Bank of England governor says jobs slowdown could prompt rate cut; European markets fall after Trump tariff threat – business live
Introduction: Bank of England could cut rates faster if jobs market slows, governor says
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound has dropped to a three-week low this morning, after the governor of the Bank of England said it could make larger cuts to interest rates if the jobs market slows quickly.
Andrew Bailey told The Times that “slack” was opening up in the UK economy, following the increase to employers’ national insurance contributions. That slack should create downward pressure on inflation.
Bailey insisted: “I really do believe the path is downward” for interest rates. Bank rate is currently 4.25%, following four quarter-point cuts in the last year, with the Bank next scheduled to set rates on 7 August,
Bailey added:
“If we saw the slack opening up much more quickly, that would lead us to a different conclusion.”
“I think the path [for interest rates] is down. I really do believe the path is downward but we continue to use the words ‘gradual and careful’ because … some people say to me, ‘Why are you cutting when inflation’s above target?’”
Governor Bailey also pointed to Rachel Reeves’s decision to hike taxes on employers, saying companies were:
“adjusting employment and hours and also having pay rises that are possibly less than they would have been if the NICs change hadn’t happened”.
Last week, the Guardian revealed that the National Trust is to cut at least 550 jobs in efforts to save £26m after changes made in Reeves’s debut budget pushed up labour costs.
Hospitality firms have repeatedly warned that higher NICS will force them to cut jobs.
And indeed, new data this morning shows that the number of people hunting for jobs has surged at the fastest rate since the height of the Covid pandemic.
Following Bailey’s rate cut hint, the pound has dropped by 0.2% this morning to $1.3467.
That’s its lowest level since 23 June, three weeks ago, extending its recent losses.
Key events
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White House adviser says trade talks continuing with EU, Canada, Mexico
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French 30-year bond yields highest since 2011
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Thames Water to introduce hosepipe ban in Swindon, Gloucestershire, Oxfordshire, Berkshire and Wiltshire
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Silver hits 14-year high
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Bundesbank: German exporters losing competitiveness
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UK to consider mutualisation of Post Office
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Wall Street futures are lower
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Berenberg: Reasons for optimism, and pessimism, over US-EU trade deal
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Markets raise expectations for UK interest rate cut in August
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European markets open lower after Trump’s tariff threat
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EU and US approaching a good trade deal, claims trade commissioner
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Bitcoin at record high over $120,000
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Introduction: Bank of England could cut rates faster if jobs market slows, governor says
White House adviser says trade talks continuing with EU, Canada, Mexico
White House National Economic Council director Kevin Hassett has told reporters at the White House this morning that trade talks are still under way between the US and the European Union, Canada and Mexico.
Asked about his expectations of talks with the EU, Hassett said:
“We’ll see … we’ve got a few weeks left.”
The owner of McVitie’s has announced plans to inject £68m into its British operations in a bid to “supercharge” the growth of its brands.
Turkish-owned snacking giant Pladis said investment funds will be used to boost manufacturing capacity and productivity across its factories.
The London-based company, which also owns the Jacob’s and Godiva brands, added that it has “earmarked the bulk of the cash” to pump into sites across the north-west of England.
The plans will include a £33 million overhaul of its Liverpool Aintree site, where it bakes Jacob’s cream crackers.
It will have a comprehensive refurbishment which will include the installation of new ovens and infrastructure.
French 30-year bond yields highest since 2011
Back in the markets, France’s long-term borrowing costs have hit their highest level since the eurozone debt crisis almost 14 years ago.
French 30-year bond yields have risen by 3 basis points (0.03 percentage points) to 4.23% this morning.
That’s the highest level since November 2011, when the eurozone was gripped by political instability and political turmoil, reflecting some anxiety about the US-EU trade situation.
Bond yields rise when bond prices fall, and are a gauge of the cost of issuing new debt.
French 10-year bond yields are flat on the day, right now, and still below levels hit in March this year…
Thames Water to introduce hosepipe ban in Swindon, Gloucestershire, Oxfordshire, Berkshire and Wiltshire
Water news: Households in several English counties have just been hit by a hosepipe ban.
Thames Water has announced that a hosepipe ban across Swindon, Gloucestershire, Oxfordshire, Berkshire and Wiltshire will kick in at one minute past midnight on Tuesday 22 July.
The ban will apply to all OX, GL, SN, RG4,RG8 and RG9 postcodes.
Thames explains that the current heatwave has hit water supplies to these areas, saying:
Water for much of this area is supplied by Farmoor Reservoir. Farmoor is fed by pumping water from the River Thames. The amount of water we can pump is dependent on the amount of flow in the river. We must leave enough flow remaining to protect the environment and maintain navigation.
The very dry and warm weather we’ve had means that the flow in the river is low. This therefore impacts the amount of water we can pump into Farmoor Reservoir.
Some homes in Oxford had an, umm, dry run of water disruption last week – some homes and businesses in the city were left with no water or low pressure due to a burst pipe (including my excellent local pub!).
MP’s will hear from Thames Water chairman Sir Adrian Montague, CEO Chris Weston, and non-executive director Ian Pearson tomorrow morning, to discuss the company’s financial problems.
Silver hits 14-year high
The spot price of silver has hit its highest level since 2011 this morning.
Silver traded as high as $39.09 per ounce, a 14-year high.
Rostro’s chief market analyst, Joshua Mahony, says the jump in silver is an example of “resurgent demand for non-fiat assets” (see also bitcoin), adding:
Notably, the rise in US debt coupled with higher stimulative spending does provide the basis for a more optimistic outlook for silver given its industrial use cases.
Another factor could be Donald Trump’s surprise 50% tariff on copper, which could spur higher demand for silver imports, just in case….
Bloomberg reports that increased demand is leading to tighter physical supply of silver.
Bundesbank: German exporters losing competitiveness
Germany’s exporters have grown less competitive in recent years, leading to a fall in thir market share, the country’s central bank is warning today.
The Bundesbank has calculated that more than three-quarters of the losses in export market shares between 2021 and 2023 were due to a deterioration in the competitiveness of German exporters.
In a new report into “the sustained decline in German export market shares”, the Bundesbank says:
The weak performance of German exports in recent years has been accompanied by significant market share losses for the German export industry.
German export market shares have been contracting since 2017 and have increasingly fallen behind those of other advanced economies since 2021. As a result, the losses in market share have contributed significantly to the sluggish growth of the German economy.
The Bundesbank has concluded that this decline is due to supply-side problems within Germany’s economy, which have affected some of its largest sector.
It says:
The machinery industry, electrical industry and energy-intensive sectors such as the chemical industry were the biggest contributors to the drop in competitiveness. The sectoral profile and timing of the losses in competitiveness suggest that supply chain problems and energy price increases weighed particularly heavily.
Bloomberg have spotted that options traders are turning against the pound.
One-month risk reversals — which show the difference in demand for bullish and bearish options — reflect the most negative outlook for the pound since February. The measure spans the next Bank of England and Federal Reserve decisions, as well as President Donald Trump’s 1 August tariff deadline.
UK to consider mutualisation of Post Office
Mark Sweney
UK government ministers are to consider handing ownership of the Post Office to post office operators in the wake of the Horizon IT scandal, my colleague Mark Sweney reports.
The Department for Business and Trade (DBT) has published a green paper starting the first major review of the scandal-plagued organisation in 15 years.
The review, which will run until the 6th of October, follows the publication last week of the first part of the two-year public inquiry into the Horizon IT scandal.
Ministers said that part of the review will include looking at ownership of the Post Office, which is ultimately controlled by the government, including the possibility of mutualisation.
Ministers have previously met with representatives of post office operators to discuss the possibility of handing ownership to the network branch managers who run its 11,500 outlets.
“This green paper marks the start of an honest conversation about what people want and need from their Post Office in the years ahead,” said Gareth Thomas, the post office minister, adding:
“Post Offices continue to be a central part of our high streets and communities across the country. However, after 15 years without a proper review, and in the aftermath of the Horizon scandal, it’s clear we need a fresh vision for the future.”
Wall Street futures are lower
Wall Street is set to open lower in a little over four hour’s time, following Europe’s lead.
The Dow Jones industrial average, the S&P 500 and the tech-focused Nasdaq are all down 0.3% in pre-market trading.
Joshua Mahony, chief market analyst at Rostro, says:
Donald Trump has once again done his best to dampen market sentiment, with mainland European stocks in the red and their US counterparts likely to follow suit.
This comes after Trump’s tariffs letters reached the EU (30%) and Mexico (30%), building on the 35% tax announced for Canadian imports last week. We now have less than three-weeks until the 1 August deadline comes into play, and the EU are already warning of a prospective 21 billion euros worth of goods that they would target in return.
Nonetheless, there is a clear desire to strike a deal, even if that means keeping the 10% tariff and seeking concessions on the sector specific taxes on the likes of the auto sector.
Donald Trump’s deadline of 1 August for trade deals, or new high tariffs, could create market turbulence this summer.
Henry Allen, economist and strategist at Deutsche Bank says investors should beware the end of this month….
Last year, the late-July/early August period set the stage for the worst market turmoil of 2024. This year, that week looks seriously problematic again from a market perspective.
First, there’s the new August 1 tariff deadline. Markets are clearly not pricing in these higher tariffs, and we may only know the outcome in the final hours, offering the potential for a sharp market reaction and heightened volatility.
Second, it’s the US jobs report that same day, and last year demonstrated that even a modest downside surprise can cause a big selloff, if investors are already jittery.
Third, long-end bond yields are going into this period at higher levels today, meaning it would take less of a jump before we move into problematic territory that re-ignites fears around fiscal policy.
This means the market narrative could suddenly shift in a more negative direction. If the tariffs snap back higher on August 1, and we then get an underwhelming jobs report, that would easily resurrect fears around a US recession.
Berenberg: Reasons for optimism, and pessimism, over US-EU trade deal
Despite Donald Trump’s tariff threats, Berenberg economist Salomon Fiedler believes the general US tariff rate on EU imports will end up “far below 30%”.
Fiedler says there are several reasons for optimism that a deal will be reached:
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Trump has multiple times staked out extreme initial positions as a negotiation tool to be able to later “compromise” at a point still closer to his position. For example, on “Liberation Day” Trump initially announced a 20% tariff on the EU which he then rolled back to 10%. Since then, the EU seems to have accepted this 10% rate as the new baseline against which it will not retaliate. The fact that Trump only threatened the new 30% rate for 1 August, instead of implementing it more quickly, suggests he is still looking to negotiate.
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Inflation is unpopular. Over the summer, firms will increasingly pass on higher import costs to US consumers as the inventories they built up in anticipation of Trump’s tariffs empty out. Rising inflation (and the prospect of Fed rate cuts becoming ever more remote) may give Trump second thoughts about adding yet even more tariffs.
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Possibly, part of Trump’s motivation for the high tariff threat now was to shift the public debate in the US back towards more familiar ground (and away from, e.g., the Epstein files debacle).
But Fiedler adds there are several reasons for pessimism, which could lead to the Trump tariff on the EU ending up rather higher than 10%:
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The tariffs alone will not fix the US’ trade deficits, which will thus remain a sore spot for the remainder of Trump’s term.
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Trump is not only using tariffs as a trade policy tool but also as a source of revenues to plug at least part of the gaping hole in the federal budget. Recent comments from his administration suggest that they rely even more on tariff income than we previously assumed – and that they thus may be tempted to collect even more money by raising rates.
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The always remote hope of a good negotiation outcome – the bilateral removal of all tariffs and some other trade barriers between the EU and the US – has all but disappeared from view by now
