would favour the US, something Emmanuel Macron last week said he would not accept.
Details of the negotiations were not shared in the 45 minute briefing given by Ursula von der Leyen’s head of cabinet Bjoern Siebart and Sabine Weyand, director general of the trade commission, best known in the UK as Michel Barnier’s right hand woman during Brexit negotiations.
EU ambassadors gave also been warned that the 10% blanket tariff may remain but that if they cannot secure a reduction then they will try and extract duty free exemptions in some sectors.
A delegation headed by trade adviser Thomas Baert flew to Washington on Monday for technical talks with Šefčovič joining them tomorrow for talks with trade representative Jamieson Greer.
He is likely to return to brief member states on Thursday with a possible further of ambassadors meeting on Friday ahead of next week’s deadline.
UK outlines timeline for workers' rights package
The UK government has just published the timetable for the implementation of its big workers’ rights package, which UK employers will have to get their heads around in the coming months. Some business groups had been lobbying for a longer implementation period, but Labour is keen to press ahead.
A new Fair Work Agency, to enforce the rules, will be up and running next year, ministers said.
Some changes - such as the repeal of the Tories’ strike-busting minimum service levels legislation, will come into force as soon as the Employment Rights bill gets Royal Assent, expected to be later in the summer.
Next April (2026) will mark the end of the two-day wait for statutory sick pay, and stronger protection for whistleblowers; new regulations to set up a fair pay agreement for the social care sector will follow next October.
Another slew of changes are expected to come into force in 2027, including new rights to bereavement leave, and day one rights to unfair dismissal. Deputy prime minister Angela Rayner said:
“these landmark reforms will kick in within months, demonstrating our commitment to making work pay for millions of workers across the country and delivering real change.”
Top central bankers to speak
Over in Sintra, Portugal, some of the world’s top central bankers are about to discuss monetary policy and the state of the global economy.
The central bank chiefs of the UK, the eurozone, the US, Japan and Korea are all appearing on a panel organised by the European Central Bank, at its Forum on Central Banking 2025.
The session is titled:
Adapting to change, macroeconomic shifts and policy responses.
On the panel, we have:
Andrew Bailey, Governor, Bank of England
Christine Lagarde, President, European Central Bank
Jerome Powell, Chair, Board of Governors of the Federal Reserve System
Chang Yong Rhee, Governor, Bank of Korea
Kazuo Ueda, Governor, Bank of Japan
Updated
Elon Musk and Donald Trump are continuing to trade barbs.
Trump has told reporters at the White House that he would look into deporting Musk, when asked about the billionaire’s vocal criticism of Trump’s tax and spending legislation.
Trump then repeated his threat to unleash the Department of Government Efficency on Musk’s empire, saying:
“We might have to put DOGE on Elon. DOGE is the monster that might have to go back and eat Elon. Wouldn’t that be terrible?”
🚨Donald Trump says he will “take a look” at deporting Elon Musk from the US:
— Republicans against Trump (@RpsAgainstTrump) July 1, 2025
“We might have to put DOGE on Elon. You know what DOGE is? The monster that might have to go back and eat Elon”pic.twitter.com/XaLIWNmi6c
In response, Musk has posted enigmatically…
So tempting to escalate this. So, so tempting. But I will refrain for now.
So tempting to escalate this. So, so tempting. But I will refrain for now.
— Elon Musk (@elonmusk) July 1, 2025
The row is continuing to hurt Tesla’s shares, they’re now down over 6% in pre-market trading.
Updated
Speaking of trade deals… US Treasury Secretary Scott Bessent has said America is hopeful China will do more to ease the export of rare earth magnets after last month’s deal between the two countries.
Bessent told Fox News that flows had still not returned to levels seen in early April, despite the agreement which the two sides hammered out in London last month.
Bessent said:
“We are hoping that they will flow at a faster rate.
“Rare earth magnets are flowing. They are not flowing as they did before April 4, but we are confident that the Chinese will live up to their side of the deal.”
Here’s Susannah Streeter, head of money and markets at Hargreaves Lansdown, on M&S’s recovery from its cyber-attack:
“Marks and Spencer is halfway there, but there’s still a lot to get back online before the company can put the cyber attack behind it. 50% of online operations are back up and running, but its popular click and collect services remain suspended. At the company’s AGM, CEO Stuart Machin put the latest timeline on a recovery at four weeks. This should mean the retailer will hit August firing on all cylinders once again. Management have previously estimated that it could cost as much as £300 million in lost sales and operational disruption, although it’s likely that this will be mitigated by insurance claims and cost efficiencies made elsewhere. While services have been suspended the company is believed to have used the opportunity to speed up part of its digital transformation plan, as well as ensuring that its IT systems are robust enough to withstand a future attack.
“There will be high hopes that M&S can put this unfortunate chapter behind it, and the early signs are that there is pent up demand, particularly for its summer styles, with many of the popular products sold out online. Its strong set of annual results showed the retailer was in a resilient position before the cyber attackers infiltrated systems. Sales growth in the fashion and home & beauty division reflected improved customer perceptions of value, quality, and style. Demand for M&S food remains robust, with increased volumes driving growth. So, with the underlying performance remaining solid, it bodes well for M&S ahead, but until everything’s back up and running, it’s likely to weigh on investor sentiment. Although shares have been in positive territory today, they remain around 13% lower than the level in mid-April, before the cyber attack took hold.’’
Updated
EU close to trade deal with US
European trade commissioner Maroš Šefčovič will travel to Washington tomorrow hoping to strike a tariff agreement in principle with Donald Trump’s team, my colleague Lisa O’Carroll reports from Brussels.
He will meet trade representative Jamieson Greer with hopes rising they will have enough in the coming days to agree the basics ahead of 4 July Independence Day negotiations.
At the same time they recognise the volatility on the US side and are working to avert any further threats of tariffs that Trump may like to announce to extract more concessions from the EU. He recently warned tariffs on pharma were coming “very soon”.
If an agreement in principle is struck, talks would then continue, possibly beyond 9 July to work out the detail.
This would follow the pattern in the UK which took more than a month to get to a final text.
Yesterday Šefčovič revealed it was a good time get down to “drafting” an agreement and “drafts of proposals for the eventual agreement in principle”, a significant change of language which suggests they close to settling differences on major issues.
EU sources confirm the European Commission is now putting all its efforts into a “quick deal” rather than hold out for a deep and wide one covering up to 1,000 product lines.
This follows criticism by German chancellor Friedrich Merz last week that the EU was too complicated.
Germany’s priority is get the 27.5% tariffs reduced or eliminated on car exports and the same for steel exports which are facing 25% tariffs.
The Baltic states, in particular, area also keen to build on the humouring of Donald Trump at last week’s NATO summit and want to ensure everything is done to keep him on board with weapons supply in Ukraine.
Sources say the EU is more or less resigned to a 10% blanket tariff on exports to the US remaining and may offer more imports on semi-conductors to sweeten the deal.
However there remain worries that Trump could yet announce tariff on pharma exports as part of his negotiation tactics to extract more from the EU.
An EU technical delegation flew to Washington on Monday, ahead of Šefčovič ’s visit with expected meetings with commerce secretary Howard Lutnick, who looks after sectoral deals, and with Greer.
With the clock ticking down towards Trump’s self-imposed deadline for a deal of 9 July, there is still plenty of room for a change of mood in the Oval Office.
Overnight Trump expressed frustration over Japan trade negotiations on Monday with treasury secretary Scott Bessent warning that countries could be notified of sharply higher tariffs as a July 9 deadline approaches despite good-faith negotiations.
Speaking on Monday in Brussels, Šefčovič said
“The 9th of July is around the corner. So for me, it’s always a good sign when we kind of move from, I would say, exchange of views, into the drafting process.”
“As you know, we received first drafts of proposals for the for the eventual agreement in principle we are working on that,” he told reporters in Brussels.
He added the EU was pushing for a deal that “was fair for both sides”.
M&S hopeful cyberattack impact will be mostly behind it by August
UK retailer Marks & Spencer is optimistic that the worst of its recent cyber attack will be behind it by August.
M&S’s chief executive Stuart Machin told shareholders at the retailer’s annual general meeting today that the company
Machin explained that the half of M&S’s online store which is not yet open – including its click and collect service – will be fully restored within the next four weeks, and other systems which are currently being rebuilt will be operating by August.
He told shareholders:
“I have previously highlighted that it would take all of June and all of July, maybe into August but definitely by July.
“During the incident we chose to shut things down because we didn’t want the risk of things going wrong.
“Currently, half of online is open but not areas like click and collect. Within the next four weeks we are hoping for the whole of online to be fully on.
“Then our focus will be getting the Donington site back and running. We’re hoping that by August we will have the vast majority of this behind us and people can see the true M&S.”
Last month Marks & Spencer reopened its website to shoppers, six weeks after it was forced to halt online orders after the cyber-attack.
Updated
Tesla shares slide as Trump threatens to set Doge on Musk
Shares in Tesla are set to fall when Wall Street opens, after relation between CEO Elon Musk and US president Donald Trump deteriorated.
Tesla’s shares are down 4.5% in pre-market trading.
Over the weekend, Musk claimed that Trump’s tax and spending bill was “utterly insane and destructive,” claiming the latest draft of the bill would destroy millions of jobs in America and cause immense strategic harm.
Musk also claimed:
“It gives handouts to industries of the past while severely damaging industries of the future.”
Musk later vowed to unseat lawmakers who support the budget bill:
Trump has now hit back, threatening to clamp down on the government subsidies received by Musk’s businesses using The Department of Government Efficiency department which the billionaire used to helm.
Trump posted on his Truth Social site:
Elon Musk knew, long before he so strongly Endorsed me for President, that I was strongly against the EV Mandate. It is ridiculous, and was always a major part of my campaign. Electric cars are fine, but not everyone should be forced to own one.
Elon may get more subsidy than any human being in history, by far, and without subsidies, Elon would probably have to close up shop and head back home to South Africa. No more Rocket launches, Satellites, or Electric Car Production, and our Country would save a FORTUNE.
Perhaps we should have DOGE take a good, hard, look at this? BIG MONEY TO BE SAVED!!!
Updated
The London has moved gingerly into the second half of the year.
The FTSE 100 index of blue-chip shares has dropped by 17 points, or 0.2%, to 8743 points. Mining stocks are leading the risers, reflecting optimism that the US may agree more trade deals soon.
But housing stocks, and banks, are among the fallers following this morning’s news that UK house prices fell by 0.8% in June.
Eurozone inflation rises: What the experts say
The small pick-up in eurozone inflation last month makes it likely the ECB will leave interest rates on hold at its meeting later this month.
Richard Flax, chief investment officer at Moneyfarm, says policymakers will be worried that energy prices could pick up again.
Eurozone inflation rose slightly from 1.9% in May to 2.0% YoY in June, aligning with the ECB’s target. The increase was driven by higher energy costs and persistent service sector inflation, which continues to be the main source of upward pressure. Core inflation is expected to remain unchanged, suggesting that underlying price dynamics are stable for now.
Energy markets remain a key risk. Prices surged in June due to geopolitical tensions, though a recent ceasefire in the Middle East has helped ease some of the pressure. Still, the potential for renewed volatility could complicate the inflation outlook in the months ahead.
With inflation near target and no major surprises in core data, the ECB is expected to hold rates steady at its July meeting. Markets are looking to September for the next potential move, depending on how inflation evolves.
Diego Iscaro, head of European economics at S&P Global Market Intelligence, also sees a September cut as more likely:
“Inflation edged upwards in June, just as markets expected. The modest increase in inflation is not particularly worrying, given it was mainly driven by a lower fall in energy prices, but the somewhat stronger rise in service price inflation will not be welcome news.
“We do not think June’s inflation print will give ammunition to either doves or hawks on the ECB’s governing council. With trade policy-related uncertainty still clouding the picture, there is a risk that the economic outlook may look quite different when the ECB meets later this month.
We still expect interest rates to remain unchanged this month, but we see the door opening for a last 25bp cut in September as subdued activity and a stronger euro push underlying inflationary pressures down.”
Updated
Eurozone inflation rises to ECB target
Newsflash: Inflation across the eurozone has risen back to target.
Consumer price across the euro area rose by 2.0% in the year to June, statistics body Eurostat reports, up from 1.9% in May.
That means inflation is back to the European Central Bank’s 2% target.
The increase was partly due to changes in energy prices. Energy inflation rose to -2.7% in June, up from -3.6% in May, following the increase in oil prices last month driven by the crisis in the Middle East.
Service sector inflation rose to 3.3%, up from 3.2%, while food, alcohol & tobacco inflatoin dipped to 3.1%, fromh 3.2% in May. Goods inflation slowed to 0.5%, from 0.6% in May.
Euro area #inflation expected to be 2.0% in June 2025, up from 1.9% compared to May 2025. Components: food, alcohol & tobacco +3.1%, services +3.3%, other goods +0.5%, energy -2.7% - flash estimate https://t.co/sLyZBUo7yN pic.twitter.com/iv8ofyHsQU
— EU_Eurostat (@EU_Eurostat) July 1, 2025
During his interview with CNBC, Andrew Bailey also warned that UK companies are delaying investments due to economic uncertainty.
He says:
“That increase in uncertainty and predictability is definitely coming through in terms of activity and growth.
“When I go around the country talking to businesses, which I do a lot, what they tell me is that they are putting off investment decisions.”
UK factory downturn easing
The downturn in UK manufacturing has eased last month, new data shows, as output, new orders and employment fell at slower rates than in May.
The latest survey of purchasing managers at British factories has also found that business optimism improved to a four-month high in June.
This lifted the UK manufacturing PMI to 47.7 in June, its highest reading in five months, but still below the 50-point level separating expansion from contraction.
The report found that manufacturers cut output due to weak market conditions, lower demand from clients, trade war uncertainty and geopolitical tensions.
Tariffs continued to hit demand, and client confidence, with new export business falling for the forty-first month in a row amid reports of reduced demand from the US, Europe and China, S&P Global says.
Manufacturers also cut jobs, for the eighth month running, with the steepest reductions at large-scale producers, despite the UK securing its trade deal with the US last month.
Rob Dobson, director at S&P Global Market Intelligence, says:
“Although the downturn in UK manufacturing continued in June, the latest PMI survey provides signs of conditions stabilising. Production, new orders and employment all fell at slower rates, while business optimism picked up to a four-month high. The orders-to-inventory ratio, a reliable bellwether of future production trends, also climbed sharply to its highest since August 2024.
Inflation of both input costs and selling prices meanwhile nudged lower to hint at a softening inflation trend.
“That said, any hoped for stabilisation remains fragile and subject to potential headwinds that could severely impact demand, supply chain reliability and future growth prospects, as manufacturers continue to caution their optimism with concerns about heightened geopolitical tensions, weak global markets, tariff uncertainties and fears over the direction of future government policy.”
Argos fires up Sainsbury’s growth as shoppers seek fans and paddling pools
Sainsbury’s has recorded its strongest growth since last summer after its Argos chain recorded a big step up in sales as shoppers sought out paddling pools and fans during recent hot weather.
The retail group said Argos, its catalogue shop, was able to achieve growth of 4.4% in the three months to 21 June, up from 1.9% in the previous quarter. Comparable group sales, excluding fuel, rose 4.7% on a year earlier.
The group’s total sales rose 4.9%, helped by the strong trading at Argos and a rise in clothing sales as shoppers snapped up shorts and swimsuits, as well as healthy demand for its premium food ranges. That excludes fuel, where sales fell partly because of price decreases.
The retailer said it had achieved the strong sales despite a “subdued, highly competitive and deflationary general merchandise market” as it booked rapid growth in online sales and via its app. Sales in stores declined, partly because of further closures as many Argos sites move from high streets into Sainsbury’s supermarkets.
Eurozone manufacturing sector stabilising
Over in the eurozone, the manufacturing sector has shrunk again but at a slower rate.
Data provider S&P Global has reported that its eurozone manufacturing PMI has risen to 49.5, up from 49.4 in May. That’s a 34-month high, but still below the 50-point mark that shows stagnation.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, reports that there are signs of stabilization in Europe’s manufacturing sector.
Companies have now expanded production slightly for the fourth month in a row, order intake has ceased to fall, and slightly longer delivery times also indicate that demand is picking up a bit.
Against the backdrop of numerous uncertainties - US tariffs, the crisis in the Middle East, and Russia’s ongoing war against Ukraine - this can certainly be seen as a sign of resilience.
However, it also has to do with the fact that, after years of recession, the economic cycle usually turns at some point because old machines need to be replaced, cars can no longer be repaired, and the necessary modernization of factory buildings can’t be postponed any further.
Bailey: Post Cold War defence dividend is over, and turning around
Bank of England governor Andrew Bailey then warns that the UK, like all countries, is facing “headwinds”.
Asked about the UK’s fiscal position, he says chancellor Rachel Reeves has “set out a very clear fiscal framework”, which he argues needs to include some “flexibility”.
[Reminder: Reeves only has limited headroom to keep within her fiscal rules, and the government’s u-turn on welfare reform will eat into it].
Bailey tells CNBC that headwinds include an “ageing population”, which has implications for fiscal policy.
Bailey aso warns that the post-Cold-War defence dividend is “obviously over and is turning around” [ie, countries are committing to spend more on defence].
He adds:
“The UK has a fiscal framework. The chancellor and I discuss it often. I know the chancellor is very committed to having a robust fiscal policy in place, and that is important as a backgrop to macroeconomic stability.”
The governor also cites AI as the most likely source of the next upturn in productivity.
Updated
Bank of England governor: softening jobs market means rate cuts likely
The governor of the Bank of England has predicted that UK interest rates will continue to fall, gradually.
Andrew Bailey has told CNBC in an interview this morning that the UK’s labour market “is softening”, pointing to signs that pay increases are starting to come down.
I think the path of interest rates will be gradually downwards, I’ve not changed my mind on that.
The key question, Bailey added, is whether that softening helps to bring inflation down to the Bank’s 2% target (thus giving it the confidence to lower borrowing costs).
Bailey adds that the recent drop in energy prices, following the Israel-Iran ceasefire last month, is a helpful backdrop to the Bank’s next interest rate decision in early August.
The City money markets currently indicate that there’s a 75% chance the Bank cuts interest rates, from 4.25% to 4%, next month.
UK house price fall: what the experts say
Nationwide’s house price report suggests the UK housing market remains in “a bumpy patch”, reports Matt Swannell, chief economic advisor to the EY ITEM Club.
“House prices fell by 0.8% in June, more than undoing the 0.4% pick up recorded in May. Of course, in any individual month house prices can be quite volatile and this has been exaggerated by April’s change in stamp duty thresholds. Nonetheless, house prices are still higher than they were 12 months ago. However, over the last few months house prices have chopped sideways, so the annual growth rate has slowed to 2.1% in June from 3.5% in May.
“The change in stamp duty thresholds distorted the market over the first half of the year. In the run up to the April deadline, the market strengthened as transactions were rushed through. But that momentum proved temporary, and transactions fell substantially into April. Since then, the housing market has been in a soft patch, but we think this will prove temporary, with the rise in May’s mortgage approvals for new home purchases, which lead housing transactions, already indicating it’s starting to fade.
“The housing market should see a modest pickup in the second half of the year as further interest rate cuts and a relatively low unemployment rate support demand. However, with house prices remaining high, affordability challenges and ongoing economic uncertainty will likely hold back some buyers.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, isn’t alarmed by the 0.8% drop in UK house prices last month, saying:
“Moderating house price growth is good news for the wider health of the housing market, making home ownership more realistic for first-time buyers, many of whom are already relying on the Bank of Mum and Dad.
Lenders have been reducing mortgage rates and enhancing loan-to-incomes, increasing the size of loan that some borrowers can access. However, while the borrowing environment may be easing, higher inflation and the wider economic picture remains a concern, which could mean the pace and size of further base rate reductions is more gradual than markets thought only a short while ago.”
North London estate agent Jeremy Leaf warns sellers they need to price their properties “realistically”:
“In our offices, the amount of stock presently overhanging the market has not only resulted in lower prices as seen in these figures, but has meant more protracted transactions.
“Looking forward, only realistically-priced properties which stand out from the crowd will continue to attract attention as worries about the economy and inevitable tax rises on the horizon play their part.”
Ofgem approves £24bn energy upgrade plan
In the energy sector, a £24bn investment programme to improve Great Britain’s power networks has been signed off, with customers warned bills will rise to help pay for it.
Regulator Ofgem has given a “provisional green light” for network operators to invest £15bn in the country’s gas transmission and distribution networks, to ensure they keep operating safely.
A further £8.9bn is lined up to fund the biggest expansion of the electricity grid since the 1960s, with 80 major projects planned including new power lines, substations and other technologies.
Ofgem CEO Jonathan Brearley says:
“Britain’s reliance on imported gas has left us at the mercy of volatile international gas prices which during the energy crisis would have caused bills to rise as high as £4000 for an average household without government support. Even today the price cap can move up or down by hundreds of pounds with little we can do about it.
“This record investment will deliver a homegrown energy system that is better for Britain and better for customers. It will ensure the system has greater resilience against shocks from volatile gas prices we don’t control.
Consumers pay for the investment through network charges, which currently make up almost a quarter of an average household energy bill.
Ofgem has calculated that this investment is estimated to increase network charges on bills by £104 by 2031. However, it says the projects will lead to £80 of savings for consumers by 2031, meaning they should actually add £24 to average bills by 2031.
The announcement comes as Ofgem’s latest quarterly price cap kicks in, meaning the cost of energy for millions of customers should fall 7% from today until the end of September.
North-south divide in house prices 'has narrowed'
Nationwide’s UK house price data also shows that prices rose fastest in Northern Ireland in the last quarter, with annual price growth of 9.7%.
Annual prices rose by 4.5% in Scotland, and by 2.6% in Wales, and were up 2.5% in England over the quarter.
Nationwide’s chief economist Robert Gardner reports that the north-south divide in house price performance narrowed during the quarter, explaining:
Average prices in Northern England (comprising North, North West, Yorkshire & The Humber, East Midlands and West Midlands) were up 3.1% year on year, whilst those in Southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) were up 2.2%.
The North was the top performing region in England, with prices up 5.5%. Meanwhile, East Anglia was the weakest performer with annual growth of 1.1%.
UK house prices fell in June, Nationwide reports
Newsflash: The average UK house price fell last month, adding to signs of a slowdown in the property market.
Lender Nationwide reports that house prices fell by 0.8% in June, following a 0.4% rise in May.
That pulled the average annual rate of house price inflation down to 2.1%, from 3.5%, and means the average property now costs £271,619.
Robert Gardner, Nationwide’s chief economist, said:
The softening in price growth may reflect weaker demand following the increase in stamp duty at the start of April. Nevertheless, we still expect activity to pick up as the summer progresses, despite ongoing economic uncertainties in the global economy, since underlying conditions for potential homebuyers in the UK remain supportive.
“The unemployment rate remains low, earnings are rising at a healthy pace in real terms (i.e. after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little if Bank Rate is lowered further in the coming quarters as we and most other analysts expect.
US dollar has worst first half in more than 50 years amid Trump tariffs
2025 has been a rough year for the dollar though.
It has sled 10.8% in the first six months of the year, its worst first-half performance since 1973 against a basket of rival currencies.
Stephen Innes, managing partner at SPI Asset Management, says the dollar is experiencing a ‘structural unwind’ as Donald Trump alarmed investors with his trade wars, and attacks on the Federal Reserve.
Trump’s tariff timebombs, fiscal bazookas, and the creeping perception of Fed capture have all coalesced into one ugly truth: the dollar is no longer the safe-haven default, at least not for now.
This wasn’t supposed to happen. The consensus playbook had the dollar strengthening as Trump’s protectionist blitz torched everyone else’s economies. But instead of Europe or Asia cracking first, it’s the U.S. that’s lost the narrative. Growth risks have migrated stateside, and rate-cut expectations have exploded, dragging yields lower and scaring off global capital.
Introduction: London markets celebrate strong H1
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s a new month, and also the second half of the year. And the London stock market can look back on its strongest first six months of any year since 2021.
The FTSE 100 share index has gained 7.2% so far this year, its best January-June performance in four years, and its third-best first half to a year in the last decade.
Stocks in London have recovered from their trade war shock in early April, helped by Donald Trump’s 90-day pause to new tariffs which ends next week. Britain’s trade deal with the US, which kicked in yesterday, has also helped the mood.
Danni Hewson, AJ Bell head of financial analysis, says:
“Considering the massive market wobble which followed Donald Trump’s ‘Liberation Day’ speech the fact that the FTSE 100 has turned in its best half-time performance since 2021 is something worth shouting about.
“Big share price falls grabbed headlines at the start of April as many UK investors watched the value of their pensions fall, but despite the geopolitical uncertainty and tariff turmoil London markets have thrived in the second quarter.
The FTSE 100 was lifted by strong gains among defence companies; BAE Systems has gained over 60%, while Babcock has more than doubled, as rising geopolitical threats lift their order books.
The smaller FTSE 250 index had a strong second quarter to the year, gaining over 11% in April-June, Reuters reports.
Other global markets also recovered from their trade war slump, with the US S&P 500 index ending June at a record high.
The agenda
7am BST: Nationwide’s UK house price index for June
8am BST: Bank of England governor Andrew Bailey to give an interview to CNBC
9am BST: Eurozone manufacturing PMI report for June
9.30am BST: UK manfuacturing PMI report for June
10am BST: eurozone inflation estimate for June
2.30pm BST: Andrew Bailey, ECB president Christine Lagarde, Fed chair Jerome Powell, Bank of Japan’s Kazuo Ueda and Bank of Korea governor Chang Yong Rhee speak at the ECB Forum on Central Banking in Sintra
3pm BST: JOLTS report on US job creation
