19/07/2025 by Tony Redondo
Chancellor Rachel Reeves unveiled pro-growth financial reforms, dubbed the “Leeds Reforms”, aimed at cutting red tape and boosting investment, saying regulation had become “a boot on the neck” of businesses in her Mansion House speech last week. Some may accuse her of having a ‘brass neck’ given the state of the economy after she increased business taxes by £40bn last October but, nevertheless, the City of London welcomed the long overdue reforms to the City’s rulebook. Reforming the rules around the provision of financial advice should open the door to wider reforms around encouraging and supporting retail investing, whilst efforts to cut back some of the post-2008 regulations are also welcome. The UK currently has the lowest level of retail investment among G7 countries, meaning savers are not getting the best returns for their savings and UK businesses are starved of an important source of capital.
But let’s not get carried away. There is plenty more the Chancellor could have done, such as lifting the tax on share trading, and there are things she may yet do that could jeopardise the success of the changes she’s announced, such as increasing the corporation tax surcharge on banks or cooking up a wealth tax. The UK economy is far from out of the woods, and its future is far from certain.
Currency Exchange Rates Update
The Pound fell midweek to its lowest level against the Euro since November 2023 before recovering to finish the week where it started.
The ECB (European Central Bank) meet on Thursday and is expected to hold interest rates unchanged at 2%, marking the first ‘no change’ update in a year.
The Pound fell to a three-week low against the US Dollar after the dollar index surged to its highest level since June 2023.
This week, the key economic data releases includes:
Thursday UK Nationwide Housing Data
EU ECB Interest Rate Announcement
EU PMI
Friday UK Retail Sales
Germany IFO Business Sentiment Survey
What’s in the news?
UK
Taxes continue to dominate the economic news agenda with Keir Starmer refusing to rule out either a pension or a wealth tax raid this autumn despite top researchers’ calls for the government to refrain from adding ever-higher tax burdens on UK taxpayers.
Labour Transport Secretary Heidi Alexander followed suit by leaving open the prospect of raising taxes for middle-class workers in this year’s budget, saying the government had pledged not to raise taxes for “people on modest incomes.” This was later expanded by Darren Jones, Reeves’ deputy, to include “anyone that gets a payslip, basically.” Roads minister Lilian Greenwood chipped in with only ‘average incomes’ up to £39k are safe from Reeves’ tax hikes.
The OBR (Office for Budget Responsibility) chief Richard Hughes warned the UK cannot afford to see the tax burden grow further as it was already at record highs, saying higher taxes are ‘not good’ for growth or the government. Hughes told the Treasury Select Committee that a higher tax burden could stifle growth.
The OBR is widely expected to downgrade growth forecasts, delivering a fresh blow to Rachel Reeves as she attempts to keep the public purse in check.
Good news
The FTSE 100 share index, the headline index in London, passed 9,000 points for the first time last week, taking its overall gains for the year up 10.3% despite continued uncertainty around tariffs.
Dan Coatsworth, investment analyst at AJ Bell, hailed 2025 as a “momentous year” for the FTSE, saying, “It took eight years for the FTSE 100 to go from 7,000 to 8,000, yet only two years to break through 9,000. That suggests the market is shaking off its unloved reputation and more investors like what’s on the menu.”
https://www.express.co.uk/finance/personalfinance/2079982/ftse-100-hits-record-high-mining-stocks
The Nationwide Building Society reported that house prices in the UK are more affordable now than they were two decades ago, with the average house price now 5.8 times the average annual salary, down from 5.9 in 2005. Over the past 20 years, house prices have risen by 73%, while earnings have increased by 76%. The current ratio remains above the long-term average of 4.8.
Not so good news
The BoE (Bank of England) Governor, Andrew Bailey, has called for more dramatic cuts to interest rates if the jobs market sees a substantial slowdown. His comments come after the number of permanent staff positions in London fell at their sharpest rate in 22 months.
UK interest rates are currently set at 4.25%, having been held in June to “squeeze out persistent inflationary pressures” from geopolitical and trade uncertainties. The BoE next meets on 7 August. EY ITEM Club’s Matt Swannell said fresh evidence on the economy showed the MPC could stick to its “established pace” of cutting by 0.25% per quarter.
The ONS (Office for National Statistics) said unemployment rose in June to 4.7%, its highest level since September 2021, and wages stayed firm. Strong wage dynamics will ensure inflationary pressures in the economy remain firm and may prevent the BoE from quickening the pace at which it cuts interest rates.
The rise in unemployment came after the ONS reported 41,000 jobs were lost in June. Payrolled employment has now declined for 8 months in a row, and job vacancies fell for a 14th consecutive quarter.
The IOD (Institute of Directors) says its research shows that more business leaders plan to reduce their employee headcount over the next year than increase it. Alex Hall-Chen, Principal Policy Advisor for Employment at the IOD, said, “This continued slump in the demand for labour is the predictable result of a series of policy blows to the case for hiring staff. The cumulative impact of the increase in Employer National Insurance Contributions, the Employment Rights Bill, and above-inflation increases to the National Living Wage has been to significantly increase the costs and risks associated with employing staff.”
The FSB (Federation of Small Businesses) reported that for the first time in the history of its SBI (Small Business Index), the proportion of small firms bracing for contraction, sale or closure outnumbered the percentage hoping to grow.
The ONS also reported that inflation unexpectedly edged up to 3.6% in June, its highest level since January 2024. It is the third month in a row that inflation has remained above the 3% mark, presenting a further challenge to the BoE.
This raises the spectre of stagflation, where growth stagnates while inflation rises.
New research from employee benefits and protection provider MetLife UK shows long-term sickness is costing UK businesses nearly £21,000 per employee. The figure accounts for a range of hidden and direct costs, including temporary staffing, training, administrative burdens, and increased workloads for colleagues.
USA
Five of the seven biggest US trading partners were notified last week that new tariffs will go into effect on the 1st of August. With less than two weeks to go, negotiation teams from Europe, Canada, Japan, South Korea and Mexico are working fast to avoid tariff rates of 25% and above.
President Trump confirmed Indonesia will pay a 19% tariff after securing a trade deal, down from the previous 32% rate imposed after Liberation Day. Trump hinted that “India is working along the same line as Indonesia” and suggested further deals are forthcoming. He also stated progress is being made with the EU and that he will be refining the UK trade deal.
US Treasury Secretary Scott Bessent said President Trump is “not looking to fire Chair Powell.” However, Bessent believes Powell should step down entirely in May, not just as chair, but also as Fed governor. He warned that having a former Fed chair lingering in the background could muddy the waters and sow uncertainty.
Retail sales in June rose more than expected, according to the US Census Bureau.
The annual inflation rate in the US accelerated to 2.7% in June, in line with expectations. Monthly, the CPI edged up 0.3%, marking the largest increase in five months, also matching expectations. This suggests the Fed’s fight against inflation is far from over. The probability of a cut by September has dropped from over 90% at the start of the month to around 50%. The Fed next meets on 30 July.
The EU
EU President Ursula von Der Leyen launched her EUR 2 trillion budget, which was given a mixed reception by the EU Parliament, as the key elements of agriculture and cohesion are merged, as well as other changes described as ground-breaking are put forward.
President Trump has pledged to impose a 30% tariff on imports from the European Union from the 1st of August. The US and EU have the largest bilateral trade and investment relationship in the world, representing almost 30% of global trade in goods and services. Last year alone, the value of EU-US trade amounted to 1.68 trillion euros, the equivalent of roughly 4.6 billion euros of trade per day.
For the EU, the prospect of fresh US tariffs represents a major blow. The 27-nation bloc had been scrambling to secure a preliminary agreement to spare it from becoming the latest recipient of a Trump letter dictating a new, across-the-board tariff on its exports to the US.
Trump has said the proposed 30% tariff rate would be separate from sectoral tariffs, suggesting the 50% duties on steel and aluminium imports and 25% on auto imports would remain.
Brussels is busy preparing to finalise retaliatory measures, even as talks between the two sides continue. Officials have secured agreement across the bloc to slap tariffs on US goods, ranging from US-made cars, aircraft, bourbon whiskey, chemical products, medical devices, electrical equipment to agricultural produce.
Others
China’s trade surplus jumped to $114.7 billion in June as exporters raced to lock in gains ahead of the 12 August deadline on the fragile trade truce with the US. Exports surged 5.8% year over year, beating expectations, while imports edged up 1.1% in a recovery from May’s decline.
China’s economy grew by 5.2% in the second quarter as resilience in exports helped to offset sluggish domestic demand in the world’s second-largest economy.
Singapore announced a new UK-Singapore Green Energy collaboration. As part of the deal, UK Foreign Secretary David Lammy pledged £70 million of UK taxpayers’ money to support Singapore’s “clean energy transition”. According to the IMF, Singapore ranks 4th globally in GDP per capita and contributes just 0.15% of global carbon emissions as of 2022. The country already has a well-developed green agenda through its Green Plan 2030, having doubled its solar capacity since 2020 and frozen growth in vehicle numbers.
https://www.birminghammail.co.uk/news/cost-of-living/british-gas-edf-eon-ovo-31967722
Stranger than fiction
Professor Dame Angela McLean, the Government’s Chief Scientific Adviser, conceded that heat pumps are not guaranteed to save households money in the long term. Heat pumps, which can cost up to £13,000 to install, are the backbone of the Government’s green agenda, despite concerns they can negatively impact a property’s EPC score, which can make mortgages more expensive.
Quote
George Orwell, “No advance in wealth, no softening of manners, no reform or revolution has ever brought human equality a millimetre nearer.”
