UK markets rose this week with the FTSE 100 Index gaining 0.87% to trade at 9,320 points at the time of writing. The UK economy saw zero growth in July, underlining the challenge the government faces in boosting growth and repairing the public finances in its high-stakes November Budget.
A decline in manufacturing offset increases in the services and construction sectors in July, the Office for National Statistics said on Friday, in a figure that was in line with economists’ expectations. It followed a 0.4% expansion in June. Chancellor Rachel Reeves has made growth her “number one mission” but the economy has lost momentum in recent months.
As a result of July’s stagnation, growth slowed to 0.2% in the three months to July, compared with 0.3% in the three months to June. Since a 0.7% expansion in the first quarter, driven in part by a surge in exports to the US ahead of President Donald Trump’s tariffs, businesses have been hit with higher taxes and the strains from the US trade war that began in April.
In a sign of the pressure on the government to kick-start growth, Prime Minister Sir Keir Starmer has set up a new “Budget board” to align initiatives across Number 10 and the Treasury in the run-up to the Budget on 26 November. Economists also predict the Chancellor will be forced to increase taxes in the Budget, with some estimating the government will have to raise more than £20 billion to fill a fiscal hole.
The GDP release comes as the Bank of England is expected to hold interest rates at 4% at its meeting next week, following five cuts since the summer of 2024. Policymakers face a delicate balancing act, with inflation at 3.8% in July, far above the central bank’s 2% target, and increasing signs of a deteriorating labour market.
Elsewhere, a report by Barclays showed that British savers have more than £614 billion of spare cash that could potentially earn a higher return from investments, up from £460 billion in 2022. Barclays said about 15 million UK adults hold excess cash, up from 13.2 million in 2022, with the jump in interest rates at the end of 2021 making returns on savings products more attractive. The excess amount, based on people who already hold more than six months’ income in cash, underscores the challenge facing the government as it tries to funnel more money into investments.
Commodity markets
In the commodity markets, Brent crude futures traded around $66 per barrel on Friday and are set to end the week little changed, with worries over softening US demand and broad oversupply risks balanced against concerns over attacks in the Middle East and Russia’s war in Ukraine.
Oil prices rose on Wednesday following Israel’s attack on the Hamas leadership in Qatar the day before, and as Poland scrambled its own and NATO air defences to shoot down Russian drones that had strayed into its airspace during an attack on western Ukraine. Despite this, analysts said neither events posed any immediate risk of disruption to oil supplies and market attention has turned to supply and demand balances, with rising oil stocks, falling producer prices and a slowing labour market pointing to a softening US economy.
On the supply side, OPEC+ decided to raise production from October. While the increases are smaller than in previous months and some expectations, the move adds to the oil market’s weakness. Oil prices are set to drop significantly in the months ahead as rising output leads to large inventory builds, the Energy Information Administration said this week.
Gold prices traded around $3,640 an ounce on Friday, hitting record highs yet again this week as soft US jobs data outweighed concerns from firmer inflation data and with investors still betting on the Federal Reserve easing interest rates next week.
Equity markets
US equity futures fell on Friday after the major indexes surged to fresh records in the prior session, fuelled by mounting expectations of deeper Federal Reserve rate cuts. In Thursday’s regular trading session, the Dow Jones Industrial Average rose 1.36%, the S&P 500 gained 0.85%, whilst the Nasdaq Composite advanced 0.72%.
US inflation rose to 2.9% in August, underlining the Federal Reserve’s challenge of balancing persistently elevated price growth with a weakening jobs market ahead of next week’s decision on interest rates. The annual consumer price index figure from the Bureau of Labor Statistics was above July’s 2.7% and in line with the 2.9% forecast by analysts in a Bloomberg poll. Core inflation held steady at 3.1%, matching expectations and showing that the effects of President Trump’s tariffs on underlying price growth remain measured.
A separate report from the Labour Department on Thursday showed that 263,000 people made first-time claims for jobless benefits last week, up from 236,000 the week before and well above Wall Street estimates of 235,000. This marked the highest total for initial claims since October 2021. The data comes as the Federal Reserve is grappling with a weakening labour market and political pressure from President Trump to cut interest rates. Investors continue to expect a 0.25% rate cut from the US central bank next week but have increased bets on a slightly faster pace of cuts at subsequent meetings.
The US economy added just 22,000 jobs in August, according to official figures published last week that have raised fears the jobs market is stalling. The Bureau of Labor Statistics also revised down the number of jobs the US added in the year to March 2025 by 911,000 this week, suggesting the labour market had started to cool in 2024.
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