Closing summary: Strong data in UK and US suggest later interest rate cuts
The UK economy grew by 0.3% in the second quarter of 2025, the Office for National Statistics said.
That was higher than the 0.1% expected by economists polled by Reuters, and may mean the Bank of England holds off on cutting interest rates until next year, according to some economists.
The increase came despite UK goods exports to the US slumping by 13.5% in the second quarter compared with the same period a year earlier, as the effects of Donald Trump’s tariffs became clearer. The British Chambers of Commerce (BCC) said it was the lowest UK exports to the US in three years, when trade was heavily disrupted by the coronavirus pandemic.
The UK was not the only country to report “hot” data that will give central banks pause before cutting interest rates. In the US producer price index inflation surged in July, up 0.9% in the month, and 3.3% higher than a year earlier, according to data published on Thursday by the Bureau of Labor Statistics.
Traders pulled back on bets of a bigger cut than usual – of half a percentage point – at the Federal Reserve’s next meeting in September. Reuters reported:
The dollar index gained 0.2% from an over two-week low […] while benchmark 10-year yields edged up from a one-week low.
Stronger US wholesale price data tempered bets on a larger, half-point cut next month. Traders are now leaning toward a quarter-point move with another in October, reinforcing comments from Fed’s Mary Daly that such a large cut is not needed.
In other business and economics news today:
Admiral Group shares jumped 5% profit before tax rose by 69% to £521m, as it shrugged off falling car insurance prices.
Aviva’s share price jumped after the insurer also reported strong earnings for the first half of 2025 and said its integration of Direct Line was going well.
Claims of an exodus of wealthy “non-doms” in response to tax rises may be overblown, according to a report that suggests the number leaving the country is in line with official forecasts.
Industrial production fell by 1.3% in the eurozone in the year to June, according to figures published by Eurostat.
Short sellers are betting that baked goods chain Greggs has reached its peak.
National Grid has agreed a £1.7bn deal to sell its Grain LNG business to British Gas owner Centrica and US private equity group Bridgepoint.
You can continue to follow our live coverage from around the world:
Thank you for joining me today, and please do tune in tomorrow when Lauren Almeida will be in the hot seat. JJ
Wall Street has followed the lead of the FTSE 100, falling at the opening bell. (NB, other European indices are so far in the black today).
Here are the opening US stock market index snaps, via Reuters:
S&P 500 DOWN 19.56 POINTS, OR 0.30%, AT 6,447.02
NASDAQ DOWN 73.80 POINTS, OR 0.34%, AT 21,639.34
DOW JONES DOWN 198.80 POINTS, OR 0.44%, AT 44,723.47
That inflation data may well have had something to do with it: if inflationary pressure builds, then the Federal Reserve is less likely to cut interest rates – whatever Donald Trump may believe.
How much should the Federal Reserve be worried that wholesale price rises mean the US is in for a bout of inflation heat?
“Price pressures are building, but July’s data overstate the intensity”, said Samuel Tombs, chief US economist at Pantheon Macroeconomics, a consultancy. The Fed looks particularly carefully at the core personal consumption expenditure index as a key measure of inflationary pressure in the US economy. Not all of the producer price index inflation will feed through, Tombs said.
In a note to clients, he wrote:
The surge in producer prices has limited implications for the July core PCE deflator, but indicates that the new tariffs are continuing to generate cost pressures in the supply chain, which consumers will shoulder soon.
The outlook remains for a steady climb in core PCE inflation towards a peak of about 3.25% at the end of this year, despite the surge in producer prices.
US wholesale prices surged in July, raising inflation concerns
US wholesale price inflation surged in July, according to new data that will bolster the Federal Reserve governors who have held interest rates steady despite intense pressure from Donald Trump to cut.
The producer price index (PPI) rose by 0.9% in July, according to the under-pressure Bureau of Labor Statistics (BLS). That was far above the 0.2% expected by economists polled by Reuters.
The reading will ring alarm bells for economists watching for signs of inflationary pressure in the US economy. The Fed has cited inflationary concerns as a reason to leave interest rates on hold.
Tariffs are expected to raise costs for businesses importing materials to produce products within the US. That is expected to pass through to the broader economy.
Although Trump is perhaps unlikely to engage with the details of inflation, the data comes at a sensitive time for the BLS. Trump fired its head, Erika McEntarfer, earlier this month following the release of a weak jobs report which he claimed, without evidence, had been “rigged”.
He has since hired a right-wing economist, EJ Antoni, who has been critical of the BLS to supposedly correct the data.
Claims of an exodus of wealthy “non-doms” in response to tax rises may be overblown, according to a report that suggests the number leaving the country is in line with official forecasts.
In April the chancellor, Rachel Reeves, scrapped the non-domiciled tax status, which allowed wealthy individuals with connections abroad to avoid paying full UK tax on their overseas earnings.
Since then a wave of reports has suggested that changes to the status and other tax policies are triggering an exodus of high net worth individuals.
However, early monthly payroll data from HM Revenue and Customs appears to indicate that the number of non-dom departures is in line with official predictions, according to sources cited by the Financial Times.
The Office for Budget Responsibility (OBR) forecast in January that 25% of non-doms with trusts would leave the UK in response to the abolition of the tax status, while 10% of those without trusts would leave. Official data suggests this prediction was broadly correct, people briefed on the findings told the FT.
You can read the full story here:
It is not just companies outside the US that have been hit hard by Trump’s tariffs: tractor maker Deere is the latest company to detail the financial hit, with a big drop in its profit forecast.
The maker of the John Deere brand cut the top end of its forecast for net income for the 2025 financial year from $5.5bn to $5.25bn, a $250m cut.
The Illinois-based company had previously said that tariffs would cost it $500m (£368m).
Aviva’s chief executive, Amanda Blanc, has reiterated the insurer’s commitment to climate goals in the face of growing pushback against net zero ambitions in the US and UK.
Her comments came as Aviva’s shares on Thursday hit their highest level since the 2008 financial crisis, with investors cheering a rise in profits, and fresh payouts for investors, worth 13.1p a share.
Blanc told journalists that the insurer was not wavering on climate transition plans, which she said were an important step in responding to a further rise in extreme weather events affecting its insurance business. She said on Thursday:
We remain committed to our ambition. It’s also an important priority for many of our clients, but I would always put this into the context of extreme weather conditions, climate change and the impact that that has on our insurance business that actually insures properties.
You can read the full story here:
US finally gives draft statement on EU trade deal
The US has finally produced a draft of the joint statement sealing the trade deal with the EU agreed at Donald Trump’s golf course in Scotland on 27 July.
The joint statement is not legally binding and has been described by the EU as a “road map” for future negotiations on potential reductions of tariffs on sectors such as steel, wines and spirits and some agriculture products. EU spokesperson Olof Gill said:
We have received a text from the US with their suggestions for getting closer to that finalisation of the document.
We are going to make our suggestions back, we will ping pong it forward and back until we get to a final text and I hope we can get there soon.
The EU struck a deal with the US which will see 15% tariffs on imports from the bloc but – unlike other countries including the UK – these tariffs, uniquely, will not be “stacked” on top of existing tariffs.
An average tariff of 4.8% applied to EU imports before Trump came into power with a 3.7% applying in the UK. The latest deals mean on average the UK and EU tariffs are not so far apart, at 15% and 13.7% on average.
However, the EU is still hit by punitive steel tariffs, currently at 50% compared to the UK where the older 25% tariff applies.
Three months after Trump struck his deal with the UK, however, there is still no sign of delivery on the US commitment to slashing tariffs to zero as part of the 7 May deal.
UK goods exports to US fall to three-year low
The UK GDP figures also showed some of the damage done by Donald Trump’s tariffs: goods exports to the US slumped by 13.5% in the second quarter compared with the same period a year earlier.
The British Chambers of Commerce (BCC) said it was the lowest UK exports to the US in three years, when trade was heavily disrupted by the coronavirus pandemic.
The start of the second quarter – 2 April, to be precise – will go down in economic history after the US revealed its “liberation day” tariffs. That sparked financial market chaos, and huge real-world disruption as exporters to the US tried to work out whether it was possible to continue sending products to the world’s biggest consumer market.
William Bain, head of trade policy at the BCC, said:
Tariff effects are clearly being felt by companies exporting to the US. Total goods exports across the Atlantic for the second quarter 2025 were 13.5% lower than a year ago. But the UK’s performance is not all bleak, with strong services exports across the second quarter.
This was the first full quarter of the ‘reciprocal’ US tariffs, which add an extra 10% to most UK sectors, from food and drink to chemicals. The effect of these higher costs is becoming clear, with the lowest levels of goods exports to the US for three years.
Implementation of the UK’s trade deal with the US in full is now needed to improve prospects, particularly for steel and aluminium goods. The agreement should be a platform to discuss further tariff reform with the US, especially in goods sectors where there is little competition on production.
Aviva is not the only FTSE 100 insurer beginning with A doing well today: Admiral Group has jumped 5% after a surge in profits – making it the top riser on London’s top index.
The company reported profit before tax up by 69% to £521m, as it shrugged off falling car insurance prices.
Admiral’s share price hit a record £36.32 in trading on Thursday morning.
Milena Mondini de Focatiis, group chief executive officer, said:
We have delivered another excellent first half with strong execution across all strategic objectives. Group profit increased 69% to a record £521m. We have an additional one million customers across our diversified businesses compared to this time last year, due to our focus on offering competitively priced cover and excellent service across our diversified businesses.
Bad news for lovers of sausage rolls (vegan or otherwise): bosses at Greggs may not believe the UK has reached “peak Greggs”, but short sellers beg to differ.
Data spotted by Bloomberg showed that positions likely to indicate short sellers were at the highest since the financial crisis. It reported:
Greggs stock out on loan — an indication of short interest — reached 9% of shares outstanding as of Tuesday, according to data from S&P Global Market Intelligence. That’s the highest since March 2008, with the bulk of this year’s activity occurring in the past four months.
Short sellers borrow shares from other companies (for a small fee). They then sell those shares, and hope that the price falls before they buy them back. If the price has fallen then they pocket the difference – although if the price rises then there is no actual limit on their losses.
But short sellers think that it will struggle after rapid expansion. From last month’s Guardian report:
Greggs, which operates 2,649 shops across the UK, notched up more than £1bn in sales in the first six months of the year for the first time, but its profits fell as it battled rising costs, lower footfall and more weather disruption than in 2024.
The Financial Conduct Authority’s data showed that JP Morgan Asset Management held the biggest short position, equivalent to 1% of Greggs’s shares. BlackRock Investment Management, ExodusPoint and GLG were the other asset managers with positions worth more than 0.5% of the company that they had to disclose.
Updated
The size of the boom in artificial intelligence spending is fairly astonishing: the Financial Times reported that Google, Amazon, Microsoft and Meta will spend more than $400bn on capital expenditure in 2026 — on top of more than $350bn this year. That compares with less than $100bn (still a staggering sum) in 2020.
And the old adage about shovel makers in a gold rush appears to be playing out. Taiwan’s Foxconn is famous for making the Apple iPhone, but work making servers for chip designer Nvidia has surpassed that, the company said on Thursday.
Reuters reported:
Foxconn expects higher third-quarter revenue, it said on Thursday, on robust demand for artificial intelligence servers, which helped the world’s largest contract electronics maker report a forecast-beating 27% increase in second-quarter profit.
Those servers are then sold by Nvidia to the companies racing to win the artificial intelligence battle by investing in the most computing power. The big tech companies hope that more “compute” will allow them to dominate the sector (although they could be left holding the world’s most expensive bag if cheaper models come along and match their performance).
Europe’s economy is showing “fading industrial resilience and stark divergence across the eurozone”, said Carsten Brzeski, global head of macro at ING, an investment bank.
He wrote in a note to clients:
Industrial production plunged by 1.3% month-on-month in June, from +1.1% in May. On the year, eurozone industrial production was only marginally up. With today’s data, the strong surge in the first quarter due to the US front-loading of eurozone goods ahead of higher tariffs has basically been reversed entirely.
While tariffs and the stronger euro will continue to weigh on the manufacturing sector, the gradual cyclical turning of the inventory cycle as well as the structural shift towards defence should support growth ahead.
Eurozone industrial production slumps
Eurozone GDP’s second reading came in as expected at 0.1% quarter-on-quarter for the second quarter – weak, but not a surprise. However, there were some worrying signs from industrial production data.
Industrial production fell by 1.3% in the eurozone in the year to June, according to figures published by Eurostat. That was an acceleration in the rate of decline from May, and worse than the 1% drop expected by economists polled by Reuters.
Companies raced to produce goods and ship them to the US in the first quarter of 2025 – providing a short-lived boost to economic output – but that looks to have unwound during the second quarter, as the tariffs were actually implemented. European factory output has since fallen back.
Carmakers in particular were badly hit, with a 15% rate agreed last month, after an initial rate of 27.5% on car exports to the US.
Updated
However, Matt Swannell, chief economic advisor to the EY ITEM Club, a forecaster, said that “the underlying picture for the UK is one of continued sluggish growth”.
He said:
This largely reflects the strength of domestic headwinds, including a significant tightening in fiscal policy and the lagged impact of past interest rate rises. US tariff announcements will also drag on the near-term growth outlook.
The second-quarter UK GDP figures count as a “major beat”, according to Andrew Wishart, senior UK economist at Berenberg, an investment bank. That is economist-speak for data that will prompt a rethink of the narrative around the economy – and he added there may be good news on productivity as well.
Wishart wrote in a note to clients:
It now looks like the UK economy weathered US tariffs and domestic tax hikes remarkably well in the second quarter.
With the economy benefitting from fiscal support and showing little sign of interest rates slowing it down, the strong data support our view that the Bank of England will wait until next year before cutting bank rate again.
The trade data did not show a marked slump back in the second quarter, even after a rush in the first quarter to get ahead of Donald Trump’s tariffs.
And there was even some positive news from the hotel and restaurant sectors, where output rose by 2.4% quarter-on-quarter despite bloodcurdling warnings on the impact from increases on national insurance and the minimum wage. That made growth in the hotel and restaurant sector positive for the first time in several years, Wishart said. He added:
Improving growth at the same time as the sector cuts staff numbers implies that operators have been able to make significant improvements in productivity. While the hotel and restaurant sector is an extreme example, an economy-wide decline in employment alongside reasonable GDP growth suggests that productivity growth is improving. At the margin, that will give the government’s official forecaster, the Office of Budget Responsibility, some confidence that it is right to assume a recovery in productivity growth after a dismal three years. If so, the government will not need to raise taxes by anywhere near as much this autumn as the most pessimistic analysts claim in the press.
Let’s get some more economists’ thoughts on the UK’s GDP numbers – surprisingly strong in June.
One of the key upshots of the data may be to allow the Bank of England to wait longer before deciding whether to cut interest rates again, according to Bruna Skarica, an economist at investment bank Morgan Stanley. She wrote in a note to clients:
The optics of a “resilient” economy allow for BoE patience as headline inflation bobs around between 3.5% and 4% in the coming months. That said, we think softer underlying details and the likely softening of the growth momentum from here keep a November cut in play.
Interest rates are too high for a sustained and broad-based growth uptick. If the government ensures that the autumn budget does not repeat the 2024 slew of inflation-boosting policies, and measured inflation falls through 2026, we think the [Bank’s rate-setting monetary policy committee] will acknowledge the need to cut rates amid the ongoing build-up of slack. If that is not the case, we will see more of the same stagflationary dynamics, we think.
Rachel Reeves’s message is that there is “more to do” on the UK economy ahead of the budget in the autumn – although the chancellor has focused on improving productivity rather than addressing questions on whether taxes will increase.
The Guardian’s senior economics correspondent, Richard Partington, explains:
Setting out her priorities for the budget for the first time, the chancellor said tackling the efficiency of the economy through higher investment and a fresh assault on planning rules would form the backbone of her tax and spending plans.
However, Reeves pushed back against what she called “speculation” over tax increases being explored by the Treasury to close a yawning gap in the public finances that is estimated to reach more than £40bn.
Reeves wrote:
Because Britain’s productivity problem is not an abstract, technocratic one – it directly affects every working family in Britain who feel they are squeezing every penny to make ends meet. When businesses can’t grow, wages stagnate and there is less money in the pockets of working people. When infrastructure is inadequate, costs rise, and opportunities are lost.
When skills do not match economic needs, potential goes unfulfilled. With lower productivity, tax revenues go down and our public services face cuts. And with the world changing, Britain has been left too exposed to global shocks.
You can read it in her own words here:
Rachel Reeves says tax decisions must wait until budget amid inheritance tax questions
UK chancellor Rachel Reeves has said that tax decisions will have to wait for the autumn budget after she was asked about the Guardian’s report that officials are considering inheritance tax changes as a way of raising money.
The Guardian’s City editor, Anna Isaac, reported: “A lifetime cap could be introduced to limit the amount of money or value of assets an individual can donate as part of their IHT planning and the Treasury is also reviewing rules around the taper rate, people familiar with the matter said.”
Asked about the possibility of inheritance tax increases on Thursday, Reeves did not rule it out. PA Media reported that she said:
Any decision around taxation is a ... decision for the budget, and I’ll make those announcements.
We haven’t even set the date yet for the budget, but the key focus of the budget is going to be to build on numbers that we’ve seen today to boost productivity and growth and prosperity all across the country.
“That is my number one priority as chancellor, to get our economy firing off all cylinders so that working people in all parts of the country will feel the benefits of that economic growth.
Pushed on whether taxes will have to increase in the autumn, Ms Reeves added:
We’ll wait for the official forecast from the Office of Budget Responsibility, and we’ll make those decisions in the round.
Updated
Aviva share price rises after strong first-half operating profits
Aviva’s share price has jumped after it reported strong earnings for the first half of 2025 and said its integration of Direct Line was going well.
The FTSE 100 insurance group’s operating profit rose 22% year-on-year to £1.1bn during the first half of 2025, it reported on Thursday.
Amanda Blanc, Aviva’s chief executive, said:
Aviva’s performance in the first half of 2025 was outstanding, growing operating profit by 22% and extending our track record of delivery. Another set of high-quality results, combined with excellent strategic progress, are further evidence of how we are pushing Aviva forward. This excellent performance allows us to achieve even more for our customers and our shareholders, and today we are increasing the interim dividend to 13.1 pence per share.
Blanc added that “integration is well underway” for Direct Line, which it agreed to buy in December for £3.7bn.
Aviva’s share price rose by 3.6% on Thursday, hitting a new high point since way back in December 2007, when the global financial crisis was starting to shake markets (and Aviva was still named Norwich Union, a 200-year-old name given by the founding wine merchant and banker, after he could not find anyone willing to insure him against the threat posed by highwaymen).
National Grid sells Grain gas import terminal for £1.7bn to Centrica and Bridgepoint
National Grid has agreed a £1.7bn deal to sell its Grain LNG business to British Gas owner Centrica and US private equity group Bridgepoint.
Grain LNG owns and operates the UK’s largest LNG import terminal, at the Isle of Grain in Essex, under long-term take or pay contracts. National Grid has been looking for the last year to get rid of businesses that are not its main focus on electricity networks.
Grain has been one of the key parts of the UK’s energy system ever since the UK opted to increase its consumption of gas for power generation. It previously took in large quantities of gas from Russia before the full-scale invasion of Ukraine, although that focus has shifted to the Qatar, Australia and particularly to the US thanks to its shale gas boom making it a major energy exporter.
John Pettigrew, chief executive of National Grid, said:
Today’s announcement of the sale of Grain LNG marks another successful step in delivering National Grid’s previously communicated strategy to streamline our business and focus on networks, and follows the completion of the sale of our NG Renewables business in May 2025.
Centrica’s share price rose 1.3% on Thursday. It said it had injected £200m in equity, with the bulk of the purchase funded by debt.
Chris O’Shea, group chief executive of Centrica, said:
The Isle of Grain terminal is a strategic asset that will support the UK’s energy security for many decades to come, keeping energy flowing reliably and affordably to households and businesses across the country as we transition to net zero. That’s why we are so pleased to be investing, continuing Centrica’s pivot towards long-term, predictable infrastructure cash flows, underpinning our medium-term guidance and creating valuable future options.
O’Shea also threw the UK government a bone, saying: “Our decision to commit £3bn of capital in both Sizewell C and the Isle of Grain demonstrates the attractiveness of the UK as an investment location underpinned by supportive government investment policies.”
Stronger-than-expected GDP figures have not helped the FTSE 100 very much this morning: London’s main stock market index dropped 0.3% in the first few minutes of trading on Thursday.
That is bucking the trend across most of Europe’s big companies. Here are the opening snaps for European indices, via Reuters:
EUROPE’S STOXX 600 UP 0.09%
GERMANY’S DAX UP 0.08%
FRANCE’S CAC 40 UP 0.19%
SPAIN’S IBEX UP 0.33%
EURO STOXX INDEX UP 0.18%; EURO ZONE BLUE CHIPS UP 0.22%
The positive surprise from stronger-than-expected UK GDP should not give the government too much comfort, according to the National Institute of Economic and Social Research (Niesr), a respected economic thinktank.
Donald Trump’s trade wars are still a major source of uncertainty – not least as the crucial US relationship with China is still undecided – while the tariffs he has definitely imposed will likely be a drag on global growth. In the UK, meanwhile, households and businesses are expecting tax increases at the upcoming budget in the autumn.
Fergus Jimenez-England, an associate economist at Niesr, said:
GDP growth was slightly higher than forecast, recording 0.4% in June owing to stronger-than-expected growth in services and construction. The economy therefore grew by 0.3% in the second quarter.
Despite this positive surprise, we expect growth to remain subdued in the third quarter of this year as uncertainty over fiscal policy and international trade continues to weigh on economic activity.
As outlined in our recent UK economic outlook, the chancellor must build a substantial fiscal buffer in the autumn budget to avoid uncertainty plaguing growth into next year.
Rachel Reeves: stronger-than-expected GDP is 'positive' but 'more to do'
Rachel Reeves, the chancellor, has welcomed the stronger-than-expected GDP growth figures.
However, it is not a resounding celebration, perhaps given all of the uncertainty in the global economy.
She said:
Today’s economic figures are positive with a strong start to the year and continued growth in the second quarter. But there is more to do to deliver an economy that works for working people.
I know that the British economy has the key ingredients for success but has felt stuck for too long.
That is why we’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay. There’s more to do and today’s figures only fuel my ambition to deliver on our plan for change.
UK GDP grew by 0.3% in second quarter thanks to surprise June acceleration
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
The UK economy grew by 0.4% month-on-month in June according to new data that helped the second quarter to end with better-than-expected output.
British output rose by 0.3% in the second quarter of 2025, the Office for National Statistics said. That was higher than the 0.1% expected by economists polled by Reuters.
The faster-than-expected growth was down to better performance from the services and construction sectors, which grew at 0.4% and 1.2% respectively in the quarter – although production output (which includes manufacturing) fell.
Real GDP per head is estimated to have grown by 0.2% in the latest quarter and is up 0.7% compared with the same quarter a year ago.
Nevertheless, it was still a slowdown compared to the first quarter, when the UK economy grew by 0.7%. Economists expected slower growth because of Donald Trump’s trade war, which caused chaos in the second quarter after his “liberation day” announcement on 2 April.
It is also unclear whether the help from the construction sector can be sustained, given more recent purchasing managers’ index data for July showing a steep drop in UK housebuilding.
We’ll have all the reaction to the GDP figures this morning.
The agenda
10am BST: Eurozone GDP growth rate second estimate (second quarter; previous: 0.6% quarter-on-quarter; consensus: 0.1%)
10am BST: Eurozone industrial production (June; previous: 1.7% month-on-month; consensus: -1%)
1pm BST: US producer price inflation (July; previous: 0%; consensus: 0.2%)
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