Closing post
Time to wrap up…
Donald Trump’s latest round of tariffs has put UK businesses at a disadvantage against the EU even though the overall tariff for British goods has not changed, experts have said.
In the levies, announced late on Thursday and said to be aimed against countries that engage in forced labour, the EU’s previous 15% near blanket tariff is reduced to 10%, the same level as the tariff deal struck by Keir Starmer and Peter Mandelson last year.
The UK welcomed the deal, announced by the US trade representative, Jamieson Greer, and said there was “no change” to the headline 10% tariff or preferential rates in the car, pharmaceutical and aerospace sectors concluded in the UK’s economic prosperity deal (EPD).
One of the Labour party’s biggest union backers has called for Andy Burnham to award a £2.4bn military satellite contract to the European manufacturer Airbus rather than a US rival, Lockheed Martin, amid concerns that as many as 600 jobs may be at risk.
Sharon Graham, the general secretary of the Unite union, said it would be a “massive mistake” to go for a US company over Airbus, which is headquartered in France but designs and builds satellites in Stevenage in Hertfordshire and Portsmouth in Hampshire.
Volkswagen has reported a steep fall in profits and cut its revenue forecast amid a sales slump in China, as the German carmaker pushes through a brutal cost-cutting programme that includes axeing up to 100,000 jobs.
VW said it expects sales revenue to fall by up to 3% this year, a reversal of a previous forecast for a 3% increase on last year’s €321.9bn (£275.3bn), because of a sales slump in the highly competitive Chinese market.
The sales slump will increase pressure on the world’s second-largest maker of vehicles to cut costs. Earlier this month VW’s supervisory board rejected the plans by the chief executive, Oliver Blume, to shut four factories in Germany, as the manufacturer confirmed it was raising the job cuts target to 100,000, double the number already agreed by unions.
US stock market opens slightly higher after tech rout
The US stock market has opened tentatively higher today – the blue chip S&P 500 is up very slightly by 0.05%, while the tech heavy Nasdaq is up 0.1%. The Dow Jones has risen 0.2%.
The subdued start follows a tough session yesterday, when shares in Alphabet and Tesla both fell sharply after their earning reports fed investor concerns around high AI spending.
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Eurozone bond yields have pulled back a bit today, after a strong rise yesterday following the jump in oil prices.
The yield on Germany’s 10-year bond, is now down 3 basis points to 3.012%, after hitting a 15-year high yesterday.
In the UK, the 10-year gilt yield has eased back to 5.056%.
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Burnham urged to lobby EU leaders directly to waive EES border controls
Andy Burnham has been urged to lobby EU leaders directly to suspend the new entry-exit system, EES, as the peak weekend for overseas holidays begins.
About 2.2 million British holidaymakers are expected to head abroad between Friday and Monday, the majority to Europe, with all schools in the UK now on their summer break.
Speaking at Heathrow airport on Friday morning, the Liberal Democrats’ foreign affairs spokesperson, Calum Miller, said the prime minister needed to call on EU states to drop the “bungled, malfunctioning border system” until at least September.
The EES, which requires non-EU citizens to register on arrival and be photographed and fingerprinted, has been technically in full force since April after launching last year, but border police have been allowed to relax requirements during extreme delays.
John Wyn-Evans, head of market analysis at the asset manager Rathbones, argues that Trump will likely continue to use his tariff regime as a “convenient stick”, though the burden is likely to mostly fall on US consumers and importers.
His true motives remain his belief that the US trade deficit is a function of unfair competition… and a desire to increase the government’s revenue to offset the burgeoning fiscal deficit.
The Yale Budget Lab calculates that the average statutory tariff rate stood at 12.1%. Had the expiring tariffs not been replaced, they would have fallen to 9.8% at the end of this year. Now the rate will be 12.8%. The burden will, once again, mostly fall on US consumers and importers, although there will be minimal impact on year-on-year inflation.
…Trade policy and tariffs continue to be a convenient stick which the president will continue to use to express his ire, however impractical.
Volkswagen profits plunge and deep job cuts loom amid tough Chinese competition
Volkswagen has reported a steep fall in profits and cut its revenue forecast amid a sales slump in China, as the German carmaker pushes through a brutal cost-cutting programme that includes slashing up to 100,000 jobs.
The world’s second-largest maker of vehicles said it expects sales to fall by up to 3% this year, a dramatic reversal on a previous forecast for a 3% increase on last year’s €321.9bn (£275.3bn), because of a sales slump in the highly competitive Chinese market.
The sales slump will increase pressure on the company to cut costs. Earlier this month the carmaker’s supervisory board rejected the chief executive Oliver Blume’s plans to shut four factories in Germany, as the manufacturer confirmed it was raising the job cuts target to 100,000, double the number already agreed by unions.
European stocks rise as oil slips below $100
European stocks are now rising more strongly, with the Stoxx Europe 600 up 0.5% and the UK’s blue chip FTSE 100 up 0.4%.
That boost is being driven by a weaker oil price today, with the international benchmark Brent crude down 4.1% to $96.63 a barrel. It hit $100 yesterday amid fears around the conflict in the Middle East, particularly over Houthi threats to block Saudi Arabian naval ports.
The fall in oil prices comes after US president Donald Trump said in an interview with Axios on Thursday that he was “considering a massive attack” against Iran. The US completed its 13th consecutive night of air strikes against Iran yesterday.
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On the corporate front today, the consumer goods group Reckitt Benckiser has warned it will take a £175m hit from selling its business in Russia to local manufacturer Arnest Management.
The deal is part of Reckitt’s wider plans to transfer ownership of its operations in Russia, as many Western businesses have withdrawn from the country since its invasion of Ukraine.
Reckitt said Russian government rules mean it will receive limited proceeds from the sale, and that it expects to record a post-tax loss of about £175 million on the deal by the end of the year. Of this, around £125 million will be logged in its first half results. .
Reckitt shares are up 0.1% this morning.
World Cup and heatwave boosts UK business activity
A summer heatwave and the World Cup helped boost the UK’s business activity in July, S&P Global has found.
Its purchasing managers’ index (PMI) hit 52.1 in July, rising from 49.3 in June and marking a three-month high. Any score above 50 represents growth. Investors had been expecting a drop in July, with an estimates pointing to a reading of 49.7.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
Hospitality companies saw demand boosted by good weather, the FIFA World Cup and more domestic holidays, as high costs and uncertainty continued to deter some foreign travel.
However, overall services growth remained lacklustre amid cost-of-living pressures. Unusually for recent years, manufacturing is now growing faster than services, buoyed by rising exports.
One caveat is that manufacturers and their customers continued to build precautionary stocks, widely linked to supply chain disruption caused by the war in the Middle East, meaning part of the recent factory upturn could prove short-lived.
He added that lower oil prices in the first half of the month helped bring down price pressures, but this might not last long.
Inflationary pressures clearly remain elevated, as the ongoing energy shock and supply squeeze from the war in the Middle East continues to add to existing business cost pressures from earlier government policies. These higher costs led to a further fall in employment, which has declined continuously since the Autumn 2024 Budget.
Business optimism about the year ahead improved, reflecting some relief at reduced geopolitical tensions during the survey period and the associated drop in oil prices. But with Middle East worries flaring up again in recent days, a sustained cooling in the price data and upturn in business confidence is by no means assured.”
'Significant benefit' as US lifts tariffs on Scotch whisky
While Trump unleashes his new tariff regime on more than 80 countries, including the UK, there is a silver lining – a 10% tariff on whisky was lifted on Friday, a “significant benefit” for Scottish producers, Scotland’s first minister John Swinney has said.
The US president announced in April that he would remove the whisky tariff, following a state visit by the King and Queen.
Speaking on BBC Radio 4’s Today programme, Swinney said:
From today, there are no tariffs on Scotch whisky going to the United States, which is a significant benefit for the Scotch whisky industry.
The industry was being harmed by the existence of tariffs from the United States.
There’s obviously a range of other tariffs being applied by President Trump. But for Scotch whisky, the tariffs are gone.”
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Trump's tariffs could remove UK's 'competitive advantage' over the EU
Trump’s new trade tariffs create a “mixed picture” for UK companies according to the British Chambers of Commerce – but could remove a “competitive advantage” over the EU.
William Bain, head of trade policy at the BCC, says:
For most firms exporting goods to the US it will remain business as usual today, they will see no change in the costs they are facing. There is also some good news with the removal of tariffs on whisky, one of the UK’s global export success stories.
The Economic Prosperity Deal with the US also means that automotives, pharmaceuticals, steel and aluminium are insulated from these changes and should not face further investigation.
However, there will be concerns about the loss of the UK’s competitive advantage over the EU and other countries which have secured a more favourable deal in other goods sectors.
The US is also carrying our further investigations over digital service taxes which could lead to further uncertainty for firms.
It is crucial that the UK continues negotiations to ensure our companies have the best possible long-term trading terms with the US. Expanding our goods and services exports is vital to the UK’s economic growth and the US is our largest single country trading partner.
But this is unlikely to be the end of the story on US tariffs for either the UK or the rest of the world. The government will need to keep a close eye on developments to keep the UK at the front of the pack.”
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China warns 'trade wars not in interests of any party'
China has warned that trade wars are not in the interests of any party, after the US president Donald Trump announced a fresh wave of tariffs against more than 80 countries last night.
Chinese foreign ministry spokesman Lin Jian said in a statement:
We oppose all forms of unilateral tariff measures. Tariff wars and trade wars are not in the interests of any party.
The Chinese stock market fell sharply today, amid worries around the impact of the trade war, as well as higher oil prices. The SSE Composite dropped 1.6% and Hong Kong’s Hang Seng index fell by 1.1%.
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European stocks dip at the open
It is a mixed bag for European stock markets this morning – the Stoxx Europe 600 is down by 0.1%, led by losses in its energy sector.
But the UK’s blue chip FTSE 100 index has ticked up 0.2%, with the private equity company 3i Group its best performer, up 3.5%.
The fintech Wise is however falling sharply this morning, down 9% after it told investors it has been denied a US banking licence.
The London-based company, which just a few months ago switched its primary listing to New York, said the US Office of the Comptroller of the Currency rejected its application for a national trust bank charter.
Wise said the decision would not affect its normal operations in the US and that it will submit a new application.
UK retail sales unexpectedly rise in June
Some more upbeat news this morning – there was a strong rise in UK retail sales in June, helped by sunny weather and the World Cup.
The total volume of goods sold in stores and online rose 1% in June, according to the Office for National Statistics, following a 1.2% rise in May. However, it compared very favourably with expectations of a 0.3% decline.
More shopping also took place online, with the share of internet sales rising to its highest level since April 2021 at 29.4%.
And a survey by GfK found that consumer confidence in the UK economy and in their personal finances has recovered back to pre-Iran war levels.
However, Harvir Dhillon, lead economist at the British Retail Consortium, warns that the next few months look difficult for the industry.
While retailers have been enjoying the boost to sales, there are challenges ahead, particularly as hostilities in the Middle East resume.
Household budgets remain under pressure, consumer confidence is fragile, and retailers are facing rising operating costs.
To support growth and keep inflation under control, government should address the taxes and levies that increase businesses’ energy bills. Otherwise, rising costs will continue to constrain investment and make it harder for retailers to keep prices low for customers in the future.
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Oil slipping back below $100
Oil prices are slipping this morning, with Brent crude down by about 0.9% to $99.8 a barrel.
But oil is still up by more than 10% over the course of the week, as renewed conflict in the Middle East has fed fears around the global supply.
Fears are growing around what could be a new front in the energy crisis, as Yemen’s Houthi militias take aim at Saudi oil exports via the Bab al-Mandab strait.
Trump's new tariffs creates 'uncertainty for world trade', Bank of France governor says
Trump’s fresh round of trade tariffs will add more uncertainty to the world economy, the Bank of France governor Emmanuel Moulin has said this morning.
Moulin said that while Trump should abide by the terms of the 2025 trade deal struck with the EU at Trump’s Turnberry golf course, the new levies could still disrupt the global economy.
He told the French BFM Business TV station:
For Europe, it ought not to change much because we have the Turnberry agreement which should be respected by Donald Trump. But obviously it creates more uncertainty for world trade and clearly it’s not favourable for growth.
Introduction: Asian stocks slide as Trump hits more than 80 countries with new tariffs
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Asian stock markets have taken a beating overnight as investors come to terms with Donald Trump imposing a fresh round of sweeping trade tariffs.
The US president announced a tariff of between 10% to 12.5% on dozens of countries, including the United Kingdom, Mexico, Canada, Australia, India, China and the 27 countries that make up the European Union.
It effectively replaces the blanket 10% tariff that Trump imposed in February, right after the US supreme court declared that many of his earlier tariffs were illegal.
The Japanese Nikkei 225 has shed 3.1% today, while the Chinese SSE Composite is down 1.4%. Hong Kong’s Hang Seng index has also dropped 11.4%, and the South Korean Kospi, which is heavily influenced by its huge chip companies, has taken a brutal 6.2% hit.
The new levies are expected to fall under section 301 of the Trade Act of 1974, which is aimed against countries that engage in forced labor. Trump had said his administration would investigate unfair trading practices to impose permanent tariffs as soon as the February supreme court decision was announced.
US trade representative Jamieson Greer said in a statement:
The United States has had a forced labour import ban for nearly a century, and rigorously enforces it; it’s well past time for our trading partners to do the same.
I am encouraged by the trading partners who have moved quickly to adopt forced labor import prohibitions, and look forward to ensuring their effective enforcement.”
No doubt a higher oil price is also not helping the Asian stock market, with Brent crude hitting $100 a barrel yesterday after a fresh escalation of the Middle East conflict threatened to compound disruption to global oil supplies.
Many investors too have likely been spooked by a sell-off in some major US tech names yesterday, amid worries about AI spending and after Tesla reported lower than expected profits.
The agenda
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7am BST: ONS retail sales data
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