26/07/2025 by Tony Redondo
Both the UK economy and the Pound Sterling are down in the dumps. The UK economy’s metrics are increasingly dire. The deficit is now at 5.7% of GDP, the third highest among 28 advanced European economies. Public debt stands at £2.7 trillion, or 96% of GDP, the sixth-highest mark globally. Between 1975 and 2008, it was always between 40 and 50%. The great financial crash put paid to that and was then exacerbated by the COVID-19 lockdowns. The current government’s monthly borrowing figure of £20.7 billion is the highest ever number for June, aside from during the pandemic and is £6.6 billion higher in June 2025 than in June 2024. Chancellor Reeves’ pre-emptive fix-it budget of 2024 has not fixed it, and another tax-raising budget is all but nailed on for this Autumn. The cost of funding this debt mountain is not being matched by income, meaning all this debt is not only not funding revenue-generating projects, but it’s not even keeping pace with the interest bills. The UK 10-year gilt yield is running at 4.6%, just shy of the highs seen during the Liz Truss bond market crisis of 2022. This yield remains the key gauge of investor confidence, reflecting perceived risks around inflation and the government’s repayment capacity.
And the UK economy continues to show signs of slowing down further.
Currency Exchange Rates Update
The Pound lost nearly 0.8% against the Euro last week to hit its lowest levels since November 2023.
Brits heading on holiday urged to ‘buy Euros now’ | UK | News | Express.co.uk
Against the US Dollar, the Pound edged up 0.25% last week but is still 2% down on the month against the greenback.
The world’s most transacted currency pair, the Euro/Dollar (EUR/USD), has had an eventful 2025 to date. In the first half of this year, the Euro climbed over 15% in value to hit a four year high. However, this had more to do with Dollar weakness rather than any standout Euro strength. From a Dollar perspective, the currency started to come under sustained downward pressure from early March onwards amid the ‘Liberation Day’ announcement of a new US tariff policy and concerns over the fiscal position of the world’s largest economy. The previous US economic outperformance turned to pessimism. The increasing tensions between the White House and the Federal Reserve over interest rate cuts added to the pressure on the Dollar.
In the first half of July, the Dollar recovered over 2% of value off the back of better-than-expected US macro data, including for the labour market and signs in the latest CPI numbers of some tariff-related upward pressure on inflation, resulting in a firming in US rate expectations. Trump’s 30% tariff on the EU is due to kick in on 1 August unless an agreement can be reached in the coming days. For the Euro, political risks remain bubbling just below the surface and could act as headwinds for the currency. These include the French minority government facing an uphill struggle to pass a Budget this autumn, while there are signs of emerging tension in Germany’s new coalition.
This week, the key economic data releases includes:
Wednesday Australia CPI Inflation
Germany GDP
EU GDP
US GDP
US Federal Reserve Interest Rate Announcement
Thursday EU Unemployment
Germany CPI Inflation
Canada GDP
UK Nationwide Housing Data
Friday UK Nationwide House Prices
UK PMI Manufacturing
EU CPI Inflation
US NFP Employment
What’s in the news?
UK
The total additional tax collected by HMRC through investigations rose by 15% last year, reaching a record £48bn, an increase of £7bn from 2023.
In a new briefing on public finances, the IFS (Institute for Fiscal Studies) said Rachel Reeves should refrain from changing the number of times the OBR (Office for Budget Responsibility), the fiscal watchdog, produces a central forecast and instead make a slight adjustment to the rules that offer her greater flexibility in the spring fiscal events. This would allow the chancellor to deliver a budget deficit of 0.5% of GDP for the end of the period written into Reeves’ fiscal rules. The allowance of a deficit would only apply at every spring forecast drawn up by the OBR. Ben Zaranko, associate director at the IFS, said the fixation on the “narrow concept” of fiscal headroom gave way to justification for rules to be tweaked to stop “constant policy tinkering”.
Good news
Keir Starmer and his Indian counterpart Narendra Modi have signed a trade deal worth an estimated £6bn, with the UK Prime Minister hailing the landmark agreement a “historic day” for Britain and India. The trade pact, the result of over three years of negotiations, will see tariffs on the whisky and cars that British firms export to India drastically reduced in return for Britain opening up the UK labour market to Indian workers. The bilateral deal will bring the average tariff on Indian imports from Britain down from 15% to 3%. It is hoped the deal will eventually provide an annual boost of £25.5bn in bilateral trade between the two countries. But critics warn that an agreement to remove employer national insurance on Indian staff in the UK, and vice versa, risks undercutting British workers and undermining any economic benefits. Under the deal, British firms would not need to pay any payroll tax on Indian workers who come to the UK on an intra-company transfer, sparking fears that exchanges of workers from India would be preferred to hiring UK staff.
The Insolvency Service reported that UK company insolvencies decreased by 8% in June and were 16% lower than in June 2024.
The FTSE 100 stock market index is outperforming its European counterparts for the first time in years, with a nearly 10% gain in 2025 to date, it has reached record highs.
Recent research by NatWest indicates that middle-market businesses in the UK are experiencing their fastest growth since Labour’s election last July. The study highlights that these firms, employing between 100 and 2,500 staff, have benefitted from increased sales and new product launches, despite facing challenges such as rising costs.
Not so good news
Edmund Shing, chief investment officer at BNP Paribas Wealth Management, has become the latest senior banker to warn over plans to introduce a wealth tax in the UK, describing the move a “dangerous road to go down.”
Labour’s Business Secretary, Jonathan Reynolds, has slammed talk of a wealth tax as ‘daft’, amidst repeated warnings from the City that Reynolds said, “This Labour Government has increased taxes on wealth as opposed to income, the taxes on private jets, private schools, changes through inheritance tax, and capital gains tax.” The business secretary pointed out that this kind of tax, alongside the existing taxes on assets and wealth, has no equivalent around the world, adding, “Switzerland has a levy, but they don’t have capital gains or inheritance tax. “There’s no kind of magic [tax]. We’re not going to do anything daft like that.”
Rightmove has revised its forecast for UK house price growth in 2025 down from 4% to 2%, citing a surge in available properties. The number of homes for sale is at its highest since 2015, leading to increased competition among sellers. Overall, the market is seeing a 5% rise in agreed sales, indicating improved buyer activity.
According to Deloitte’s index, household confidence has not been this low since early 2024, coinciding with a four-year high in unemployment at 4.7% and inflation rising to 3.6%.
Savills reported that planning permissions for home renovations have plummeted as the low consumer confidence permeates the construction industry, with consents for developments in England being 27% below the 10-year average. This is despite a 24% increase in housing transactions as buyers rushed to take advantage of lower mortgage rates and stamp duty relief for first-time buyers.
The SMMT (Society of Motor Manufacturers and Traders) reported that UK car production has plummeted to its lowest level since 1953, falling 11.9% in the first half of the year.
The ONS (Office for National Statistics) reported that 6,365 agriculture, forestry and fishing businesses, including 3,000 farms, have shut over the past year, the highest number since the data started being collected in 2017 following the last Budget’s inheritance tax grab. Tom Bradshaw, president of the National Farmers Union, said the high level of closures “underscores the challenges and lack of confidence” plaguing the UK’s agricultural sector.
USA
President Trump announced a ‘massive’ trade deal with Japan, setting tariffs at a lower-than-expected rate of 15%. Trump said that Japan will invest $550 billion into the United States, adding that the US will “receive 90% of the Profits.” He also said Japan will “open their country to trade, including cars and trucks, rice and certain other agricultural products, and other things.”
The broad-based S&P 500 stock market index in New York notched another new all-time closing high last week, bringing its total tally for record closes in 2025 to 13. Meanwhile, the technology-heavy Nasdaq Composite index has recorded three all-time-high closes just in the last week.
The US is playing hardball with the EU with US Commerce Secretary Howard Lutnick warning that the deadline for a baseline 30% tariff set to come in on 1 August is fixed, leaving the EU scrambling to reach an agreement beforehand. Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux, said that a tariff rate of 15%-20% “would be a total car crash for European exports.”
Ursula von der Leyen, President of the European Commission since 2019, will meet with US President Donald Trump in Scotland on Sunday to discuss trade relations.
US Treasury Secretary Scott Bessent said the Federal Reserve should undergo a review that’s existential in scope. Bessent said the central bank’s ability to achieve its mission needs to be looked at with a critical eye, adding that an organization like the Federal Aviation Administration would face scrutiny if it performed similarly to how the Fed has.
Bessent also said that the 12 August China tariff deadline is likely to be extended, with further talks planned to be held in Sweden.
The Richmond Fed Manufacturing Index, a survey tracking sentiment across a politically mixed region, fell sharply to -20 in July from a revised -8 in June, marking its lowest level since August 2024. All headline components declined, signalling deteriorating conditions for regional manufacturers. The drop suggests fresh tariff threats may be disrupting supply chains just as firms had started adjusting to recent de-escalations, but manufacturers remain cautiously optimistic, with slight upticks in expected orders and shipments over the next six months.
In the US, the manufacturing PMI fell sharply between June and July to mark a 2025 low, while the services survey surged to a robust 55.2, marking its best result of the year.
US container imports dropped for a second month in a row as the new tariffs disrupt global trade.
The EU
What happens if the EU does not manage to head off the US 30% tariffs? The EU will impose tariffs on the USA, affecting EUR €72 billion of EU business primarily in aircraft, machinery, chemicals and plastics and pharmaceuticals. The 3 EU countries most affected are Germany, Ireland and the Netherlands and account for EUR 65 billion.
As expected, the ECB (European Central Bank) kept interest rates unchanged last week, holding rates steady for the second consecutive meeting as the ECB waits to see if the threatened imposition of US tariffs of 30% on EU goods from the 1st of August can be avoided. The ECB has reduced its benchmark rate from 4.5% to 2.15% over the past 12 months.
Others
The RBA (Reserve Bank of Australia) held interest rates steady in July, surprising analysts with a wait-and-see approach revealed in yesterday’s meeting minutes. Rather than pushing forward with a third rate cut in the last four meetings, the RBA chose to pause, arguing that rapid moves could undermine their steady and deliberate policy path, with officials stressing the need for clear evidence that inflation will return to target levels before making further moves.
New Zealand’s inflation cooled more than expected in the second quarter of 2025 with prices rising just 0.5% from the previous quarter, undershooting forecasts. Compared to a year ago, inflation climbed 2.7%, slightly lower than the 2.8% projection. The softer figures could put pressure on the RBNZ to cut NZ interest rates when they next meet on 20 August.
Silver prices hit a 14-year high last week and have risen by 25% in the year-to-date. Structural support remains strong with the global silver market projected to register its fifth consecutive annual deficit this year, driven by record-high fabrication in green technologies. China’s industry ministry also pledged targeted support to sectors like autos and other silver-consuming industries.
Stranger than fiction
Olivine, pretty in the gemstone peridot but otherwise pretty useless, is the Earth’s most abundant mineral, and scientists have figured out how to turn it into zero-waste battery metals. New Zealand engineers have figured out how to dissolve olivine to yield silica (50%), magnesium (40%) and nickel-manganese-cobalt hydroxide (10%) for lithium-ion cathodes, leaving only brine.
Quote
Walt Disney, “Laughter is timeless, imagination has no age and dreams are forever.”
