Closing summary
US government bond yields tumbled from multi-decade highs after the Treasury department stepped in to calm the market, saying it would “at least” double its debt repurchases.
George Saravelos, currency strategist at Deutsche Bank, said:
In an unexpected announcement, the US Treasury announced a big increase in buybacks of long-end US Treasuries. The dollar is weakening unusually sharply. Why? We make the following observations:
First, we see the unexpected buyback announcement as well as the discouragement of intervention from Japan earlier this month as signs of increasing administration unease on the ongoing rise in long-end US yields.
Second, we see both the buyback and encouragement to use the FIMA [Foreign and International Monetary Authorities] facility for FX reserves as soft-form financial repression policies aimed at containing the long-end of the US yield curve.
Third, we see both developments as negative for the dollar. If the market price of USTs is not “allowed” to adjust down, the foreign exchange price of UST owned by foreign investors has to adjust via a weakening in the dollar.
Fourth, the buyback operation is effectively very similar to the Fed’s operation twist. Treasury would have to issue more treasury bills to finance the removal of duration from the market. To the extent that this eases financial conditions, it would arguably necessitate an offsetting tightening from the Federal Reserve. If Chair Warsh does not recognize the buyback as a factor driving an easing of financial conditions, we would take it as an additional dollar negative driver.
In all, the market is likely to be increasingly attentive to further measures intended to support the US Treasury market going forward. The more these are perceived as distortionary to market pricing, the more the dollar is likely to weaken.
UK inflation rose to 2.9% in July as the impact of the Iran war on energy prices triggered a renewed cost of living squeeze for British households.
Thank you for reading. We’ll be back tomorrow. Take care out there! – JK
Moderna shares more than doubled on news of its skin cancer drug breakthrough in a late-stage clinical trial, jumping 120% after Wall Street opened.
They are now trading at $124.88, roughly double what they were worth yesterday.
The mRNA-based shot, intismeran, given in combination with US drugmaker Merck’s immunotherapy Keytruda (also known as pembrolizumab), met key goals in the Phase 3 trial in 1,137 patients with higher-risk or advanced melanoma whose detectable cancer had been completely removed through surgery.
Professor Georgina Long, the study’s principal investigator and medical director of Melanoma Institute Australia, said:
Today’s results represent a landmark moment for adjuvant melanoma treatment.
Intismeran in combination with pembrolizumab has the potential to establish a new treatment paradigm in the adjuvant melanoma setting, helping patients remain cancer-free for longer.
Moderna chief executive Stéphane Bancel said in an interview on CNBC’s Squawk Box:
It’s a big moment for medicine, a big moment for patients.
The company explained:
Intismeran is designed and produced using a patient’s tumor sample to identify the unique mutational signature, or “fingerprint,” of their cancer and generate an anti-tumor immune response. Each therapy consists of a synthetic mRNA coding for up to 34 neoantigens [abnormal proteins that form on the surface of cancer cells due to tumor DNA mutations and act as red flags] and is tailored to the unique biology of an individual patient’s tumor.
Upon administration, the RNA-encoded neoantigen sequences are translated in the body and presented to the immune system, a key step in generating specific T-cell responses against cancer cells. Individualized neoantigen therapies are designed to train and activate an anti-tumor immune response based on the unique mutational signature of a patient’s tumor.
Updated
Markets understood the message immediately, said Stephen Innes, global strategist at Bangkok-based Quintex Intel. Long bonds rallied and the 30-year yield fell as much as 9 basis points to around 5.19%.
This is not QE, and it is not the Fed cutting rates. Treasury is buying older securities to improve market liquidity rather than attempting to engineer a broad easing of financial conditions. But for traders, the distinction only gets you so far when the intervention arrives directly after long yields hit multi-decade highs.
Scott Bessent had previously described Treasury’s buyback program as part of a broader toolkit available if bond-market dislocations became problematic. Wednesday was the first meaningful indication that Treasury is prepared to use more of that toolkit when duration starts misbehaving.
John Briggs at Natixis captured it neatly: the timing is unlikely to be an accident. If yields move too far, Treasury will try to fight the disorder, and the market now has a better idea where some of those pain points sit.
That matters enormously for equities, Innes said.
The latest selloff in technology has been driven as much by the denominator as the numerator. When the 30-year is above 5.3% and real yields are climbing, long-duration equity valuations get compressed whether the earnings story has changed or not. Semiconductors and the higher-beta AI complex were therefore sitting directly in the firing line.
A Treasury-induced rally in long bonds removes some of that pressure. Hence the rebound in stocks.
But there is an important distinction between containing a disorderly move and reversing the macro forces behind it.
Treasury buybacks do not eliminate heavy government issuance. They do not remove the fiscal premium. They do not make $90-plus oil disappear, and they do not solve the enormous financing requirements sitting behind the AI capital-expenditure boom.
What they do is tell the market that Washington does not want the long end becoming completely unhinged.
That changes the trading calculus.
Until Wednesday, traders were testing how high long yields could go before something cracked. Now they know Treasury is watching the same levels.
And once the market knows there is a pain threshold, it starts trading the threshold.
Treasury may not have put a hard ceiling on yields, but Bessent just showed traders where the roof begins to creak.
The accelerated buyback will start on 9 September and run until 4 November.
The US Treasury department said:
This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations.
This means that the Treasury will buy more longer-duration debt, in an attempt to calm nerves and steady the market.
US Treasury bond yields tumble after Bessent steps in to calm market
US government bond yields have fallen sharply after Treasury secretary Scott Bessent stepped in, saying the department will more than double its government debt repurchases.
With global bond markets under pressure and yields surging to levels not seen in nearly two decades in recent days, the announcement brought some relief to the market.
The Treasury department will buy up more debt in the 10- to 20- year and 20- to 30-year sections of the market. The government will “at least double” the maximum size of its buyback operations, from $2bn to “at least” $4bn, the department said.
Yields plunged following the announcement while stock market futures rose sharply.
The benchmark 10-year bond fell 6 basis points to 4.647% while the 30-year “long” bond tumbled 9 basis point to 5.196%. (A basis point equals 0.01%. Yields move in opposite direction to prices.)
Neil Wilson, investor strategist at Saxo UK, said:
Call it the Bessent Put...Kevin Warsh’s Fed might not want to give forward guidance on rates but Treasury and Bessent clearly do!
We have seen huge move in bonds with the curve sharply flattening as the US Treasury announced upscaled buybacks to support the long end of the curve. It’s provided some immediate relief to the long end of the Treasury curve and eased some of the pressure building up lately.
This is probably more about the signal the administration wants to send to the market than the size of the operation – it’s small potatoes vs the $40tn US government debt. I see it as a very strong sign that the Treasury has decided higher US yields are unacceptable, and that the recent blowout in the long end is undesirable and needs counteracting by means other than a) raising short-term rates to re-anchor expectations or b) reining in fiscal drift. Clearly Donald is not happy yields have blow out...
Treasury said it is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities, ie across the 10-30 year range where buyers have been absent for at least a month.
These operations are a kind of mini- or quasi-QE by supporting prices and lowering yields, resembling Fed asset purchases albeit they don’t work the same way; the effect seems to be similar. It resembles Operation Twist by seeking to support the long end and improve liquidity, which could put more pressure on the USD if the market interprets this as meaning easier financial conditions because it allows the Fed to avoid a monetary policy response and implies official support for the Treasury market; or in essence fiscal dominance.
However, this might complicate the US Federal Reserve’s job, he said.
Federal Open Market Committee minutes coming up later...but if Kevin Warsh didn’t want to take signals from markets then how does this help? Clearly this clouds the picture for the Fed.
Updated
Rising inflation underlines scale of Andy Burnham’s cost of living challenge
Back to our main story, the rebound in UK inflation on the back of higher household energy bills.
Rising inflation underlines the scale of Andy Burnham’s cost of living challenge, writes our economics editor Heather Stewart in her analysis of today’s inflation data.
July’s increase in inflation, to 2.9%, is likely to be the first of several, underlining the challenge facing Andy Burnham in shielding consumers from a fresh cost of living squeeze this autumn.
Rising energy bills, as an increase in Ofgem’s quarterly price cap came into force, were the main driver of the jump in inflation, from 2.6% in June. That was partly offset by cheaper fuel prices – the knock-on effect of hostilities easing in the Middle East, after Donald Trump hailed his “memorandum of understanding” with Iran in June.
However, fuel prices have risen again in recent weeks as hopes of a permanent end to the conflict have faded, and the Ofgem price cap for household energy bills in Great Britain is expected to rise by 4% in October.
Burnham’s early decision as prime minister to cut VAT from electricity bills will help to ease the pressure on budgets, but it risks being overwhelmed by wider price rises.
Food prices have been remarkably quiescent so far in the face of the conflict, rising at an annual rate of only 1.3% in July, down from 1.7% a month earlier. But it is likely there is worse to come, as a result of extreme heat and drought through the summer months.
Forecast energy price cap rise in Britain could push UK fuel bills up 4% this winter
Household energy bills across Great Britain are expected to climb to a three-year high this winter as the impact of the Middle East war wipes out Andy Burnham’s tax cut on electricity bills.
The government’s cap on energy prices is on track to rise by 4% from this October to the equivalent of £1,729 a year through the last three months of 2026, which could hit struggling households especially hard this winter, according to analysis by the energy consultancy Cornwall Insight.
The forecast quarterly price cap would be the highest since July 2023, after soaring energy market prices from the Middle East were compounded by the increased use of expensive gas in power plants during heatwaves across Europe.
The rising cost of gas will more than offset the new prime minister’s promise to cut VAT from household electricity bills from October, which aimed to give voters “some breathing space” on living costs by shrinking bills by an average of £45 a year.
Dog food recalled after reports of pets losing their sight
A dog food brand has recalled all of its fresh meals after reports that a recipe change may have caused some animals to develop an eye condition that, if left untreated, can lead to sight loss.
The brand Years said owners should stop feeding its fresh meals to their dogs “immediately” and also told them not to feed the meals to any other animal, or to donate or sell them.
In response to reports from some owners of pets not responding to treatment and in some cases losing their sight, Years told the Guardian:
The picture is mixed. Some [ophthalmologists] report dogs responding well to treatment … others have seen limited or slower responses.
The firm runs a subscription-based service delivering “personalised” meals and its products are also available at some retailers including Pets at Home.
Years said that as of the early hours of Wednesday, it had had 192 customers report “potential, yet unverified, eye issues” out of roughly 40,000 customers. It previously said that as of Sunday it had “received 57 suspected cases” of the condition, known as sudden bilateral dry eye.
Axel Rudolph, chief technical analyst at investing and trading platform IG, has looked at why Moderna’s skin cancer vaccine breakthrough has sent its shares soaring – now up 90% in pre-market trading.
Moderna has delivered the breakthrough investors have been waiting for, with its personalised mRNA melanoma vaccine producing a positive Phase III result and becoming the first mRNA cancer therapy to clear a late-stage trial.
The vaccine helped patients stay cancer-free for longer and showed that mRNA treatments could work against cancer, not just infections. The shares were already up strongly this year, but today’s [share] surge reflects the possibility that melanoma could prove to be the platform’s pivotal proof of concept. There are still important questions around the size of the benefit and overall survival, but this is a major milestone that could transform Moderna’s longer-term growth story.
Chinese carmaker Chery plots UK expansion with major R&D centre
The Chinese carmaker behind the irreverently nicknamed “Temu Range Rover” is plotting further UK expansion with a major research and development centre in England.
Chery, which makes the Jaecoo and Omoda car brands, said the launch of a new R&D site was “the next step in our long-term plan” for Britain as it also moves towards manufacturing its cars in the UK.
Chery’s sales are growing at breakneck pace in Britain. In July, the Chery, Omoda and Jaecoo brands accounted for nearly 8% of UK market share, up from 3% last year, according to the Society of Motor Manufacturers and Traders.
The Jaecoo 7, a hybrid electric built in China known as the “Temu Range Rover” for its low price and techy add-ons, became the top-selling model in the UK in March, but Chery currently has to bring them in from abroad.
The company is part-owned by the Chinese state, and has already signed a deal with Nissan to build its cars at its Sunderland plant, in a move that would begin mass-market Chinese car production in Britain for the first time from 2027.
The new R&D facility will open in late autumn, Chery said on Wednesday. Gary Lan, chief executive of its UK business, said:
We waited over 20 years for the right time to enter this market, and our ambition has always gone much further than simply bringing vehicles here.
An existing vehicle testing centre between Bedford and Milton Keynes that is used by engineering and motorsport companies – as well as the Ministry of Defence - will be the site of Chery’s new R&D facility.
The centre, called UTAC Millbrook, will give Chery access to more than 70 kilometres of purpose-built test tracks for it to fine tune its cars for UK roads. Further down the line it will also use the site to work on self-driving cars and artificial intelligence.
Updated
Moderna shares surge after personalized cancer vaccine success
Over on Wall Street, shares in US biotech company Moderna have surged almost 60% in pre-market trading after reporting positive trial results from its personalised mRNA cancer vaccine for melanoma.
Moderna and US pharma group Merck say they have achieved “positive topline results” for a phase three trial of their individualized neoantigen therapy and mRNA-based cancer therapy on patients with melanoma.
Known as mRNA-4157 (V940), the vaccine targets tumour neoantigens, which are expressed by tumours in a particular patient. These are markers on the tumour that can potentially be recognised by the immune system
“Today’s results represent a landmark moment for adjuvant melanoma treatment,” said Professor Georgina Long, the study’s principal investigator and medical director of Melanoma Institute Australia, Chair of Melanoma Medical Oncology and Translational Research at the University of Sydney.
The phase 3 trial began in 2024, after an earlier trial found the vaccines dramatically reduced the risk of the cancer returning in melanoma patients.
Updated
There is a sliver of relief for borrowers this morning – mortgage rates have dipped very slightly.
Moneyfacts reports that two and five-year loans are marginally cheaper than yesterday, reporting:
-
The average 2-year fixed residential mortgage rate today is 5.60%. This is down from 5.61% the previous working day.
-
The average 5-year fixed residential mortgage rate today is 5.63%. This is down from 5.64% the previous working day.
Europe can’t afford to miss out on AI revolution, Lagarde warns
Over in the eurozone, the head of the Europen Central Bank has warned that Europe cannot afford to fall behind in the AI race.
In a speech in Geneva, Christine Lagarde warned that Europe’s post-war growth model is eroding, meaning it mustn’t miss out on the artificial intelligence revolution.
Lagarde said:
“Europe largely missed out on the first digital revolution, as the commercial gains from the spread of information and communication technologies were captured disproportionately elsewhere.
We cannot afford to repeat that experience with AI, the second digital revolution.”
Lagarde pointed to “encouraging signs” that European firms are investing in AI; eurozone firms expect to allocate 9% of their total investment to AI this year.
But there are two barriers to successful AI take-up, she added. The first is fragmentation in the Single Market, which prevents the benefits from AI investment flowing between countries.
The second is fragmentation in capital markets, which makes it harder for European start-ups to attract capital, and can push them to relocate, often to the US.
Updated
Household energy bills expected to hit three-year high in October
The cost of living squeeze is set to intensify this winter, when energy bills are expected to rise again.
Consultancy Cornwall Insight has predicted that household energy prices will hit a three year high in October, when the quarterly price cap is next adjusted – on top of the 13% increase in July.
Cornwall predict the energy price cap will increase by 4%, lifting the annual bill for a typical household in Great Britain up to £1,729, up from £1,663, based on an Ofgem’s updated definition of a typical consumer.
Based on Ofgem’s previous calculations, annual bills would rise to an average of £1,941 per year, up from £1,862 currently, the highest average bill since July 2023.
Updated
Tom Bill, head of UK residential research at Knight Frank, said:
Rents are being pushed higher as the unintended consequences of the Renters’ Rights Act play out. Some landlords have left the sector, which has reduced supply, while others have increased asking rents to reflect the additional financial risks they face. The consequences may be unintended, but they were not unexpected, and a policy designed to tip the balance of power towards tenants is adding to the financial pressures they already endure.
Turning to the sales market, he said:
House price growth is slowing to zero as borrowing costs remain high and uncertainty surrounds which taxes will be increased in the autumn Budget.
Weakness in the labour market means the Bank of England is unlikely to hike rates any time soon but almost six months into the Middle East conflict mortgage rates are still around a percentage point higher than they were before it started. A seasonal bounce in activity may be more detectable in autumn than it was in spring as rates stabilise, but that will also depend on the extent of any pre-Budget speculation and overall we expect prices to be largely flat this year.
UK private rent rises pick up while house price inflation eases
Growth in private rents in the UK has picked up, while house price inflation slowed sharply at the start of the summer, according to official figures.
The price of an average home increased to £272,000 in June, taking the annual growth rate down to 2% from 3% in May, according to data from the Office for National Statistics.
It said price growth has been weaker this summer than last year in the months following the end of a stamp duty tax break in England and Northern Ireland.
The average private rent was up 3.7% at £1,393 in the 12 months to July, up from an annual rate of 3.3% in June. The ONS said:
-
Average rents increased to £1,451 (3.8%) in England, £843 (4.5%) in Wales, and £1,016 (1.7%) in Scotland, in the 12 months to July.
-
In Northern Ireland, average rents increased to £875 (2.3%), in the 12 months to May.
-
In England, private rent annual inflation was highest in the North East (6.3%), and lowest in the South East (2.9%), in the 12 months to July.
-
Average house prices increased to £293,000 (1.8%) in England, £213,000 (1.8%) in Wales, and £195,000 (2.3%) in Scotland, in the 12 months to June 2026.
Shares in humanoid robot firm Unitree surge 600% on Chinese stock market debut
Unitree, the world’s biggest humanoid robot maker, has made a spectacular entry on to China’s stock market, with its shares surging by more than 600%.
The Chinese company’s robots have gained global fame via viral videos of them performing martial arts, running at Olympic speeds and serving as backup dancers for pop stars.
Shares in the business, officially known as Yushu Technology Co, rose as high as 1,100 yuan (£120.39) on Wednesday, up from an IPO price of just 150.8 yuan. Its gains were later pared back to a rise of nearly 500%.
Investors are searching for winners in robotics development, which has emerged as one of the key battlegrounds in the AI race.
Unitree, which was founded in 2016, shipped more than 5,500 humanoid robots last year.
The market for human-like robots is expected to grow rapidly, with analysts projecting that sales could rise from around $2bn (£1.5bn) in 2025 to $300bn by 2035.
There was exceptional demand from Chinese retail investors in Unitree’s IPO, with the tranche of shares dedicated to non-professional stockpickers oversubscribed by thousands.
Unitree is one of the few listed humanoid robot makers in the world. Its biggest competitor, AgiBot, is private and its smaller rival UBTech is listed in Hong Kong.
However at least half a dozen other Chinese humanoid robotic businesses are preparing to go public, including Deep Robotics and Leju Robotics.
Oxford Nanopore shares jump on better financial performance
Shares in Oxford Nanopore jumped more than 7% after the company, which has developed molecular sensing technology based on nanopores, reported a jump in half-year revenues and a smaller financial loss.
The company, a spinout from Oxford University founded in 2005 by three scientists who met at the university, produces devices used to identify viruses and spot variants in the genetic makeup of humans, animals and plants.
It made revenues of £116.7m between January and June, which grew by 12.3% on a constant currency basis, and its half-year loss shrank to £48m from £71.8m.
The news catapulted Nanopore shares to the top of the FTSE 250 index, up 7.2% at 130.3p.
Revenues climbed across different markets, with clinical revenue increasing 35.4%, biopharma 25%, industrial 6.2% and research 5.4%.
Sales were led by PrometION benchtop DNA and RNA sequencing devices, up 15.7% year on year, which allow researchers to do long-read sequencing from small microbial genomes to population-scale genomics and complex cancer research.
Deals included a licensing agreement with a global diagnostics company and an agreement with Californian genome analysis platform firm MyOme to incorporate Nanopore’s sequencing technology into a rare disease platform.
Francis Van Parys, who replaced co-founder and long-time chief executive Gordon Sanghera in March, said:
Since joining the business, I have spent time listening to colleagues across the organisation and engaging with customers, partners and broader stakeholders. Together, we have refined our view of where our differentiated technology can create the greatest value. We are now translating that into a focused operational roadmap across four strategic priorities which will accelerate growth by concentrating our people, investment and innovation on a select group of high-potential applications across BioPharma, Clinical and Research end-markets.
Our next chapter is about harnessing the collective strength of Oxford Nanopore to deploy our differentiated technology seamlessly and at scale across an ever-expanding customer base. Our focus is clear: to accelerate adoption in our fastest-growing end markets and realise our longer-term ambition to build Oxford Nanopore into a $1bn-and-growing annual revenue business, delivering significant and sustainable value for all stakeholders.
Calm returns to bond markets after rout; European shares flat to slightly higher
A degree of calm has returned to government bond markets after increases to multi-decade highs in the last couple of days, while European stock indices are flat to moderately higher.
The yield, or interest rate, on the 10-year US Treasury bond is down 2.2 basis points at 4.684% while the 30-year bond yield has edged 1.4bps lower to 5.271%.
The UK’s 10-year gilt yield has slipped 2.6 basis points to 5.049% while the 30-year bond yield is down 2.1bps at 5.805%.
Worries over the Iran war, where hopes of a permanent deal are fading and the ceasefire expired on Monday, coupled with concerns over rising government borrowing in advanced economies (partly due to a ramp-up in defence spending) led to sharp rises in bond yields globally in recent days, which means higher borrowing costs for governments.
In oil markets, the global benchmark Brent crude has advanced 51 cents, or 0.6%, to $91.53 a barrel, a three-week high. Traders worry about the future of shipping through the strait of Hormuz, with contradictory remarks from the US and Iran.
Donald Trump said on Tuesday that no talks were being held with Iran and that the strait, a key shipping passage for oil, gas, fertiliser and other products, was open – while Tehran said the waterway remained shut.
On the stock markets, the UK’s FTSE 100 index is down nearly 10 points at 10,718, little changed from Tuesday. The German Dax is flat and the French CAC edged 0.3% higher.
Updated
Trainline, Virgin Atlantic and Red Driving School investigated over 'drip pricing'
The UK’s competition watchdog has launched investigations into Trainline, Virgin Atlantic and Red Driving School, over concerns that all three companies displayed misleadingly low prices to their customers.
The Competition and Markets Authority’s probes are part of a broader clampdown on so-called “drip pricing”, an illegal practice that makes a product appear cheaper by not including all mandatory fees.
The regulator said it opened investigations into the companies amid concerns that customers had not been shown the total price upfront when buying train and coach tickets, holidays or driving lessons.
Emma Cochrane, executive director for consumer protection at the CMA, said:
The first price customers see should be the price they pay.
Clear pricing helps people compare offers confidently and choose the option that works best for them.
Unexpected mandatory charges make this much harder, which is why the CMA initially put these firms on notice over concerns about their pricing practices and is now opening formal investigations.
Trainline said in a statement to the stock exchange that it had “proactively engaged with the CMA over several months” and was “taking steps to enhance the presentation of certain fees”. Shares in the business, which is the only one of the three companies that is listed on the stock exchange, fell by as much as 14% in early trading on Wednesday.
Virgin Atlantic said that “mandatory fees are indicated at multiple stages” when customers are booking trips, but that it was reviewing the concerns and will cooperate with the regulator. Red Driving School was approached for comment.
The CMA’s investigations have been launched using its new consumer protection powers, which were granted last year.
OpenAI announces slowing pace of development after hack by rogue agent
OpenAI has said it has slowed down the pace of its AI development while it overhauled its research and training systems.
The company’s researchers were caught unaware last month when an AI agent under testing hacked another AI firm, Hugging Face.
The AI research lab behind ChatGPT said its new measures included pausing its model testing for two weeks and investing more in adding other AI systems to monitor the activities of AI agents in testing. Some of the company’s largest planned training runs remain on hold, the company said.
The company did not reply to questions about when the slowdown began or when it planned to return to its normal pace of development. However, in an interview with tech blog Sources News, Mia Glaese, who leads safety at OpenAI, said:
We are very far from everything running back to normal.
The company is working to ensure the AI model is responsive to human oversight and will behave as intended, a process called alignment, Sam Altman, the OpenAI CEO, wrote in the post announcing the slower pace of development.
We now require stronger evidence of aligned behavior throughout all of training, building on research and evaluations already underway. Keeping increasingly capable systems aligned is a challenge the whole field will need to address.
UK relies on heat-stressed countries for fruit and veg it could grow itself – report
The UK is vulnerable to food price shocks because of its dependence on imports of fruit and vegetable from countries even more exposed to the climate crisis, researchers say.
Much of Britain has sweltered under a record five heatwaves this year and endured drought and wildfires, with the hot, dry conditions damaging crops and reducing yields of domestic produce.
However, the UK relies on countries under even greater climate pressure for supplies of some of its most popular fresh foods, according to a report from the Food Foundation charity published on Wednesday.
While the UK generally produces enough grains, meat, milk and eggs to cover its needs, it has one of the lowest food self-sufficiency ratios among large western European countries.
Julian Jessop, independent economist and economics fellow at the Institute of Economic Affairs, a free-market think tank, said:
Market forces are helping to keep inflation in check, despite the headline rate jumping to 2.9%.
As expected, the bulk of the rise was driven by higher household energy bills following the increase in the Ofgem cap. Most other components were little changed, while food price inflation fell again, providing little support for claims that supermarket ‘price gouging’ is driving up grocery bills.
It is still too soon to sound the ‘all clear’. Inflation could rise further in the coming months as pipeline pressures feed through, and may not return to the Bank of England’s 2 per cent target until late next year. But subdued demand, strong competition and yesterday’s weak labour market data should reassure the Bank that the risks of second round effects are limited.
The best way to get inflation down is a combination of sound money and allowing market forces to do their job. Rather than constantly tinkering with individual prices, the government should free up markets to increase the supply of housing, food and energy – and reverse the many policies saddling businesses with additional costs.
Diesel and petrol prices fall in July along with European air fares
At least for now, lower diesel and petrol prices brought transport prices down in July.
Transport prices rose at an annual rate of 3.6%, down from 5.7% in June. Within this, motor fuel costs rose 15.5% year on year, down from 21.3% in June.
The average price of diesel fell by 8.8 pence a litre between June and July, compared with a smaller rise of 2.9p a litre last year. The average price was 167.6p a litre.
Petrol prices dropped 3.1p a litre against a rise of 2p a litre a year ago. The average price was 152.2p a litre.
Air fares rose 11.7% between June and July, compared with a rise of 30.2% between the same two months in 2025. The main reason was a 4.3% price fall on European routes, compared with a 38% rise last year. This is in contrast to long-haul flights, which went up 31.7% in price, more than last July’s 20.9% increase.
Regulated train fares in England could rise over 4% next year
Regulated train fares in England could increase by more than 4% next year.
The Office for National Statistics announced that inflation measured by the retail prices index (RPI) rose to 3.2% in July.
The government has not confirmed what it will do about fare increases in 2027, but last year’s 4.6% cap was one percentage point above RPI in July 2024.
If that formula is used to set next year’s increase, the cost of train travel will jump by 4.2%. That would mean an annual season ticket from Brighton to London rising by £219 to £5,423, according to PA.
A flexi ticket for travel two days per week over a year from Leeds to Manchester would increase by £151.35 to £3,754.95.
Keir Starmer’s government froze regulated fares this year.
About 45% of fares on Britain’s railways are regulated by the Westminster, Scottish and Welsh governments. They include season tickets on most commuter journeys, some off-peak return tickets on long-distance routes, and flexible tickets for travel around major cities.
Unregulated fares are set by operators, but increases are expected to be similar.
UK food prices rise at lowest rate since September 2021
Food and non-alcoholic drink prices rose at an annual rate of 1.3% in July, down from 1.7% in June – the lowest rate since September 2021.
The price of meat, particularly beef and breaded chicken, fell this year but rose last year.
Prices of vegetables fell more last month than they did last July, and prices of sugar, jam and honey rose less in July than they did last year.
Prices of fish rose but fell last year, while bread and cereals also became more expensive and were little changed a year ago.
Remarkably benign UK food prices keep a lid on inflation, said ING economist James Smith.
Headline inflation is up three-tenths of a percentage point to 2.9%, on the well-telegraphed rise in household energy bills and also a bigger rise in social rents than this time last year. That wasoffset by July’s short-lived dip in petrol and diesel prices (spoiler alert: that won’t last into August’s figures).
None of that was unexpected. What remains much more surprising, however, is just how benign food inflation is right now. Prices here were flat on the month, having fallen in month-on-month terms in the two prior readings, something that is highly unusual.
A quick glance at producer prices suggests consumer food inflation could theoretically even go negative in annual terms over the next few months. We’re not convinced that will happen – and it was always going to take at least a year for the full effects of the Iran War to show up here.
But it should still be welcome news for the Bank of England’s hawks, who point to the influential role of food prices in setting household inflation expectations.
Britain’s new prime minister Andy Burnham has pledged to ease cost of living pressures, and has already announced measures including a tax cut on household electricity prices and a cap on bus fares.
John Healey said in response to the latest inflation figures:
Iran war inflation continues to impact prices here at home, but Britain’s economy is resilient.
We have cut VAT on electricity bills and capped bus fares at £2 – to give breathing space to those feeling the strain.
There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain.
Analysts expect inflation to rise further towards the end of the year as higher energy costs feed through to people’s bills, with no signs of progress on a deal to end the Middle East war. The US-Iran ceasefire expired on Monday.
The Bank of England held its benchmark interest rate at 3.75% last month even though inflation was above its 2% target.
Jonathan Raymond, investment manager at Quilter Cheviot, said:
A renewed spike in inflation has been expected as the war in the Middle East continues to navigate a clunky ceasefire.
Things remain far from normal in the Strait of Hormuz and look unlikely to be resolved any time soon, meaning pressure is likely to remain on prices for the remainder of the year at least.
July clothing prices affected by early discounting during June heatwave
Prices of furniture and household goods rose 1% year on year in July, compared with an annual fall of 0.2% in June, the UK’s statistics office said.
Prices of furniture and furnishings fell in July compared with June, but by less than a year ago. There were smaller upward contributions to infllation from tools and equipment for house and garden, and goods and services for routine household maintenance.
Clothing and footwear prices rose by 0.5% in July, compared with a fall of 0.5% the previous month. On a monthly basis, prices fell by 0.9% last month, the smallest July price drop since 2020.
The Office for National Statistics explained that discounting on clothing started earlier than usual this year in June, and that the quantity bought in clothing stores rose by 1.9%, the largest monthly rise since September 2025. People scrambled to buy summer clothes during the June heatwave, and retailers lured customers with sales promotions.
Updated
JP Morgan warns rebound in UK inflation is 'warning shot for what could come next'
The UK’s core rate of inflation, which strips out volatile items such as energy, food and alcohol, stayed at 2.6% in July, while economists had expected it to dip to 2.5%.
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, described the rebound in headline inflation as a “warning shot for what could come next”. He explained:
UK headline inflation jumped in July as the Ofgem energy price cap rise hit household bills. The increase was expected but marks a clear reversal from previous months when the headline rate was falling.
Until now, the spike in global energy prices had been felt the most among motorists when filling up their vehicles at the petrol pump. July data shows that the inflationary impact of the US-Iran war is spreading as rising energy costs feed through into higher household bills.
As the situation in the Middle East remains uncertain, the continuation of elevated energy costs remains the largest challenge for consumers and businesses. Petrol prices have already risen 6.3% in August compared to the previous month and will show up in next month’s reading. Businesses are also facing higher input prices which are being passed on to buyers and could rise heading into the colder months later this year. Falls in services inflation and shop prices are helping to offset some of these pressures for now but the jury is out on whether this will last.
While one data reading doesn’t always tell the whole story, this rebound in UK inflation is a warning shot for what could come next. We are keeping an eye out to see whether higher global energy prices have a knock-on effect for consumer goods prices, electronics and the wider artificial intelligence build out. This would have an impact on the UK economy and present a challenge for the Bank of England who are keen to avoid hiking rates. If goods inflation accelerates, then it will become difficult for BOE policymakers to maintain rates at the current level.
Updated
Introduction: UK inflation increases in July, driven by pricier gas; oil prices rise again
Good morning, and welcome to our rolling coverage of the global economy, the financial markets, the eurozone and business.
It’s UK inflation day!
Inflation picked up to 2.9% last month, mainly driven by higher gas prices.
The annual increase in the consumer prices index in July compares with a rate of 2.6% in June, according to the Office for National Statistics. City economists had forecast a rate of 2.9%.
Housing and household services, and furniture drove up the inflation rate while transport made the largest, partially offsetting, downward contribution, the statistics office said.
Within housing, higher gas prices were the main factor: Prices rose by 14.7% in July compared with a fall of 7.2% a year ago. Britain’s energy regulator changed the energy price cap, leading to higher standard variable tariffs, and estimated that for an average household paying by direct debit for dual fuel, this equated to an annual bill of £1,862, a rise of £221.
The increase was the largest rise in gas prices since October 2022, when UK consumers were first exposed to the higher prices arising from the energy crisis relating to Russia’s war in Ukraine. The price rise means that gas prices are at their highest level since March 2024.
The news comes after British consumers faced the sharpest summer increase in energy charges in four years in July as the US-Israel war on Iran sent shock waves through global energy markets.
However, separate official figures on Tuesday showing a slowdown in the jobs market – including a slowdown in private sector pay growth – may mean that the Bank of England won’t need to hike interest rates, according to economists.
Crude oil prices have risen this week as a ceasefire between the US and Iran expired on Monday, with Brent crude up 0.65% to $91.61 a barrel this morning.
In Asian stock markets, Japan’s Nikkei has slumped again, by 3%, following a chip sell-off on Wall Street. South Korea’s Kospi plunged 5.9% and China’s Shenzhen exchange lost 4.7%.
The Agenda
-
9.30am BST: UK Private rents and house prices for July
-
8.10am BST: European Central Bank president Christine Lagarde speaks
-
10am BST: Eurozone inflation final for July
-
7pm BST: US Federal Reserve minutes of last meeting
Updated
