Closing post
Time to wrap up…
Rachel Reeves will cut VAT to 5% on summer attractions such as theme parks and soft play centres during the school holidays as she aims to ease the impact of the war in Iran on cash-strapped households.
The chancellor told MPs on Thursday she would also raise more tax from global oil firms operating in the UK to help meet the costs of her plans.
Cutting VAT from 20% to 5% during the summer on tickets for attractions and children’s meals is part of a scheme that Reeves is calling “Great British summer savings”. It will also include free bus rides for under-16s in England during August.
Companies in the UK’s dominant services sector have reported one of the sharpest declines in business activity in a decade, according to a closely watched index.
Businesses are grappling with a “perfect storm” of domestic political uncertainty around Keir Starmer’s leadership as prime minister and the growing impact of the Iran war, leading to soaring costs, supply shortages and job cuts, the report said.
The S&P Global purchasing managers’ index (PMI), which surveys hundreds of companies across the UK each month, said activity among firms working in the services sector was the weakest since January 2021 and the lowest since July 2016 if the Covid pandemic period was excluded.
The airline easyJet has said its summer holiday bookings are lagging behind last year’s, as the Middle East conflict weighs on consumer confidence and passengers appear to be waiting later to book trips.
The carrier said it had to spend an unexpected extra £25m on jet fuel in March after the start of the US-Israel war on Iran.
However, easyJet said it was not experiencing any disruption to fuel supplies, adding that it had its usual visibility of supplies over a rolling four-week period. It said it did not expect to cancel any further flights this summer despite the warning from Ryanair’s Michael O’Leary in April that the UK was the most vulnerable country in Europe to potential jet fuel shortages should the strait of Hormuz remain closed.
Turning back to the UK, the hospitality and entertainment industry is broadly welcoming a temporary cut to VAT this summer.
Fiona Eastwood, chief executive of Merlin Entertainments, the group which runs Alton Towers and Legoland Windsor, said it was “great news” for the UK’s visitor economy and for families planning summer trips.
As the season gets under way, this timely move from the government will make it easier for people to get out, explore and create memorable moments together at destinations across the country.
“Merlin will be applying this VAT cut to both admission tickets and children’s meals, adding more value to days out and short breaks at our 20 UK attractions.”
Meanwhile Odeon Cinemas Group managing director Mark Way said:
As the UK’s largest cinema operator, we believe these measures will continue to help drive strong demand and we’re excited that our guests will be able to enjoy the big screen for less over this blockbuster summer.”
However, tax professionals are warning that the VAT cut could lead to complications for businesses and confusion for buyers.
Emma Rawson, director of public policy at the Association of Taxation Technicians, said:
While cuts to VAT on certain products and services may be welcome news for consumers, it risks adding further complexity to an already complicated system. Tinkering with the rules on what is covered by VAT and at what rates has led to an area which is ripe for reform.
There is also no guarantee that cuts to VAT are passed on to consumers in the form of reduced prices at the checkout, so buyers should beware.”
Tax advisory firm MHA warned that the move did not come without “significant challenges” for companies.
MHA partner Sue Rathmell said:
It will be time consuming and costly for businesses to recalculate their prices and amend their menus, displays and websites.
Where a retailer has already received payment for tickets supplied for the period June 25 to September 1 2026, the Government expects retailers to refund the additional VAT to their customer.
This will potentially be a lengthy exercise for retail businesses who will have to work quickly to get their systems set up for the change. Undoubtedly businesses will be relying on the VAT reduction bringing in a whole lot more customers to offset their extra costs.”
Updated
US stocks fall and oil rises as US-Iran tensions continue
The US stock market has opened lower today, with the blue chip S&P 500 index dropped 0.5%. The tech heavy Nasdaq is also down 0.5%.
Meanwhile Brent crude, the international benchmark for oil, is up 3.7% today to $108.94 a barrel. It follows a report from Reuters that Iran plans to keep its uranium, in a potential setback for any peacedeal.
Jaguar Land Rover and Stellantis to work together in the US
Jaguar Land Rover and Stellantis have said they will work together in the US, in a move that could offer the British carmaker a route to American manufacturing for the first time.
Stellantis, one of the world’s largest carmakers, owns brands ranging from Peugeot and Citroën to Vauxhall and Fiat, as well as Jeep, long a rival to Land Rover. However, the company has said it is looking at forming partnerships, which offer a way for it to use spare factory capacity.
JLR, Britain’s biggest automotive employer, has its eye on potential growth in the US, the world’s wealthiest car market, and senior executives have said they are considering manufacturing there. A deal for Stellantis to manufacture cars for JLR could offer a route around Donald Trump’s tariffs of 10% on most car exports from the UK.
The carmakers said in an announcement that they would “explore opportunities to collaborate on product development in the United States” and try to create “synergies across product and technology development”.
Any deal would be seen as a response to the surge in exports of Chinese cars, which have put traditional Western carmakers under enormous pressure.
JLR could potentially share designs for electric cars with some of Stellantis’s premium brands, although the company gave no details.
Antonio Filosa, chief executive of Stellantis, said:
By working with partners to explore synergies in areas such as product and technology development, we can create meaningful benefits for both sides while remaining focused on delivering the products and experiences our customers love.
PB Balaji, JLR’s chief executive, said:
As we continue to evolve JLR for the future, collaboration will play an important role in unlocking new opportunities. Working with Stellantis allows us to explore complementary capabilities in product and technology development that support our long‑term growth plans for the US market.
JP Morgan boss says firm will hire fewer bankers due to AI
Elsewhere today, Jamie Dimon, chief executive of JPMorgan Chase & Co, said the bank is likely to hire more AI specialists and fewer bankers in the future.
In an interview with Bloomberg, the billionaire said that he believed AI would “reduce our jobs down the road”.
He said:
There will be all different types of jobs, and I think we will be hiring more AI people and fewer bankers in certain categories, and it will make them more productive.
His comments came after Bill Winters, the boss of the accountant Standard Chartered, said the bank would use AI to replace “lower-value human capital”.
Dimon stold Bloomberg that Winters was a friend and “it was an inartful way to say something”.
Cost of living measures help, but government will need to be bolder, trade unions say
The new package of cost of living help is welcome, but the government will need to do more, TUC General Secretary Paul Nowak has said.
Any practical steps to help families with the cost-of-living crisis are a good thing.
Unions have long campaigned for upgrading critical industries like chemicals and ceramics and increasing mileage rates for workers. These measures will make a real difference to people up and down the country.
But we’ve barely begun to experience the economic fallout of the Iran war – and the threat to living standards is going to grow as the war drags on.
With the new energy price cap set to be announced next week, the government will need to be bolder to shield workers and households from Trump’s illegal war.”
Updated
Tina McKenzie, chair of the Federation of Small Businesses, said the VAT cut was good news for restaurants, pubs, soft plays and attractions that have “spent years fighting rising costs and shrinking margins”.
With 44 per cent of small hospitality firms based on or near the high street, a VAT cut should help put bums on seats and bring life into our town centres this summer.
With families switching from international travel to domestic travel this summer, they’ll be more people out and about on our local high streets. For many small firms, these next few months matter enormously after a bruising period of rising costs and squeezed consumer spending. Families will make extra purchases, such as drinks and merchandise, which is likely to be the biggest help to small businesses’ bottom lines.
… A strong summer could be the difference between staying afloat and shutting up shop for some businesses.
Updated
The cut on VAT for summer attractions – which the government is calling its “Great British Summer Savings scheme” – comes alongside the news that children aged five to 15 in England will be able to travel free on local bus services in August.
Overall the scheme is estimated to cost about £300m.
Kate Nicholls, chair of the industry body UKHospitality, says:
It’s good to see the government recognise the importance of a lower rate of VAT for hospitality as the quickest and simplest way to lower prices and boost consumer confidence.
A 5% rate of VAT for children’s meals and tickets is a good step to help families enjoy a great British break this summer.
If there is scope to further support families by including accommodation in this reduced rate, I would encourage the Chancellor to do so to help tackle one of the biggest costs of a family holiday.
This should now be viewed by government as a downpayment on a wider shift to a lower VAT rate for the entire hospitality sector, to bring us in line with Europe. Our biggest competitors benefit from VAT rates that average around 10%, and can be as low as 7%, and the UK is a clear outlier.
As the government has recognised today, VAT is the single biggest lever it can pull to lower prices, tackle inflation, drive demand, boost spending, generate growth and create new jobs. I would urge it to be bold and cut VAT for the entire hospitality sector.”
London already operates its own 5–15-year-old Zip Card scheme, which provides children with free travel across London.
Updated
Reeves has also confirmed that the government will freeze tariffs on more than 100 different foods sold in supermarkets.
She said she is clear she expects supermarkets to pass these savings on “in full” to their customers.
VAT cut on attractions like theme parks, zoos and children's cinema tickets, to be cut over summer, Reeves says
Reeves announces a temporary cut to VAT on summer attractions from 20% to 5%.
This will apply to ticket prices for adults and children, covering attractions such as fairs, theme parks, zoos and museums, she says.
It will include children’s tickets for cinemas, concerts, soft play and the theatre, and it will cut the cost of children’s meals in restaurants and cafes from 20% VAT to 5%, she says.
The changes will apply across the UK from the start of the Scottish school holidays on the 25th June, and run until the end of school holidays in England, Wales and Northern Ireland on the 1st September.
According to the Treasury, if these businesses pass on the full VAT savings to their customers, then for a family of two adults and two children it would mean:
-
£20 off the family’s tickets to a theme park
-
£2 off entry to soft play
-
£6 off the family’s tickets to a farm attraction
-
£17 off the family’s tickets to a wildlife park
-
£1.50 off the children’s tickets to the cinema
-
£9 off the family’s tickets to the circus
-
£2 off the children’s meals on a lunch out
-
£11 off the family’s tickets to the aquarium
Updated
Reeves says she will bring forward changes to taxation of foreign branch profits, in a move that she says will raise hundreds of millions of pounds a year.
Currently, some oil and gas groups that operate overseas through foreign branches have structured their tax affairs in a way which ensures they pay little or no corporation tax on their UK energy trading profits. Today we are putting an end to that practice.
Reeves says she will also establish a £350m Critical Chemicals Resilience Fund to support “strategically important producers”, as well as a £120m fund to support the ceramics industry, designed to help them increase efficiency and drive down energy costs.
The conflict in the Middle East poses a significant challenge to the world’s economy, including the UK’s, she says.
She notes that Ofgem will confirm the level of the energy price cap that will apply from July.
I know that any increase will be felt by families because of the decision that I made at the Budget last year to cut £150 from energy bills. We have lessened the impact of rising prices, and current external forecasts suggest that the cap from July will be at a similar level to the cap in April last year.
We stand ready to act if market conditions worsen significantly later this year, and I have been leading cross-government contingency work on design of potential, future targeted and temporary support for businesses. Any support will also need to be carefully targeted at firms most exposed to the crisis.
Updated
The chancellor, Rachel Reeves, is now addressing parliament. She is expected to outline a package of measures aimed at easing the cost of living.
Oil up 2% amid reports that Iran says uranium should not be sent abroad
Oil prices are rising after reports that Iran’s supreme leader ordered that the country’s enriched uranium should not be sent abroad.
Brent crude, the international benchmark for oil, rose 2% to $107.32 a barrel.
It follows a report from Reuters which cited two unnamed “sennior Iranian sources”.
It comes more than a week after US president Donald Trump said talks with Iran were in their final stages.
Updated
EU cuts economic growth forecast amid inflation concerns
The EU has cut its forecast for economic growth this year, amid worries around inflation triggered by war in the Middle East.
The European Commission has now projected that GDP growth in the EU will slow down to 1.1% this year, compared with a previous forecast of 1.4%.
Inflation in the EU is expected to reach 3.1% in 2026, a full percentage point higher than the last forecast, before easing back to 2.4% in 2027.
British factory orders shrink at fastest rate since 2020, CBI says
Some more gloomy figures this morning – British factory order books were at their weakest in May since September 2020, according to a survey by the Confederation of British Industry.
Its monthly balance of total new orders slid to -41 in May from -38 in April.
Cameron Martin, senior economist at the CBI, said:
Against an increasingly uncertain global backdrop, the conflict in the Middle East is feeding through to higher energy costs and renewed supply chain disruption, adding another layer of challenges for manufacturers, who are already grappling with weak demand.
Updated
Business activity across the eurozone also shrank in May, at its fastest pace in two and a half years.
The PMI index fell to 47.5 in May from 48.7 in April, S&P Global found, once again driven by a slump in the services sector.
Williamson said the data showed the eurozone economy taking an “increasingly severe toll from the war in the Middle East”.
Job losses are also starting to become worryingly widespread as business confidence in any swift turnaround in the adverse economic climate fades further.
The service sector is being hit especially hard by the surge in the cost of living created by the war, notably via the demandsapping impact of higher energy prices. While there has been some support to manufacturing from precautionary stock building, this boost is starting to fade, with demand for both goods and services now in decline.
The region’s supply shock from the war is also intensifying, as indicated by increasingly widespread supply chain delays. Supply shortages threaten not only to constrain growth in the coming months but also have the potential to add further upward pressure to inflation.
The rise in the survey’s price gauges already hints at inflation running close to 4% in the coming months which, combined with the growing signs of the region slipping into an economic downturn, creates a deepening dilemma for policymakers.”
Rob Wood, chief UK economist at Pantheon Macroeconomics, says the sharp downturn in output means the Bank of England is more likely to hold interest rates in July.
The [monetary policy committee] now face a sharp trade-off between weaker growth and still rampant inflation pressure. The manufacturing price balances tend to be far more sensitive to oil prices than actual inflation is so we ignore those for now. The services output price balance eased to 60.6, from 62.9 in April, consistent with underlying services inflation accelerating to over 6.0% year-over-year from its latest reading of 3.7%.
As a comparison, the services output price balance rose by 5.2 points between January and May 2025, almost the same as between the same months in 2022, suggesting strong pass-through of energy costs to underlying inflation. Firms also noted strong wage growth. The services price balance looks far too high to be plausible, as the PMI measures only the proportion or firms raising prices rather than by how much. But pricing indicators all point to accelerating underlying inflation.
The forward-looking components of the PMI worsened, with new orders returning to falls and future activity expectations dropping to the worst since last April. Those balances are consistent with a composite PMI reading of 49.7 in June. Businesses shed staff at a slightly faster rate than April, but also less quickly than on average in 2025, suggesting that job growth has failed to worsen yet, consistent with this week’s terrible payroll numbers being revised up.
UK business activity contracts in May as economy faces 'perfect storm'
British businesses reported their first in output in over a year in May, as conflict in the Middle East and political uncertainty in the UK hit activity in the services sector.
The purchasing managers’ index (PMI) by S&P Global dropped to 48.5, well below an expected 51.6 and under the 50 threshold that marks the difference between expansion and contraction.
The decline was driven by a fall in the services sector, where the reading slumped to 47.9, compared with expectations of 51. It was its worst performance since January 2021, when the economy was dealing with the Covid-19 pandemic.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
The UK economy is facing a perfect storm as rising political uncertainty adds to the growing impact from the war in the Middle East. Businesses are reporting falling output, surging inflation, supply shortages and job cuts in May.
The May PMI data indicate that the economy contracted at a 0.2% quarterly rate, representing a marked contrast to the robust growth seen earlier in the year. The blame lies first and foremost with the war in the Middle East, though companies are also noting that domestic politics are taking an increasing toll, driving uncertainty higher, in turn deterring spending, hiring and investment.
Things could well get worse in the coming months, as we have been seeing some support to manufacturing from precautionary stock building which will inevitably fade once warehouses are full.
Just as the economy shows signs of sinking into decline, prices are surging higher to herald a marked upturn in inflation in the months ahead as these costs pass through to consumers.
This combination of a faltering economy and spiking price pressures leaves the Bank of England in a major quandary, facing the growing need to hike rates to help contain inflation but thereby adding to recession risks.”
Updated
Shares in the pub chain Mitchells & Butlers have dropped sharply by 8% this morning, after it reported a slowdown in sales growth.
The FTSE 250 company, which owns All Bar One as well as Toby Carvery, Harvester and Miller & Carter, said its sales grew 3.3% in the 28 weeks ended 11 Aril, but that growth had sowed to 1.8% in the second quarter.
Victoria Scholar, head of investment at the broker Interactive Investor said the fall in the share price reflected worries that momentum is weakening and that the pub chain could experience further pressure.
It is facing headwinds on multiple fronts from the weak consumer backdrop and softer discretionary spending to heightened inflationary pressures that are weighing on the hospitality industry. No doubt the sector will be hoping for a boost from improving weather in the summer months ahead as well as the men’s football World Cup.
The stock is the worst performer across the FTSE today. In the year to date, it has lost about a tenth of its market value.
Updated
BT revenue drops as Openreach upgrade completes
It is a mixed bag of results from BT this morning: the telecoms group has reported a drop in revenue and has forecast another fall next year, but profits are up.
Its underlying revenues fell 4% to £19.65bn in the year ended in March, with UK service revenues down 1% despite price rises. Pre-tax profits rose 8% to £1.44bn.
The FTSE 100 group is now expecting revenue in the range of £19bn to £19.5bn next year, while earnings are expected to rise between £8.2bn to £8.3bn.
But BT also told investors that it has lost fewer customers than feared, down 825,000 customers across its Openreach network, better than the 844,000 which analysts had expected.
It has also announced plans to increase its dividend by “low to mid single digit percentage” in its current financial year, and that it will expand its cost cutting plan from £3bn in savings by 2029 to £3.7bn by 2030.
Shares in the company are down 1.5% this morning.
Matt Britzman, an equity analyst at the broker Hargreaves Lansdown, says:
BT’s results were light on fireworks, but they did what they needed to do. Revenue remains under pressure, but tight cost control helped cash profits hold up, while free cash flow came in a fraction better than expected.
That matters most for BT’s investment case from here. The group is now moving past the heaviest phase of its fibre build, and today’s reiteration of a stronger cash flow outlook gives investors a clearer path to a more cash-generative business.
Openreach remains a key part of this story. Full fibre now reaches 23 million premises, connections are growing, and line losses were slightly better than BT had guided for, though they’re still a reminder that competition is fierce. The dividend increase and new policy are helpful signals, but this is still a story about execution. BT needs to prove that years of heavy network investment can translate into sustainable growth, not just better cash flow as spending falls.”
Updated
European markets have opened lower this morning. The UK’s blue chip FTSE 100 has slipped 0.4%, while the German Dax is down 0.3% and the French Cac 40 is down 0.2%.
The Stoxx Europe 600, which tracks the biggest companies on the continent, is down 0.2%.
Nationwide to pay £100 cash bonus to millions of customers
Nationwide has put aside a £440m pot to pay £100 cash bonuses to 4 million members.
It will be the fourth “fairer share” payment by the bank since it started its profit sharing scheme in 2023. Eligible customers who have a qualifying current account, plus a savings or mortgage with the bank, will be paid the bonus from 10 June.
The announcement came as Britain’s biggest building society reported an annual pre-tax profit of £1.49bn, down from £2.3bn last year when it enjoyed a one-off gain from its £2.9bn deal to buy Virgin Money.
Debbie Crosbie, Nationwide’s chief executive, said:
More people than ever are choosing Nationwide. Our growth in mortgages, retail deposits and personal current accounts is leading the market, which means we can again make a Fairer Share payment to eligible members, and offer a new Member Exclusive Bond to all members.”
EasyJet takes £25m hit on extra fuel costs
Budget airline easyJet has said it had to spend an unexpected extra £25m on jet fuel in March, after the start the US and Israel’s war on Iran.
But chief executive Kenton Jarvis said this morning that there have been “no issues” with fuel supply and that people should not panic about their summer holidays.
Kenton Jarvis told BBC Radio 4’s Today programme:
We have seen absolutely no issues with fuel supply at any of our airports in the UK, across Europe, or indeed beyond.
We stay in very close contact with our fuel suppliers, airports, governments, and they are equally raising no issues looking forward. What is true is obviously there’s a lot less oil coming from the Gulf region, but fuel suppliers have successfully diversified, with production increased in Norway, in West Africa, in the Americas, and refining capacity for jet fuel has also increased substantially outside of the Gulf region.”
The company has hedged 72% of its fuel needs for the next six months, covering the busy summer period up to the end of September. However, it has temporarily suspended short-term hedging as a result of “elevated near-term fuel prices”.
The airline reported a a £552m pretax loss for the six months to 31 March, compared with a loss of £394m in the same period a year earlier. It normally makes its profit in the second half of the year, which includes the peak summer period.
Closer to home, the UK chancellor Rachel Reeves is expected to give a speech in parliament this morning, outlining her latest plans for cushioning the blow to consumers from an expected rise in inflation later this year.
It comes after Keir Starmer announced that the government will postpone the planned increases in fuel duty that were due to take effect in September and December, and give lorry drivers free vehicle tax.
Inflation fears are being fanned by conflict in the Middle East, which has triggered a spike in oil prices. Brent crude, the international benchmark for oil, is up 1.5% this morning to $106.61 a barrel.
Elsewhere in the world of tech, last night SpaceX unveiled its plans to list publicly on the US stock market.
Elon Musk’s rocket and satellite operations company is planning to go public on the Nasdaq exchange at a valuation of about $1.75tn, under the symbol SPCX, likely on 12 June. It is seeking up to $80bn in investment.
It said in its filing:
Our mission is to build the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars.
Introduction: Nvidia hits record quarter on AI chip boom
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A fresh wave of AI optimism has lifted the stock market after chip designer Nvidia reported another set of record-breaking earnings last night.
The company, which designs chips critical for AI tech, reported an 85% year-on-year rise in revenue to $81.6bn in the three months ended in April, marking the 15th consecutive quarter of beating Wall Street estimates.
Nvidia forecast $91bn in sales for its current quarter, well above average investor expectations of $86bn, but short of the highest estimates. Its shares are down 1% in after hours trading, reflecting some worries among investors about how long the company can keep up its incredible growth trajectory.
Still, the revenue beat has lifted the mood in Asian stock markets: the South Korean Kospi has staged a dramatic 9% rise, while Taiwanese shares have risen by 3.3%, snapping a four-day losing streak. LG Electronics and Hyundai Mobis both rose by more than 20% after Nvidia boss Jensen Huang said that physical AI and robotics was the “second category” for major growth.
Elsewhere this morning, Wes Streeting, the former health secretary, has called for a “wealth tax that works”.
Speaking to the BBC, he proposed equalising capital gains tax with income tax, which he said could raise £12bn a year.
Streeting suggested that CGT rates should mirror the three bands of income tax of 20%, 40% and 45%, according to the BBC. He told the broadcaster’s Political Thinking podcast that loopholes should also be closed that allow people to disguise income from work as capital gains, and that lower rates of capital gains tax could be offered to entrepreneurs who are building companies.
His comments come after his resignation as health secretary last week, after several Labour MPs urged prime minister Keir Starmer to step down.
The agenda
-
9am BST: Eurozone flash PMI
-
9.30am BST: UK flash PMI
-
11.30am BST: UK chancellor Rachel Reeves expected to detail measures on cost of living support
-
1.30pm BST: US jobless claims
-
3pm BST: Eurozone consumer confidence reading
-
4pm BST: Bank of England governor Andrew Bailey speech at Cutler’s Feast, Sheffield
Updated
