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Closing summary
The latest monthly PMI surveys have showing stronger business activity in the UK, eurozone and the US, with inflationary pressures hitting a three-year high stateside on the back of Donald Trump’s trade tariffs.
Washington will not lower steep tariffs on European cars until Brussels has introduced legislation to reduce its own tariffs on US exports, maintaining pressure on the EU’s automotive industry.
While the Trump administration has agreed to lower the current 27.5% US tariffs on European cars and car parts to 15%, details of a framework trade deal published on Thursday revealed the terms and conditions.
The US president and European Commission president Ursula von der Leyen announced the deal on 27 July at Trump’s luxury golf course in Turnberry, Scotland after an hour-long meeting that followed months of negotiations.
WH Smith shares have plunged almost 40% as the retailer cut financial forecasts and launched an independent review after discovering an accounting blunder that led it to overstate profits by £30m.
Investors wiped almost £550m off the retailer’s market value on Thursday morning as it reported the multimillion-pound accounting error, sending the stock price down to £6.76 a share.
The group discovered the mistake, which related to its North American business, while preparing its year-end results. The stationery to sweets retailer said it was “largely” because it had logged some of its income too early.
The mistake relates to arrangements it has with suppliers, which offer rebates if the retailer hits sales targets on certain items and payments for marketing and promotions. It is understood, however, that income should have been logged in accounts for the next financial year rather than for the 12 months to 31 August.
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US business activity picks up, selling price rises at three-year high amid Trump tariffs
US business activity hit an eight-month peak in August, while selling price inflation rose to a three-year high on the back of Donald Trump’s tariffs.
The PMI survey from S&P Global, a monthly snapshot, showed that the headline output index rose to 55.4 from 55.1 in July, indicating faster growth in the private sector.
Business confidence improved but remained much weaker than at the start of the year, as companies reiterated concerns over the impact of government policies, especially in relation to tariffs. Tariffs were again widely cited as the main cause of sharply higher costs, which in turn fed through to the steepest rise in average selling prices recorded over the past three years.
This tariff impact has yet to show up in the official inflation readings.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
A strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far. The data are consistent with the economy expanding at a 2.5% annualized rate, up from the average 1.3% expansion seen over the first two quarters of the year.
Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022. Stock building of finished goods has also risen at a survey record pace, linked in part to worries over future supply conditions.
While this upturn in demand has fueled a surge in hiring, it has also bolstered firms’ pricing power. Companies have consequently passed tariff-related cost increases through to customers in increasing numbers, indicating that inflation pressures are now at their highest for three years.
What does this mean for interest rates? He said:
The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Fed’s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and FOMC policy changes.
