The pound weakened by half a cent against the euro and strengthened by a similar margin over the US dollar on Wednesday. Despite the usual stream of news, nothing could distract the focus from the Bank of England’s looming interest rate decision. Today’s vote should be a close call, although a quarter-point cut is expected to carry the day as policymakers look to tackle the “stag” part of stagflation.
On what is a big day for homeowners and buyers, house prices in the UK rose by 2.4% in the 12 months to July, beating expectations of 2.2% growth in the Halifax house price index. However, that was still the slowest pace of growth since July 2024. The average property value has now increased to £298,237.
Yesterday, the National Institute of Economic and Social Research (NIESR) thinktank served up a bleak appetiser to the Bank’s decision. According to the report, the chancellor is facing “an impossible trilemma” as she attempts to simultaneously balance fiscal spending rules and spending commitments with the pledge not to raise taxes. In order to restore market confidence, Reeves may be forced to raise taxes to fill the spending deficit, which the NIESR predicts will top £40bn by 2028-29.
Meanwhile, the UK’s construction industry contracted by more than expected in July. S&P Global’s sector survey fell from 44.3 from 48.8 in June, making it the steepest contraction since May 2020, when the construction industry was being pummelled in the first lockdown.
Germany’s trade surplus narrowed sharply from €18.5bn to €14.9bn in June. A slowdown in sales to the United States, combined with a 25-month high in imports, saw the surplus fall to its slimmest margin in almost a year.
Donald Trump’s trade envoy Steve Witkoff announced an additional 25% tariff on Indian goods yesterday, taking the levies India will face up to 50%. The president confirmed the move came in response to New Delhi selling oil to Russia, with whom Witkoff just so happened to be negotiating with regarding the war in Ukraine.
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