09/08/2025 by Tony Redondo
A conflicted BoE (Bank of England) duly delivered the expected 0.25% interest rate cut last Thursday to take rates down to 4%. It’s the fifth time rates have been cut since last August and takes UK interest rates to their lowest level since March 2023.
What was unexpected was the much closer vote in the nine member MPC (Monetary Policy Committee) that sets UK interest rates with four members voting against a cut, two more than in May while it took two rounds of voting, requiring Alan Taylor to drop his preference for a larger 0.5% cut for the MPC to pass the motion. Another 0.25% cut at the 6 November meeting is now seen as a 50/50 call.
The BoE’s chief economist, Huw Pill, thinks that the pace of rate-cutting has to slow down to curb high inflation. Economists have largely focused on the impact of a deteriorating jobs market and price-setting behaviour pulling inflation in opposite directions.
Nigel Green, CEO of global financial advisory giant deVere Group, says the move confirms that the BoE is reacting to economic weakness and that households should brace for tighter fiscal policy later this year. Green said, “We welcome the cut. Lower borrowing costs are good for many homeowners, business owners, and investors. However, no one should mistake this for a sign of economic strength. This is a defensive move from a central bank concerned about stagnation. The fact that rates are being cut at a time when inflation has already cooled shows just how worried the Bank is about growth. They’re not stimulating a boom. They’re trying to stop a slide.”
Chancellor Rachel Reeves now faces a difficult lead-up to the Autumn Budget after the BoE’s “hawkish cut”. The NIESR (National Institute of Economic and Social Research) believes the government faces a £50bn black hole in the public finances. NIESR deputy director, Professor Stephen Millard, said, “The really disappointing thing from my point of view was that when Labour came in, there didn’t seem to be a plan on the table. A lot of problems the chancellor is facing now could have been headed off at the pass if they had come in with a clear plan” Millard said. There are “really hard decisions the chancellor is going to have to make if she is going to raise that £50bn. “That requires large increases in taxes – fiddling at the edges is not going to do.”
https://www.birminghammail.co.uk/news/money/five-ways-rachel-reeves-could-32216977
Currency Exchange Rates Update
As recently as 27 July, the Pound was languishing at its lowest level against the Euro since November 2023. It has since gained over 1.2% in value.
Against the US Dollar, the Pound gained over 1.1% last week but is still over 1.2% lower than at this time last month.
This week, the key economic data releases include:
Tuesday Australia RBA (Reserve Bank of Australia) Interest Rate Decision
UK Employment and Wages
Germany ZEW Business Confidence Index
US CPI (Consumer Price Index)
Wednesday Germany CPI Inflation.
Thursday UK Q2 GDP
EU Q2 GDP
US PPI (Producer Price Index)
Friday China Industrial Production & Retail Sales
US Retail Sales & Preliminary Michigan Consumer Sentiment.
What’s in the news?
UK
The UK Supreme Court ruled that motor finance lenders are not generally liable for undisclosed dealer commissions, dismissing the prospect of mass compensation payouts to UK drivers.
House prices bounced back in July with the Nationwide monthly index increasing by 0.6%, slightly ahead of analysts’ expectations. The annual rate is up from 2.1% to 2.4%
Legal & General Mortgage Services has reported a sharp rise in mortgage applications from over-50s, as rising house prices push Britons to buy their first homes later in life.
Good news
The UK manufacturing sector is showing signs of recovery, with the S&P Global UK manufacturing PMI survey at 48 in July. This marks the strongest performance in six months, although it remains below the growth threshold of 50.
A new report from credit manager Pepper Advantage shows mortgage arrears in the UK have fallen for the first time since the onset of the cost-of-living crisis, dropping by 4.4% in the second quarter.
Not so good news
The BoE is forecasting that inflation is set to hit 4% by September, double the bank’s 2% target but feel the rise in inflation will be “temporary.”
The share of goods in UK exports has fallen to a record low of 40.8% as services exports surge. Goods exports dropped 5.4% in the year to May 2025, with cars, chemicals, and machinery hit hardest, while services rose 7.3% and now make up 59.2% of all exports. Goods export volumes are at their lowest in 15 years.
Approximately 84,000 hospitality jobs have vanished, with openings dropping by over 22,000 compared to last year. Kate Nicholls, chairman of UK Hospitality, said young people are missing out on essential work experience. She urged the Government to provide tax breaks to encourage hiring, stating: “It’s not that the work isn’t there… it’s that we simply can’t afford them.”
The BRC’s (British Retail Consortium) latest shop price monitor shows food prices in the UK have risen significantly, with a 4% increase recorded in July compared to the previous year.
LinkedIn reported that hiring in the UK fell by 6.7% in June, marking the steepest decline since the COVID-19 pandemic.
Wealthy foreigners leaving the UK to escape the government’s non-dom crackdown are being joined by high-net-worth Brits capitalising on an arcane element of the policy that has made it easier for them to avoid paying IHT (inheritance tax). The OBR (Office for Budget Responsibility) estimated the policy would raise £34bn over the next parliament in its analysis after April’s Spring Statement. But a recent study from the economic consultancy Chamberlain Walker found that just a quarter of the UK’s non-doms and former non-doms emigrating would blow a £34bn black hole in the public finances and the CEBR (Centre for Economics and Business Research) has suggested if half of the country’s footloose wealthy foreigners leave by 2030, government revenues would fall by £12.2bn. Companies House data shows 3,790 company directors removed Britain as their official country of residence between October 2024 and July, a steep 40% rise from the number that did so over the same period the previous year.
The UK construction sector is contracting at the fastest pace since 2020 as high costs and tax rises bite. The sector is vital for the Labour government’s plans for a house-building boom and infrastructure improvements, but the latest S&P Global PMI (Purchasing Managers’ Index) release suggests construction is suffering from a drop in residential building and civil engineering projects.
The OBR has warned that mass migration into Britain is creating “serious problems” for public services and living standards. David Miles, an economics professor, urged the Labour Government to prioritise getting Britons back to work instead of relying on overseas workers to grow the economy.
Morrisons is axing 3,600 jobs and closing seventeen stores after cutting more than 8,800 across its business in 2023.
USA
The July non-farm payrolls report shocked the markets with only 73,000 new jobs created, well below the 106,000 forecasts. Worse still, the June report was revised down from 147,000 to 14,000, while the May report was lowered from 139,000 to 19,000. President Donald Trump duly fired Bureau of Labor Statistics Commissioner Erika McEntarfer.
Trump signed a new executive order that changes many countries’ “reciprocal” tariff rates. Notably, Switzerland now faces a 39% tariff rate, Canada a 35% rate, Australia a 10% tariff, while New Zealand sees a 15% rate.
Trump nominated Stephen Miran for a Federal Reserve Governor role whilst a search for a longer-term successor is ongoing. Miran is Chair of the White House Council of Economic Advisors and has been critical of the Fed, accusing it of ‘tariff derangement syndrome’. Miran’s appointment adds another dovish voice to the Fed’s upcoming meetings, a development that coincides with a broader debate among officials over the economic impact of tariffs. This has led the markets to aggressively price in a potential interest rate cut when the Fed next meets on 17 September.
The EU
Eurozone macroeconomic indicators continue to underwhelm.
Eurozone retail sales for June came in below forecasts, July’s private sector activity was revised downward, and German industrial production fell far short of expectations.
The markets are pricing in a 60% chance of just one more rate cut this year compared to the Fed, which is expected to accelerate its easing pace, leaving the Euro standing to gain from this policy divergence, despite the lacklustre economic performance.
Others
Australia’s trade surplus beat forecasts, jumping from AUD $1.6bn in May to AUD $5.37bn in June, boosted by a 6% rise in exports. Imports fell by 3.1%, mostly due to lower capital goods purchases.
China’s Caixin manufacturing index slipped to 49.5 in July, signalling a slowdown after June’s 50.4 and missing expectations of 50.2. This drop matches the official factory reading of 49.3, marking a clear step back as US tariffs bite and local demand stays weak. S&P Global also flagged a fourth straight month of falling export orders, with the pace of decline picking up since June.
“Unfortunate”. That was how the Indian Foreign Ministry described Trump’s extra 25% tariffs on Indian goods exported to the US as a blunt instrument to prevent India from buying Russian oil, which indirectly funds the war in Ukraine. India buys 2 million barrels of oil every day from Russia. India is the world’s third biggest oil importer and has a refining capacity of around 5.2 million barrels per day.
US gold futures hit a record high on Friday after the Trump administration blindsided the global bullion market with a plan to impose tariffs on imports of one-kilo and 100-ounce bars.
Stranger than fiction
Where do you stand on pineapple on pizza? The Hawaiian pizza was invented in Canada by a Greek immigrant, Sam Panopoulos, who was inspired by Chinese cuisine’s sweet-sour flavours and put pineapple, a South American fruit, on pizza, an Italian dish.
Quote
Margaret Thatcher, “I am in politics because of the conflict between good and evil, and I believe that in the end good will triumph.”
