Closing summary
Crude oil prices have risen to a four-year high and natural gas prices have also increased, as tensions ratcheted higher in the Middle East.
Brent crude is up 3% at $85.78 a barrel.
UK government borrowing costs have also gone up, with the 10-year gilt yield pushing through 5%.
Meanwhile, US inflation cooled more than expected to an annual rate of 3.5% in June when energy prices fell sharply due to the US-Iran ceasefire – which Donald Trump declared over last week.
That’s it for today, folks. Thanks for reading! Back tomorrow. -JK
Andy Burnham needs to be bolder with business rates reform - and introduce a sales tax for online sellers - if he is to support local high streets, according to a new campaign group.
Real Rates Reform Alliance, is backed by the UKHospitality trade body, which represents hotels, pubs and restaurants, the Institute of Directors, the Association of Tow and City Management, the Music Venue Trust, the British Independent Retailers Association and Heart of London Business Alliance, which together
represent over 28,000 businesses and business leaders.
It said it had written to Burnham and called on him to meet with them to discuss bringing in a hybrid business rate system that would introduce a levy of 2% on all online sales, enabling a cut of 37% for businesses with physical premises.
Ros Morgan, the chief executive of Heart of London Business Alliance and chair of the
Real Rates Reform Alliance, said:
These findings expose the real-world consequences of a business rates system that is broken, unsustainable and no longer fit for purpose. Businesses are being forced to increase prices for customers, delay investment and cut jobs simply to cope with an outdated tax that bears little relation to today’s economy.
Business rates should support growth, not hold it back. Andy Burnham has already acknowledged the current system isn’t fair and talked about levelling the playing field between online and some physical businesses. We want him to go further.
IBM shares plunge after profit warning
Shares in IBM plunged more than 20% after it issued a profit warning.
The US technology company said it had “faltered” in keeping pace with a shift in corporate spending from software towards data-centre infrastructure, and forecast second-quarter revenue below estimates, in a sign of the impact of AI on the sector.
The warning triggered a near-24% slump in IBM’s shares and a selloff in the broader software sector. Microsoft, ServiceNow, Salesforce and Intuit fell between 3% and 5%.
Software investors have long been on edge over fears that AI tools capable of automating routine work could pose an existential threat to the industry.
Chief executive Arvind Krishna said in a letter to investors:
In the last few weeks of June, we saw clients shift their quarterly capex [capital expenditure] spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.
While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.
He added that the company had “faltered” in adapting quickly enough and that “numerous large deals” had failed to close as expected.
The company expects revenue of $17.2bn for the second quarter, compared with the $17.86bn forecast by analysts.
Adjusted earnings per share is expected to be $2.93, compared with analysts’ estimate of $3.02.
Chris Beauchamp, chief market analyst at IG Group, said:
This is an ugly moment for IBM and software stocks... the big question will be how long the shift to infrastructure and cybersecurity lasts.
A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.
The open on Wall Street was mixed, with the S&P 500 and the Nasdaq rising, while the Dow Jones fell.
The technology-heavy Nasdaq climbed nearly 130 points, or 0.5%, after the opening bell, while the S&P 5 rose almost 10 points, or 0.1%. The Dow lost 121 points, or 0.2%.
The FTSE 100 index has turned positive, trading 36 points, or 0.35%, higher at 10,535. Italy’s FTSE MiB edged 0.1% higher while the German, French and Spanish indices dropped between 0.2% and 0.3%.
The pound has gained against the dollar today, as cooling US inflation means traders are scaling back their interest rate bets.
This could lower the return on savings and bonds, and make assets less attractive to international investors.
Sterling rose nearly 0.5% to $1.3408 by early afternoon.
Inflation cools to 3.5% in June in relief brought by brief US-Iran deal
Here is our full story on US inflation:
Inflation cooled to an annual rate of 3.5% in June as the brief US-Iran ceasefire, which has since ended, brought energy prices down, according to new data from the Bureau of Labor Statistics.
The consumer price index (CPI), which measures a basket of goods and services, has been elevated since the start of the war, largely because of higher energy prices. After mostly staying under 3% since mid-2024, CPI reached a three-year high of 4.2% in May – up from 2.4% in February. Stripping out volatile energy and food prices, core inflation decreased slightly to 2.6%.
Though the US-Iran peace agreement brought some relief to energy prices, recent strikes between the two countries have sent oil prices climbing again. Donald Trump said on Monday that the strait of Hormuz, where a fifth of the world’s oil and gas typically passes through, will remain open “with or without Iran” and claimed that the US will reinstate its blockade of Iranian ports.
Neil Birrell, chief investment officer at the investment advice firm Premier Miton, said:
Volatile energy prices don’t make predicting inflation any easier or provide any clues on the trend. However, oil prices were lower through June and remain well below recent highs, helping bring down the headline US CPI number by more than expected.
The Fed won’t read too much into one data set, but this will please its new Chair and those looking for a softer policy stance.
Patrick O’Donnell, chief investment strategist at Omnis Investments, said:
The year-over-year measure of core CPI came in lower than expected today. With the labour market data seemingly running not too hot or cold, depending on what data series you look at, inflation data will be the key determinant of monetary policy decisions.
The FOMC [Federal Open Market Committee] is clearly divided but with the apparent end of the ceasefire last week, oil has started moving higher once more, and if this move extends, it could be enough for those members of the FOMC who are sympathetic to the view of a hike, over the line anyway. There may be a brief pause in the trend of higher nominal and real [bond] yields but this report is unlikely to turn it around. It remains to be seen at what level this begins to impact the AI trade in equities.
US inflation falls more than expected to 3.5%
Inflation in the US has fallen more than expected to an annual rate of 3.5%, as energy prices fell sharply last month after a US-Iran ceasefire and talks for a permanent peace deal.
The annual change in the consumer prices index was down from 4.2% in May, according to the Labor Department. Economists had predicted 3.8%.
On a monthly basis, consumer prices fell by 0.4%, more than the 0.1% drop forecast by analysts.
Excluding volatile food and energy costs, core CPI was 2.6%, less than the forecast 2.8% rate.
Futures for the S&P 500 index turned positive, pointing to a higher open later, as the data fuelled expectations that the Federal Reserve may not be as hawkish as previously thought.
However, in recent days oil prices have risen to a four-week high, with Brent now trading at $86.9 a barrel.
Updated
Despite the spike in UK government bond yields today, Joe Maher, markets economist at Capital Economics, said the firm expects yields to come down over the coming year.
Despite incoming PM Burnham facing the tricky task of maintaining investor confidence against a fragile fiscal backdrop and the potential for a prolonged US-Iran conflict, we expect gilt yields to fall over the next year as weak economic activity prompts the Bank of England to slash interest rates.
Energy prices, not politics, have been the main driver of Gilt yields of late. And gilts have been more sensitive than most sovereign bonds: oil prices have been a key driver of the spread, for example, between US and UK sovereign bond yields.
If investors were becoming more worried about Burnham’s policies, spreads on UK sovereign credit default swaps, the most direct market-based measure of fiscal risk, would probably have risen, but they have barely budged. The pound has also rallied versus the euro since Starmer resigned despite interest rate differentials moving against it.
US refunds $81bn in Trump tariffs after supreme court ruled them illegal
The US government has already paid back tens of billions of dollars in tariffs it collected before the supreme court ruled them illegal, according to budget figures released on Monday.
Tariffs – taxes on imported goods – have been a key part of Donald Trump’s economic plan since he took office again last year.
In February the supreme court shut down a big chunk of the extra tariffs Trump had ordered, forcing the government to return money to the companies that had paid them.
According to the budget data, the US has paid out $81bn (£61bn) in tariff refunds so far this fiscal year, which started in October 2025, compared with $5bn during the same period last year.
A Treasury department official said the spike was almost entirely because of the supreme court decision, with most of the refunds happening in May and June.
Trump had pitched the tariffs as a catch-all fix for the economy, bringing factories back to the US, getting better trade deals and closing the deficit in the federal budget.
But the deficit, which had become a little smaller last year thanks to the tariff income, is now growing again. It hit $1.367tn in the first nine months of the fiscal year, up 2%.
The US spent more than $1tn just on paying interest on its debt, up 14%, and military spending climbed 5% because of the war in the Middle East.
The US administration’s current temporary 10% global tariff is due to expire on 24 July, but the White House is preparing new duties over what it sees as lax enforcement of anti-forced labour laws and excess industrial capacity.
The latest proposal could affect leading partners including the UK, Japan, India, Taiwan and China, and would enable Trump to skirt previous court-imposed limits on his protectionist agenda. The new tariff rates are expected to be between 10% and 12.5%. The US has also threatened to impose fresh levies of 25% on Brazil.
Here are Bank of England governor Andrew Bailey’s comments in full on the Middle East conflict.
He said
It seems to me that the situation remained unstable, and the ceasefire was fragile, suddenly that’s come to pass, obviously. I certainly don’t feel qualified to judge how long this is going to go on for in terms of this resumption of hostilities and how it’s going to end. But it underlines that this is going to be an unstable process for the foreseeable future.
Now energy prices have come down. As of a week ago, they were sitting a bit above where they were before the crisis. They’re now somewhat further above, but they’re… well down on their peak. We are also seeing continued fairly soft evidence on the pass through into UK prices. But we’ll get another inflation number next week.
The one other caveat I would add, which I don’t think gets enough coverage, is that although crude oil prices have come down, the prices of refined products have not come down as much. So we’re talking about things like gasoline and diesel at this point, which of course are the end product.
Crude oil prices hit highest levels in four weeks
Crude oil prices have hit their highest levels in four weeks, as Washington and Tehran traded attacks and the US reimposed a naval blockade of Iran.
Brent crude has jumped $3.79 a barrel to $87.08 a barrel, a 4.55% increase, the highest since 12 June, before the ceasefire. The US and Iran signed a memorandum of understanding to end the conflict on 17 June and engaged in negotiations for a permanent peace deal.
Iran said on Monday it was continuing talks with mediators from Qatar, Pakistan and Oman to try to prevent any further escalation. Donald Trump declared the ceasefire over last week but left the door to talks open.
US West Texas Intermediate crude rose to a high of $81.25 a barrel, and is now trading at $80.92 a barrel, up 2.8%.
Soni Kumari, analyst at ANZ bank, told Reuters:
What we think is that the peak of the escalation is behind us, but there are upside risks to oil prices if these disruptions continue and that will keep prices in the $85-$90 range.
Updated
Bailey says resumption of Middle East attacks underline instability risks; gilt yields jump
Bailey said Britain’s banking system is resilient, but he is concerned about the impact on financial stability from the escalating tensions between the US and Iran in recent days.
Bailey said last month, when he voted with the 7-2 majority on the monetary policy committee to keep interest rates unchanged, he thought that risks from the US-Israeli war on Iran were around the lower end of the central bank’s three scenarios.
He told MPs on the Treasury select committee:
But I would have added the very strong caveat to that it seems to me that the situation remained unstable, and the ceasefire was fragile.
He said he now thinks the breakdown of peace talks and resumption of attacks underline instability risks.
UK government bond yields have risen to their highest level since May as oil prices jumped more than 4% to a four-week high, reigniting inflation fears. Investors also ramped up their bets on interest rate hikes by the Bank of England, fully pricing in a quarter-point increase by September.
The yield (or interest rate) on the 10-year gilt rose 5 basis points to 5.02%, raising the cost of government borrowing and underlining the challenges faced by prime minister in waiting Andy Burnham.
The yield on the two-year gilt, which is particularly sensitive to interest rate expectations, jumped 8bps to hit a high of 4.45%, the highest since 19 May.
Asked whether the next change in Britain’s prime minister would affect financial stability, Bailey declined to comment on politics but said the UK outlook is backed by the government’s fiscal framework as well as monetary policy set by the Bank.
Updated
Bank of England governor: 'Big issue' for UK is slow economic growth
The governor of the Bank of England’s key message to Andy Burnham’s incoming government is that the “big issue” for the UK is slow economic growth.
Andrew Bailey told the Treasury committee:
The overall message I would give is that I think the big issue is growth in the economy.
I do actually think that there are signs of a very resilient financial system.
What I think is much more challenging is we’ve had low growth in the economy now for the best part of 16 to 17 years.
So this is not a story about any one government… but I think it’s important because a critical structural issue.
But he stressed: “We will not get growth if we don’t have financial stability,” when asked whether regulation in the financial system may be holding back growth.
Bank of England rate hike expectations rise
Expectations of an interest rate hike from the Bank of England and European Central Bank have increased after the fresh surge in oil prices revived inflation fears.
For the first time in a month, financial markets are fully pricing in a quarter-point UK rate rise by September, likely followed by another one by the end of the year.
Traders also expect the ECB to raise rates by a quarter point in September, and another hike by the end of December.
The shift comes as escalating US-Iran tensions push Brent crude prices closer to $90 a barrel. At the start of the month, swaps priced less than a quarter-point hike for the Bank of England and ECB, when a shaky ceasefire was in place between the US and Iran.
However, US military strikes on Iran, and Donald Trump’s reimposition of a blockade on Iranian ships transiting the strait of Hormuz and a 20% fee for all other cargo has brought new turmoil to markets.
Updated
Gas prices rise to three-month highs as Middle East tensions ratchet higher
Gas prices have risen to three-month highs, as tensions between the US and Iran ratchet higher.
The Dutch natural gas contract for August delivery, the European benchmark, rose nearly 3% to €52.8 per megawatt hour, the highest since early April.
The UK natural gas contract for August delivery climbed 3.3% to 128.27p per therm, the highest level in more than three months.
Updated
AJ Bell head of markets Dan Coatsworth said:
Investors feel like they’ve hit rewind on a movie they didn’t enjoy first time round. The ability to get shipping through the strait of Hormuz is once again compromised thanks to the renewed tensions between Tehran and Washington.
For now, investors seem to be retaining a measure of calm and hoping a path towards a resolution in the Middle East can still be found. The longer the current situation persists though, the more likely market sentiment takes a more serious hit.
The UK market fared better than most other parts of Europe thanks to its heavy exposure to the energy sector through BP and Shell.
Stocks with exposure to the travel sector along with retailers and housebuilders were among those to take a step back as investors weighed up the implications of potentially higher inflation and interest rates.
Oil prices jump 3.5%, European shares fall on Middle East escalation
Oil prices jumped as much as 3.5% and European shares have opened lower, as escalating tensions between the US and Iran spoked investors.
Brent crude has risen through $86 a barrel, and is currently up 3.4% at $86.15 a barrel, after the US carried out a third night of military strikes against Iran and Donald Trump announced a blockade of Iranian shipping and a 20% fee on cargo transiting the strait of Hormuz.
The US president said the passage would stay open “with or without Iran” but that the US would start charging fees on ships transiting through the waterway, in an apparent policy reversal. A 20% fee would be levied “for any and all costs necessary” to provide security and safety for vessels.
The FTSE 100 index in London is down 0.5%, or 52 points, at 10,445. The German Dax has dropped 0.55%, the French CAC lost 0.9%, the Italian borsa declined 0.7% and the Spanish Ibex tumbled 1.07%.
BP has topped the FTSE 100 with a 3% gain, while Shell shares are 1.7% ahead, after a trading update from BP.
BP said net debt at the end of the second quarter is expected to fall to between $22bn and $23bn, from $25.3bn in the first quarter. It also expects its second quarter oil trading result to be “slightly higher” compared with the first quarter.
Victoria Scholar, head of investment at the trading platform interactive investor, said:
That’s even after an extremely strong period for oil trading last quarter when the Iran war fuelled energy shock supercharged earnings which more than doubled year-on-year.
It appears that the Middle East uncertainty is here to stay at least for now after the US said it will reimpose a naval blockade on Iran, reversing course after last month’s steps towards a peace deal with Iran. Ongoing higher oil prices are supportive of BP’s share price as well as its earnings in the near-term, but the company’s outlook is highly vulnerable to developments in the Iran conflict beyond its control.
Updated
The oil price is now up more than 3% at $85.89 a barrel.
It is the first time Brent crude has risen through $85 since the US and Iran announced their ceasefire.
China’s car exports rose to a record 1m cars in June as part of the wider surge in trade, which could lead to more tensions with European and other trading partners.
Shipments of cars jumped 71.2% in June from a year earlier to 1.06m, according to the Chinese customs data.
This puts China on track to export more than 10m cars this year, up from 7.1m last year and more than double the 4.9m sold abroad in 2023, the Financial Times said.
Sales within China have slowed sharply after Beijing phased out electric vehicle subsidies and as demand for petrol and diesel cars has fallen.
The surge in Chinese exports has prompted the EU and others to slap steep tariffs on car imports from the country.
China’s imports of crude oil slumped 41.3% to their lowest in almost a decade in June, as refinery run rates hit a ten-year low due to weak domestic demand and export curbs on refined oil products to safeguard energy security amid the Iran war.
China imported 29.27m tonnes of crude oil in June, or 7.12m barrels a day, the lowest since October 2016.
Updated
Introduction: Oil prices rise over 2% after Middle East strikes; China’s exports surge on back of AI boom
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Oil prices rose more than 2% after the conflict in the Middle East worsened, with the US carrying out a third consecutive night of strikes against Iran. Two tankers came under fire in the strait of Hormuz.
Brent crude, the global benchmark, climbed 2.2% to $85.15 a barrel, after touching $85.64 in early London trading.
Donald Trump said the US would reinstate its blockade of Iranian shipping in the Gulf, but vowed that the strait would remain open, “with or without Iran”.
Susannah Streeter, chief investment strategist at the Wealth Club, said:
Stasis has taken over markets as investors wait for the latest twist in the Iran conflict and brace for higher energy prices to filter through to economies. Brent crude has surged even higher, topping $84 a barrel, while European gas prices have shot up to levels not seen in three months.
There was a surge in China’s exports last month, lifted by orders for chips and computing power to feed the global AI boom.
Exports climbed 27% from a year earlier measured in US dollars, the biggest rise in four months, according to Chinese customs data. They outpaced May’s 19.4% gain and the 18.2% increase forecast by economists.
This means China is likely to post a trade surplus above $1 trillion for a second year, despite slowing growth in major economies and trade frictions with Washington. It is heavily reliant on export sales, to make up for sluggish domestic demand amid a prolonged property crisis.
Imports jumped 36% following May’s 27.4% gain, marking a five-year high. Economists had forecast growth of 24% for June. China posted a trade surplus of $125.6bn in June, up from $105.4bn in May.
The surge in global AI investment is offsetting the export hit from the war in the Middle East.
Xu Tianchen, a senior economist at the Economist Intelligence Unit in Beijing, said:
Continued export strength, mostly driven by AI, points to a better second half, coupled with a more expansionary policy mix, accelerated fiscal spending and mild monetary easing, as well as a de-escalation of the situation in the Middle East, which will benefit China through lower oil prices.
But domestic demand remains a drag. Retail sales remain pretty flat and fixed asset investment was negative last month.
Annual exports accounted for 24% of total manufacturing sales over the first four months of this year, according to a recent report by Gavekal Dragonomics, a consultancy, the highest level since China’s accession to the World Trade Organization in 2001. In 2019, the ratio stood at 18.3%, and rose to 22.3% last year. The report said:
That would be considered high for a small export-focused country; for the world’s second-largest economy, it is remarkable.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, told Reuters:
I think exports will remain strong in the second half of the year. Meanwhile, it also puts further pressure on the trade tensions between China and its trading partners, Europe in particular.
Analysts noted that surging semiconductor prices are pushing up import as well as export values.
Imports from South Korea, a major chip manufacturer, rose 85% last month, while purchases from Taiwan, another big semiconductor manufacturer, climbed 41.1% over the same period.
Customs vice minister Wang Jun said he was confident that exports would be resilient into the second half of the year led by technology, despite external pressures.
The Agenda
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9am BST: Bank of England governor Andrew Bailey speaks at Treasury committee
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1.30pm BST: US inflation for June (previous: 4.2%; forecast: 3.8%)
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3pm BST: US Federal Reserve chair Kevin Warsh testifies
Updated
