UK markets pulled back slightly this week, with the FTSE 100 Index falling by 0.4% to trade at 8,770 points at the time of writing.
The rise in average prices charged by UK businesses was the slowest in more than four years in June, as companies continued to shed jobs and economic activity remained subdued, according to a closely watched survey.
The S&P Global flash UK PMI index, which measures the monthly growth in prices charged by businesses, fell to 53.2 in June from 55.4 in the previous month the lowest since January 2021. The latest reading was well below a peak of nearly 70 registered in 2022 and was close to 50, indicating no change, which could strengthen the case for the UK central bank to cut interest rates further at its next meeting in August.
The Bank of England is seeing increasing evidence that companies are responding to higher national insurance contributions by cutting hiring, working hours and pay, Governor, Andrew Bailey said, as he flagged a softening in the jobs market. Bailey said that interest rates were likely to remain on a gradual downward path, predicting that growth will slow after a strong first quarter. Business organisations have said they were being hit hard by Chancellor Rachel Reeves’ October Budget, including an increase in employers’ national insurance contributions.
The Bank of England Governor said continued efforts were needed to push inflation lower. However, he suggested that recent increases in inflation driven by higher vehicle excise duty and increases in water and energy bills were not expected to last.
Elsewhere, UK vehicle production collapsed in May to the lowest level since 1949 after Donald Trump’s tariff war forced Aston Martin, Jaguar Land Rover and other British carmakers to halt their shipments to the US.
Car and van production at British plants fell 33% in May from a year earlier to 49,810 units, figures from the society of Motor Manufacturers and Traders released on Friday showed.
Output declined for the fifth consecutive month, marking the worst monthly performance in 76 years, excluding when vehicle factories were shut down during the Covid-19 lockdowns in 2020.
Commodity markets
In the commodity markets, Brent crude futures traded around $68 per barrel on Friday and are set for a sharp fall this week, with the Iran-Israel ceasefire holding and easing concerns over Middle East supply risks following a US bombing campaign of Iran’s nuclear facilities last weekend.
Oil prices regained some momentum towards the end of the week as US government data showed crude oil and fuel inventories fell last week, with refining activity and demand rising.
Also supporting oil prices, the US dollar index sank to a three year low on a report that President Donald Trump was planning to choose the next Federal Reserve chair early, increasing the likelihood of US interest rate cuts.
A weaker Dollar makes oil less expensive for holders of other currencies, increasing demand and supporting prices.
Gold prices traded around $3,290 an ounce on Friday and are on track for a weekly decline as the Israel-Iran peace deal weighed on prices.
Iranians and Israelis have sought to resume normal life after 12 days of the most intense confrontation ever between the two countries and a ceasefire that took effect on Tuesday.
Equity markets
US equity futures rose on Friday amid optimism of more relaxed trade policy and greater confidence that the Federal Reserve will deliver multiple rate cuts this year.
In Thursday’s regular trading session, the Dow Jones Industrial Average gained 0.94%, the S&P 500 rose 0.80%, whilst the Nasdaq Composite advanced 0.97%. Donald Trump said on Thursday that the US and China had signed a trade deal, two weeks after saying they had reached an understanding in London about how to implement a truce in the countries’ dispute.
Washington and Beijing appeared to have put in writing what had previously been agreed in trade talks that the nations held in May, when they first negotiated a truce in Geneva. The purported deal comes as the Trump administration works to reach broad agreements on trade with multiple partners ahead of a July 9th deadline when “reciprocal” tariffs the President announced in April would be reapplied. The levies of up to 50% on most US trading partners had been temporarily lowered to 10% for 90 days to allow foreign countries to negotiate.
US officials have since been holding intensive talks with countries including India, Vietnam, South Korea, Japan and the EU to reach permanent settlements as well as reaching a trade agreement with the UK.
US goods exports tumbled in May at their steepest rate since the Covid-19 pandemic in 2020, as trading partners cut back purchases of American goods in the wake of Donald Trump’s “liberation day” tariffs. Exports totalled $179.2 billion in May, a $9.7 billion or 5.2% drop from the previous month’s figure, according to data from the Census Bureau. That marked a reversal from an increase of 3.5% in April.
Economists said the figures were among the latest to show the distortion in trade caused by the anticipation, and execution, of the US President’s announcement on April 2nd to impose tariffs on trading partners.
Some of Trump’s steepest levies have been paused, but others, including a universal 10% tariff, have gone into effect. There are also numerous other sector-specific tariffs, including on key industrial metals.
US imports held steady in May, resulting in the international trade goods deficit widening more than forecast by Wall Street economists to $96.6 billion. However, this followed their biggest monthly drop on record in April as tariffs prompted companies to slow shipments to the US. Businesses instead drew on inventories built up in the rush to buy foreign goods before the tariffs came into effect.
US GDP decreased at a downwardly revised 0.5% rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its third estimate of GDP on Thursday. It was previously reported to have dropped at a 0.2% pace. The revision reflected a sharp downgrade to consumer spending, which is now estimated to have increased at only a 0.5% pace instead of a previously reported 1.2% rate.
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