Closing summary
The pound has gained 0.5% against the dollar to $1.3028, and earlier touched $1.3044. It was last trading at the $1.30 level in mid-July 2023.
Sterling has also hit a two-year against the euro, of €1.1927, and is currently trading up nearly 0.1% at €1.1909.
The UK currency was boosted by higher-than-expected inflation data, which led to markets paring back expectations of an interest rate cut in August. Before the data, they were almost 50-50; now the probability of a rate cut at the Bank of England’s next meeting on 1 August is seen at 35%.
The chances of an August interest rate cut took a blow after a sharp jump in hotel prices meant progress in the UK’s fight against inflation stalled last month.
A near 9% jump in the cost of a hotel room – blamed by some analysts on a “Taylor Swift effect” – offset the impact of cut-price clothing to leave the government’s preferred measure of the cost of living at its 2% target for a second month in a row in June.
With measures of underlying inflation also holding steady, the City said the prospect of the Bank of England reducing the cost of borrowing from its current level of 5.25% at its next meeting on 1 August had diminished.
The pound has gained 2.4% against the dollar so far this year. Investors are attracted by political stability, following the Labour party’s decisive election victory on 4 July.
The FTSE 100 index turned positive early afternoon and is now 35 points ahead at 8,200, a 0.4% gain. Europe’s other major indices are still in the red, trading slightly lower. On Wall Street, the Dow Jones rose 0.35% while the tech-heavy Nasdaq has tumbled 2% and the S&P 500 has slid 1%.
The king’s speech at the state opening of parliament set out the new government’s legislative programme over the next year.
Here are the main points:
Our other main stories today:
Thank you for reading. We’ll be back tomorrow. Bye!-JK
Updated
US industrial production rises more than expected
In the United States, industrial production rose by 0.6% in June from May, which was better than expected. Within this, manufacturing output rose by 0.4%, driven by car and aerospace production.
Industrial production also benefitted from a 2.8% jump in utilities output, likely reflecting the unseasonably warm start to the summer and the associated boost to air conditioning demand.
Stephen Brown, deputy chief North America economist at Capital Economics, said this industrial strength is unlikely to have continued into July.
As vehicle sales dropped back in June, it seems unlikely that the rise in motor vehicle production will be repeated. The manufacturing survey indicators continue to paint a gloomy picture of conditions elsewhere, with the ISM manufacturing index at just 48.5 in June.
Similarly, as temperatures have been closer to their seasonal norms so far this month, utilities output will probably quickly drop back. Overall, it seems likely that some of the strength in industrial production in June will be reversed this month.
Returning to the government’s plans for housing, the Federation of Master Builders points out that its bold plans to build 1.5m homes over the next five years, the current skills crisis in the construction industry needs to be addressed.
Brian Berry, the FMB’s chief executive, said:
We are substantially lacking the skilled workers required to build new homes, and to upgrade our existing homes with the energy efficiency improvements which Labour have pledged. The UK is in desperate need of a long-term skills plan, to establish clear pathways into careers in construction. Unless this is delivered it is difficult to see how 1.5 million new homes will be built over the next five years.
Berry concluded:
One startling omission is the lack of plans to upgrade the existing housing stock. We had been expecting to see a bold plan to retrofit 5m homes to make them greener and more energy efficient but clearly the purse strings have not been opened enough to allow for this. While we should be looking to build more homes we mustn’t take our eye of the existing housing stock, which is the oldest and leakiest in Europe.
The king’s speech also announced the nationalisation of railways.
Gideon Salutin, senior researcher at the Westminster think tank Social Market Foundation, said;
By nationalising rail and franchising bus services, the new tovernment is finally challenging the historical misalignment of our public and commercial transport objectives. These have never really clicked, with the private sector prioritising areas based on money rather than need, leading availability to crater in many areas. Bus franchising will end the postcode lottery that has seen bus service protected for some and not for others, while rail franchising will allow a more coherent and efficient transit system.
Yet key questions remain. Labour has pledged to maintain access to the track for privately owned operators that “add value and capacity to the network” but how that will be determined remains undefined. Further, both rail and bus reforms are unlikely to drastically decrease consumer costs, and with no new money entering the system, those delays and cancellations which have plagued the last government could continue. The new government policy is a bold first move, but it still has miles left to go.
However, Philipp Kurek, arbitration partner at law firm Signature Litigation, warned that the plans could lead to disputes with investors, who may claim compensation. He said:
The government’s plans announced in the King’s Speech today that would allow it to renationalise nearly all passenger rail services will need to be scrutinised carefully to ensure that any renationalisation complies with the UK’s obligations under applicable international investment treaties.
The UK is party to more than 100 bilateral investment treaties which provide significant protections to qualifying investors in the UK, including investors (such as shareholders and others with direct or indirect financial interests) in the UK rail infrastructure sector. These treaties contain strict conditions relating to the nationalisation of any protected investment (including an obligation to pay fair market value compensation).
Similarly, a decision by the government not to renew or extend existing contracts when they expire in the coming years may equally give rise to claims for compensation by affected investors.
The Federation of Small Businesses was less impressed, saying the king’s speech announcements fell short on measures to stimulate growth for small firms, and jobs within them.
The FSB’s policy chair Tina McKenzie said the government’s 105-page briefing document doesn’t mention ‘small business’ once, and the group is now looking to the chancellor Rachel Reeves and her autumn budget to take action.
Today’s King’s Speech announcements fell short on the central challenge – getting growth back into the economy and ensuring wealth creation in every local community.
Apart from ambitious-sounding planning reform, there was no sign of delivery of the small business plan promised by Labour in opposition.
The lack of promised legislation to tackle late payments and poor payment practices by bigger businesses to their small business suppliers is the most serious omission for our community and will hold back economic growth. This scourge hampers cashflow and stifles investment, and we call on the Government to look again and deliver on the promise it made.
The move from an Apprenticeship Levy to a Growth and Skills Levy will risk small business apprenticeships unless the Government quickly follows up with its promised unequivocal commitment to protect Government co-investment for apprenticeships at small employers.
Similarly, the Industrial Strategy Council commitment omits mentioning the need for a small business voice, to prevent it being dominated by large corporate incumbent interests.
At the same time, small businesses are increasingly worried about the developing employment rights package. More than nine out of ten small employers say they are concerned about the prospect of increased costs and risks when they employ people, and there were no commitments within this to look after small employers who will struggle the most.
Here is a round-up of the key points of the king’s speech, in which 40 new bills were announced.
Vicky Parker, head of [ower and itilities at PwC UK, welcomed the Great British Energy bill announced in the king’s. speech today. She said:
The policy direction of the new government suggests we are likely to see a growing involvement of the public sector to help drive progress in energy. The announcement of Great British Energy today and a focus on creating a clean energy superpower, being a welcome example of that to accelerate progress to zero carbon by 2030. The success of these institutions is likely to be measured against the amount of private capital they mobilise, how GBE becomes an active participant in the sector, the introduction of electricity market reforms and their ability to deliver new infrastructure in the UK.
To accelerate plans for the UK to meet net zero, significant investment is required across established solutions, such as wind, as well as less mature solutions such as hydrogen, heat pumps and sustainable aviation fuels. The newly-formed National Wealth Fund’s task force, which has been allocated £7.3bn of capital, will focus on investments such as green hydrogen and steel, industrial decarbonisation, ports and gigafactories. There will still be a gap between what is needed and what the market is currently providing, so a step-up is needed across a wide range of different investor types, as no single solution or institution will provide the full suite of financing which is required.
In order to meet the accelerated 2030 targets and demonstrate tangible results, there also needs to be a focus on ramping up the pace of the installation of new, low-carbon infrastructure (generation as well as connection) and tackling long-standing blockers such as planning and financing. Removing planning restrictions and simplifying application processes can unlock offshore wind and accelerate onshore wind development, for example, the latter of which the government has already acted on.
The pound is holding onto its gains, climbing by 0.5% and hit $1.3044 earlier, its strongest level against the dollar in a year.
The UK currency was boosted by higher-than-expected UK inflation data, which led to markets paring back expectations of an interest rate cut in August. Before the data, they were almost 50-50; now the probability of a rate cut is seen at 36%.
Sterling has been strengthening in recent weeks, and is up 2.4% against the dollar this year. Investors are attracted by political stability, following the Labour party’s decisive election victory on 4 July.
In France, the centrist prime minister Gabriel Attal and his government resigned on Tuesday, but stayed on in a caretaker capacity until a new cabinet is appointed. The leftwing coalition that won France’s snap election on 7 July is struggling to form a government.
The pound hit a two-year high against the euro of €1.1927 today, and is currently trading up 0.1% at €1.1914.
The FTSE 100 index has slipped by 0.1% or 11 points to 8,151. Other European indices are also trading lower, with Germany’s Dax and France’s CAC down about 0.7% while the Italian borsa slid by 0.4%.
Rachel Delacour, chief executive and founder of sustainability management firm Sweep,which works with the energy firm SSE and others, welcomed the government’s plans to establish Great British Energy and invest billions in renewables, as mentioned in today’s king’s speech.
GB Energy will be headquartered in Scotland, where much of the UK’s oil and gas and offshore wind industries are based).
She said this is “a major step in the right direction for the UK’s journey towards net zero”. She added
All organisations need to tackle their greenhouse gas emissions, and governments creating the conditions for them to access cleaner energy is a key part of the puzzle.
However, it is crucial that the government puts the appropriate structure in place around a project of this size. This means monitoring it through stringent data collection processes, understanding the impact Great British Energy will have on the environment itself, and providing its users – especially businesses – with the detailed insights needed to reduce carbon emissions. It is only through taking such measures that Great British Energy can truly monitor its impact across the UK and support UK businesses to meet science-based climate targets.
Anthony Codling, housing analyst at RBC Capital Markets, said:
King’s Speech, no surprises, but no details either. The King said that his government would Get Britain building through planning reform as they seek to accelerate the delivery of high quality infrastructure and housing through a Planning and Infrastructure Bill. There was no mention of targets, no 1.5m homes, and no mention of social housing ‘percentages’, suggesting that Labour will take a pragmatic approach to social and affordable housing supply.
However, we expect that Labour will push ahead with its plan to build 1.5m homes over the next five years and do all it can to the planning system to help get Britain building. We expect the housebuilders shares to re-rate as the Labour Policies move from manifesto pledges to policy action. Renters will be happy that no fault evictions will be banned, and homeowners will welcome the plans to reform leasehold and commonholds.
The king’s Speech has set out plans to “start mending broken public services,” says the union Unison.
Its general secretary Christina McAnea said:
These bills are the start of the long process to mend much of what’s been broken by Conservative governments and generate the growth to get public services thriving once more.
Labour’s workplace rights package promises to be a game changer. For too long, bad bosses have had it all their own way. The new deal is a chance to reset the dial in favour of good employers and every UK worker and jobseeker.
Outdated practices like ‘fire and rehire’ and zero-hours are to be consigned to history in a move that’s understandably proved popular with voters from across the political spectrum.
Social care gets some attention at last too. After years of government neglect, the fair pay agreement is the first sign things are set to change, with a national care service the ultimate prize.
Once the new pay agreement is in place, wages in care will rise across England, easing the sector’s staffing nightmare and relieving pressure on the NHS.
The government’s growth agenda is closely linked to devolved regional and local services, yet many councils are teetering on the brink of effective bankruptcy.
Devolving powers and reforming planning regimes can only help generate growth if local government receives sustainable, long-term funding and is able to retain expert staff.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the pension schemes bill, announced in the king’s speech, is good news, bringing simplicity and greater flexibility, something that the financial services firm has been calling for.
Boosting retirement outcomes through a leaner, more efficient system is at its heart. Government estimates that the introduction of these measures could boost the average person’s pension pot by 9% over the course of their career. With recent data from HL’s Savings and Resilience Barometer showing only 38% of households are on track for a moderate retirement such changes are vital.
There are measures in place aimed at dealing with the lingering ‘lost pots’ problem with deferred pots being automatically brought together in one place. Keeping track of every pension can mean people enter retirement with a better view of exactly how much they have and this can significantly improve retirement decision making.
Ensuring we can build on the small pots plan and use the infrastructure to support a Lifetime Pension will be essential to stop the flow of small pots and allow for people who change jobs frequently to take control of their retirement planning. Allowing people to choose their pension provider will also have benefits for engagement and improve market competition based on which schemes support people and their retirements the best
.Schemes will also be under pressure to prove they are offering value for money through the introduction of a standardised test. How metrics related to cost, returns, service and member engagement will be crucial here. Value for money should also drive consolidation within the pensions market amounting to a smaller number of much larger defined contribution schemes.
The shift towards consolidation across both defined contribution and defined benefit schemes is expected to bring more efficiencies and lower costs. It will also boost the ability for UK pension schemes to invest in more productive assets – a key goal for government which can not only boost pension scheme growth and people’s retirement incomes - but also that of the UK economy.
Today's King's Speech sets out how we are delivering change for our country.
— Keir Starmer (@Keir_Starmer) July 17, 2024
Serving working people. Creating wealth in every community.
National renewal starts now. pic.twitter.com/SznttCF8Cu
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Pete Mugleston, managing director of the website onlinemortgageadvisor, has also looked at the housing measures:
In light of the recent King’s Speech by the Labour government, the proposed housing policies signify a turning point for the UK housing market. By addressing long-standing issues and introducing new initiatives, the Labour government hopes to reinvigorate the sector.
Labour’s plan to build 1.5m homes and have mandatory housing targets for councils over the next five years is encouraging. Increasing the housing supply can help alleviate the intense competition that often drives up property prices. By expanding the availability of homes, the government aims to create a more balanced market where buyers have more choices, reducing the pressures homeowners often feel with aggressive bidding and overpaying. This new policy can also stimulate business spending and attract foreign investment, leading to job creation and a more robust economy in the future.
Turning to renters, he said:
One of the most significant elements of the King’s Speech is Labour’s plans to protect renters’ rights by reintroducing the Renters Reform Bill. Central to this bill is empowering renters to challenge “unreasonable” rent increases. This is welcome news for many renters in the UK who are currently dealing with the cost of living crisis, where their rent has increased more than their wages.
For those looking to buy houses, these reforms have the potential to bring much-needed relief. By increasing the housing supply across the country these policies could stabilise or even lower property prices, making homeownership more attainable for many first-time homeowners. Pair this with inflation holding steady at 2% this month, it could indicate to the Bank of England to finally lower interest rates from 5.2%. ‘This should make mortgages more affordable and reduce homeowners’ monthly payments helping to ease the financial burden for many.
Here is some instant reaction to the king’s speech.
Nigel Bishop of Recoco Property Search said:
Labour’s announcement to levy VAT on private school fees has been labelled one of the party’s more controversial ones. This will leave many parents unable to afford private school education and inevitably impact on the property market by boosting demand for properties in close proximity to good state schools. Properties in these catchment areas can already ask a 20% premium and a politically-caused boost in demand for such homes will create an even more competitive market for buyers.
Labour’s manifesto pledged to improve the UK’s housing market and the party is under immense pressure to deliver. One promise was to build 1.5 million homes and we are interested to learn more about Labour’s plans to utilise “poor quality” green belt areas as this will likely be met by protests from some local residents and organisations.
Britain’s new centre-left government said it will help the country move on from a cost-of-living crisis by focusing on wealth creation, as it set out its plans for the coming year.
A speech written by the Labour government and delivered in parliament by King Charles III said Labour will get more houses and infrastructure projects built, strengthen workers’ rights and create a new industrial strategy.
The king said the goal is to “see rising living standards in all nations and regions of the United Kingdom.”
Labour won the UK’s general election on 4 July by a landslide, with voters keen to see change after 14 years of Conservative Party rule.
King Charles is setting out Labour government’s plans and priorities in his speech at the state opening of parliament, and you can following it live here:
Updated
German government passes 2025 budget – Reuters
The German government has passed its 2025 budget after months of wrangling, Reuters reported citing government sources -- even though a €17bn gap between projected spending and revenue has still to be covered.
The government hopes to plug the hole with additional tax revenues when the economy picks up. Germany, Europe’s largest economy, skirted a recession at the start of the year but growth has been slower than expected.
Germany’s budget for next year includes a record €78bn of investments and net borrowing of €43.8bn, and an economic package aimed at reviving growth. The budget totals €481bn, and complies with a constitutionally enshrined cap on spending, known as the debt brake.
German finance minister Christian Lindner said today:
We are complying with the debt brake, which makes us an anchor of stability in Europe.
With our growth initiative, we are providing important economic policy impetus to make Germany more attractive as a business location.
New room for manoeuvre in the budget can only be created through more economic growth.
A year before Germany’s next federal election, and ahead of regional elections in September, reaching agreement on the budget has been a major test for the coalition government made of chancellor Olaf Scholz’s Social Democrats, the Greens and the liberals (FDP).
In June’s European election, the ruling parties fared poorly, and the far-right Alternative for Germany (AfD) came second behind the conservatives.
Here are the main drivers behind UK inflation holding at 2% in June:
Eurozone inflation dips to 2.5%
In the eurozone, annual inflation dipped to 2.5% in June from 2.6% in May.
A year earlier, the rate was 5.5%, according to Eurostat, the statistical office of the European Union.
The lowest annual inflation rates were registered in Finland (0.5%), Italy (0.9%) and Lithuania (1.0%). The highest annual rates were recorded in Belgium (5.4%), Romania (5.3%), Spain and Hungary (both 3.6%).
The highest contribution to the annual euro area inflation rate came from services, followed by food, alcohol & tobacco, non-energy industrial goods and energy.
Sterling rises by 0.5% to one-year high; stock markets slip
The pound has risen by 0.5% to $1.3032, its highest level since mid-July last year, after the higher-than-expected UK inflation figures, which analysts said diminished the chances of an August rate cut.
Against the euro, sterling touched a two-year high of €1.1927 and is now trading at €1.1905.
Sterling has risen by 2.4% against the dollar so far this year, and by 3.3% against the euro.
The FTSE 100 index has lost nearly 20 points to 8,146, a 0.2% fall, while other European markets have also slipped, dragged down by the Dutch semicondutor firm ASML following a weak forecast. Investors are also concerned about potentially stricter US trade rules.
Facing pushback to its chip crackdown on China, the US has told its allies that it is considering using the most severe trade restrictions available if companies such as Tokyo Electron and ASML continue to give China access to advanced semiconductor technology, Bloomberg News reported. It said:
Seeking leverage with allies, the US is mulling whether to impose a measure called the foreign direct product rule, or FDPR, said people familiar with recent discussions. The rule lets the country impose controls on foreign-made products that use even the tiniest amount of American technology.
Updated
Here is our full story on HSBC naming its new boss.
HSBC has appointed its finance chief, Georges Elhedery, as the bank’s new chief executive to replace Noel Quinn, who is stepping down after five years in the role. He was widely seen as the top favourite for the job.
Elhedery, who will take on the post in September, is being promoted from chief financial officer, which he took up in January last year.
He can speak passable Mandarin, making him the first CEO in HSBC’s modern history to have that key language skill, according to Bloomberg.
Updated
UK house prices rise by 2.2%
House price inflation in the UK picked up in May, while rents also continued to rise, according to official figures.
House prices rose for a third month in a row, increasing by an annual 2.2% after a 1.3% rise in April, according to the Office for National Statistics.
Private rents climbed by 8.6% in the year to June, down a tad from May’s annual rate of 8.7%.
Average UK house prices increased by 2.2%, to £285,000 in the year to May 2024, up from a revised annual growth of 1.3% last month.
— Office for National Statistics (ONS) (@ONS) July 17, 2024
Read the article➡️ https://t.co/zs3rDpTCo7 pic.twitter.com/cJDElMTWd2
Amazon workers in Coventry vote against union recognition
Workers at Amazon’s Coventry warehouse have voted against a historic trade union recognition deal, in a setback for campaigners who had been pushing for the right to collectively bargain over pay and conditions.
Workers voted by a majority to reject the proposal for the GMB trade union to represent them in negotiations with the US online retailer.
Union officials said Amazon had “created a culture of fear” and used intimidatory tactics to stifle support among the 3,000 strong workforce at the West Midlands hub after a battle for recognition lasting more than year.
Stuart Richards, a GMB senior organiser, said the union would consider a legal challenge.
From day one Amazon have been relentless in their attacks on their own workforce. We’ve seen workers pressured into attending six hours of anti-union seminars on top of the fortune spent by Amazon bosses to scare workers.
Here is our full story inflation again:
Administrators say rescue deal for Body Shop is close
A consortium led by British tycoon Mike Jatania is close to agreeing a rescue deal for the Body Shop, administrators of the high street beauty chain said.
A bidding team headed by by Jatania’s investment firm Aurea is in exclusive talks with joint administrators at FRP Advisory, with the former chief executive of beauty brand Molton Brown, Charles Denton, being lined up to lead the management team.
In a joint statement issued by Aurea and administrators of the Body Shop International, they said they hope that a deal can be struck in the “coming weeks”.
Aurea is now going through The Body Shop books, they added.
Following a competitive bidding process, the joint administrators of The Body Shop International have now entered into an exclusivity agreement with a consortium led by Auréa group, with the management team to be led by former Molton Brown CEO Charles Denton.
While the deal is not yet complete, we believe the combined experience of the consortium, together with the existing management team, represents the best outcome for creditors and will ultimately ensure the long-term success of The Body Shop.
A period of due diligence will now take place, with the intention to complete the transaction in the coming weeks.
The Body Shop collapsed into administration in early February, leading to hundreds of job losses and dozens of store closures.
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Neil Wilson, chief market analyst at the brokerage Finalto, has looked at sterling:
The Fed could cut rates ahead of the Bank of England, which should offer some near-term support for sterling. My fear is that the BoE is being too cautious here. Nevertheless if we see this move in sterling sustained we should consider a new trading range for the pound between $1.30 and $1.40. We should not discount the effects of the politics on this for now, in the eyes of investors at least – a degree more clarity and consistency in terms of policymaking.
There is clearly a reset and people are looking at the UK with fresh eyes. The economy seems to be moving in the right direction and we are handling higher rates a lot better than expected despite the relatively strong transmission of monetary policy vs the US. That strong transmission should work in our favour when the BoE does start to cut…maybe the Bank is mindful that there is a lot of pent up energy in the old bulldog yet and it’s going be careful about unleashing it.
Steve Clayton, head of equity funds at Hargreaves Lansdown, has looked at this morning’s main developments in the UK:
Inflation figures released this morning show the Consumer Prices Index holding at 2% for the second month in succession. The headline figure will be welcomed in Downing Street, but the Bank of England is likely to be concerned that the pace of inflation in dervices remains stubbornly high at 5.7%, also unchanged on the month.
Services inflation had been predicted to fall this month and its failure to do so could well leave the Bank’s rate-setting Monetary Policy Committee wary of making any early reductions in UK rates…. suggesting good news for savers, but more pain for mortgage holders who may have to wait longer to see their monthly payments start to ease.
Turning to the king’s speech at 11.30am BST, he said:
King Charles will deliver the second King’s Speech of his reign later today, on behalf of the new Labour Government. Around 35 laws are set to be outlined as PM Starmer’s government unveils its plan to ‘take the brakes off Britain’. Key measures expected in the speech include a new planning bill, which will make it harder for councils to block development and powers forcing them to identify development land in their areas.
More devolution in England will see mayoral powers increased, whilst GB Energy will be set up to drive de-carbonisation of the power grid with an £8.3bn budget to kick-start projects. Not everything will be new; bills tabled previously by the Conservatives but not yet enacted, like the phased ban on smoking are set to be put back onto the government’s agenda too.
Babcock, the aerospace, defence and engineering company, said that it has seen a further deterioration in its performance under a contract to build five Type 31 frigates for the Royal Navy. The company is setting aside a further £90m provision, taken against upcoming full year results. The provision relates to expected future wage costs. The contract had allowed for wages rising in line with the consumer price index, but Babcock is finding that labour simply can’t be found in sufficient quantities at the wage rates built into the contract.
The company also reports that Type 31 aside, underlying profits are sharply higher, and the improving state of its pension fund will allow future top-up contributions by the company to be £25m a year lower.
HSBC has announced that Georges Elhedery, a long-time HSBC staffer, most recently serving as its chief financial officer, has been appointed to the top slot, replacing outgoing CEO Noel Quinn whose departure was announced a few weeks ago. Elhedery, a graduate of the Paris’s Ecole Polytechnique and the ENSAE, takes up his new role in September.
Reckitt Benckiser said its Mead Johnson infant formula business has suffered a tornado strike to its warehouse in Mount Vernon, Indiana. No staff were injured by the tornado strike, although the surrounding community did see severe damage. Reckitt said the warehouse is out of action and business will be hit in the near term while it reorganises its operations.
Sterling rises through $1.30 after higher-than-expected inflation data
Sterling has just risen through the $1.30 mark after the higher-than-expected inflation figures.
It’s up by 0.32% at $1.3007, the highest level in a year.
Sterling also hit a near-two-year high against the euro of €1.1921.
Updated
King's speech to set out mandatory housing targets
It’s also king’s speech day.
At about 11.30am, shortly after leading the royal procession into the House of Lords and hopping on to his throne, King Charles will set out the new government’s agenda, writes my colleague Archie Bland.
With Labour’s manifesto plan for mandatory housing targets at the heart of it, it’s probably going to be short on surprises. But it will start to flesh out the detail of how Keir Starmer intends to govern – and whether his party’s swollen backbench numbers might bring headaches as well as parliamentary security.
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Peter Arnold, UK chief economist at the EY Item Club, said:
Inflation is unlikely to fall much further now. The contribution from the food and services categories should decline gradually as firms pass on the gains from their lower energy bills. However, the drag from falling energy prices will start to fade from July, and this is likely to mean that headline inflation temporarily drifts up towards the end of this year. But the bigger picture is one where the inflation pressure of the past three years has dissipated, and the EY Item Club expects a period of relatively low and stable inflation to underpin steady improvements in household spending power.
The minutes of last month’s Monetary Policy Committee (MPC) meeting made it clear that the committee is split, he said.
The more hawkish members may see today’s data as evidence that their concerns about inflation persistence are well founded. The implications for the more dovish members are unclear. On the one hand, they indicated they were becoming less interested in backward-looking measures of inflation persistence and were adopting a more forward-looking approach. And that shift had occurred despite a string of overshoots for services inflation.
But on the other hand, from a presentational point of view, they might feel that they need to wait for inflation to surprise on the downside before they move. A hawkish response from markets to today’s data might also encourage the MPC to wait.
The BBC’s economics editor Faisal Islam said:
NEW
— Faisal Islam (@faisalislam) July 17, 2024
Inflation sticks exactly on target at 2% in June…
Food price inflation now 1.5%
Services inflation stick at 5.7%… core sticks at 3.5%
Goods disinflation -1.4%, largest fall since 2016
Joel Hills, business and economics editor at ITV, said:
The prospect of an interest rate cut next month just got weaker.
— Joel Hills (@ITVJoel) July 17, 2024
The UK headline annual rate of inflation remained at the 2% target in June but “Services” inflation (in red below) remained lodged at 5.7%. The @bankofengland forecast 5.1% - that’s quite a miss… pic.twitter.com/o8aseS2wNE
Investors pare expectations of August rate cut, pound rises 0.2%
Financial markets now see a 35% chance of an August rate cut, down from nearly 50% earlier this morning, and the pound has risen by 0.2% against the dollar to $1.2994.
Sanjay Raja, chief UK economist at Deutsche Bank, said:
For the majority of the MPC [ monetary policy committee], today’s inflation report won’t be as encouraging as it may have anticipated. Undoubtedly, today’s services print raises the bar for an August rate cut. But there is a key caveat here. With live music and accommodation prices rising at such speed, the MPC could potentially be minded to look past some of the upside in services inflation.
To be sure, we now think that an August rate cut is finely balanced. A lot will now depend on the strength of the May wage and unemployment data.
Updated
European stock markets have opened lower.
In Asia, Japan’s Nikkei dropped 0.43% and the Shanghai exchange lost 0.39% while Hong Kong’s Hang Seng edged up by 0.1%.
UK’s FTSE 100 index down 22 points, or 0.1%, at 8,156
Germany’s Dax down 0.4%
France’s CAC down 0.3%
Spain’s Ibex down 0.2%
Rob Wood, chief UK economist at Pantheon Macroeconomics, said headline inflation is likely to rise again this month on the back of energy costs, and it will take time to get services inflation down because wage growth remains strong.
The services surprise was narrow this month, focused in accommodation services which rose 3.3% month-to-month, well above our forecast, 0.5%, which we suspect was close to the consensus forecast. We assume some of this was driven by surging demand due to live music events, with prices for the latter also rising sharply, by 7.5% year-over-year.
That said, we had thought hotel prices would surge more if the ONS collected CPI on June 18—when Taylor Swift held an event in Cardiff—rather than June 11, which is when the ONS did collect prices. The surge in hotel prices is no doubt erratic, but there may also be some more underlying strength in that component than we assumed. Also supporting services inflation were rents rising 7.2% year-over-year in June, up from 7.0% in May and other services inflation ticking up to 5.2% year-over-year from 5.1% as we expected. Elsewhere services inflation eased mostly as expected but remained strong.
Turning to the outlook for inflation, he said:
We expect inflation to rise to 2.2% in July as utility prices fall less this year than in July 2023. Looking further ahead, food and non-energy goods inflation have no further to fall now they have converged to producer output price inflation while Ofgem will likely hike the utility price cap by 12% in October after wholesale energy costs have risen. Those components have accounted for almost all—9.0 percentage points—of CPI inflation’s 9.1pp fall since October 2022. Their contribution to year-over-year CPI inflation will rise 86bp by December.
Getting inflation sustainably back to the 2% target will require services inflation to drop closer to 3.5%, but that will take time because wage growth remains strong. We look for CPI services inflation to fall only to 4.9% at the end of 2024.
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HSBC appoints finance chief Georges Elhedery as new CEO
HSBC has named its finance chief Georges Elhedery as chief executive to replace 37-year veteran Noel Quinn.
Elhedery, who will take on the role in September, has been promoted to the role after becoming its chief financial officer in January 2023.
Sir Mark Tucker, the bank’s chair, said that Elhedery was the outstanding candidate and had a track record of “driving growth, delivering simplification and containing costs”.
The appointment comes after Quinn unexpectedly announced that he was stepping down from the role after an “intense” five-year period.
He will step down officially on 2 September but will remain available to the group until his gardening leave period ends on 30 April 2025. Elhedery will continue as CFO during this transition period.
Elhedery began at HSBC in 2005 and has held roles as the of co-chief executive in HSBC’s global banking and markets division, while also leading the bank’s Middle Eastern, north Africa and Turkiye regional business between 2016 and 2019.
Tucker said:
During his career he has worked in Asia, the Middle East and Europe. Since joining the board as group chief financial officer in early 2023 and throughout the selection process, he has demonstrated his strategic insight and vision, and deep international perspectives.
The appointment comes after HSBC reported an 1.8% drop in pre-tax profit to $12.7bn (£10.1bn) in the first three months of 2024, better than analysts had forecast. Revenues increased by 3% to $20.8bn.
Pound rises closer to $1.30 level
The pound has now risen by 0.16% against the dollar to $1.2986, edging closer to the $1.30 level.
It is also up by 0.1% versus the euro, at €1.1911.
Isaac Stell, investment manager at the Wealth Club, said:
Inflation in June was slightly ahead of expectations, but remains at the Bank of England’s target. The largest upward impact came from restaurants and hotels in a month where Taylor Swift has been touring the UK. The Swift effect remains a global phenomenon, and could well find its way into future economic textbooks.
Eyes will now turn to the Bank of England’s meeting on the 1st August and the next interest rate decision. On target inflation may increase appetite for a rate cut, but core inflation looks less promising, muddying the water particularly around the stickier services inflation numbers, and making an August cut look increasingly unlikely.
The pound has edged up marginally this morning, in a sign that currency markets at least don’t think rates will be cut in the short term.
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Economists say high services inflation lowers chance of August rate cut
Other economists also say that the data lowers the chances of an interest rate cut in August.
Anna Leach, chief economist at the Institute of Directors, said:
The Bank will be relieved that headline inflation has remained at target in June in line with their expectations. That relief will be tempered though by services inflation holding at 5.7%, well above their expectations.
Stickiness in services inflation – a key measure of domestic inflationary pressures – lowers the likelihood of an August rate reduction. All eyes will be on tomorrow’s wage data to see whether it will spur a summer rate cut by the MPC.
Inflation is likely to rise slightly in the coming months, as energy price inflation picks up reinforcing sticky services inflation. But all being well, inflation should moderate further out, supporting a downward trend in interest rates.
Ian Stewart, chief economist at Deloitte, said:
Headline inflation is in retreat and is running well below rates in the US and the euro area. Much of this decline reflects the effects of high food and energy prices dropping out of the numbers. Stripping those components out, UK core inflation is running at an uncomfortable 3.5%, above rates in the US and the euro area.
A pick up in UK activity since the start of the year means that the service sector is generating quite high levels of inflation. That suggests the Bank of England has limited scope to cut rates this year.
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Dales explained:
By staying at 5.7% in June, services inflation remained well above the 5.1% rate in June that the Bank of England forecast back in May. Admittedly, a lot of that overshoot happened in April and May. And that didn’t stop the BoE from sounding a bit dovish at the subsequent June policy meeting.
Even so, the BoE expected services inflation to fall 0.2 percentage points in June, which didn’t happen. And only some of the stickiness of services inflation in June may be due to the influence of Taylor Swift’s concerts. They may have been behind some of the large rise in hotels inflation from 7.0% to 9.8%. But cultural services inflation, which would capture any influence from the ticket prices, dipped from 7.4% to 7.3%. As a result, it’s not obvious that the BoE can ignore a chunk of the stickiness of services inflation.
Paul Dales, chief UK economist at Capital Economics, said:
Even though consumer prices index inflation stayed exactly in line with the 2.0% target in June, it’s the stability of services inflation at 5.7% that’s the blow.
And it looks as though only a small part of that may have been due to the temporary effects of Taylor Swift’s concerts. As a result, the chances of an interest rate cut in August have diminished a bit more.
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Economists talk of Taylor Swift effect on prices
Taylor Swift may have put pressure on UK inflation as fans splashed out on costly concert tickets, hotels and meals out. The American singer toured Edinburgh, Liverpool, Cardiff and London in June.
However, economists say that the Bank of England is likely to be more worried about sticky services inflation, which remained at an annual rate of 5.7% in June. Wage data tomorrow should shed further light on these price pressures.
Luke Bartholomew, deputy chief economist at the investment firm abrdn, said:
Today’s inflation report will keep the Bank of England’s August rate decision on a knife edge. The strength of hotel price growth is suggestive of a so-called Taylor Swift effect on prices, but policy makers will almost certainly look through this kind of dynamic.
More fundamentally, the ongoing stickiness of services inflation will leave the Bank wondering how long inflation will stay at the 2% target once favourable base effects have passed and domestic price pressures start to drive headline inflation again. Tomorrow’s wage data will provide more clues about these price pressures, and the Bank will hope to see a further moderation in wage growth. For now, we continue to expect a rate cut in August, but this will require the upcoming data to cooperate.
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In May, inflation hit the Bank of England’s target of 2% for the first time in nearly three years.
Financial markets see a near-50% chance of a rate cut at the central bank’s next meeting on 1 August.
The pound rose slightly on the higher-than-expected inflation data, and is trading at $1.2977. It has gained nearly 2% against the dollar this year.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
The data showed that inflation in Britain stagnated in June versus the expectation of a further easing. And higher-than-expected figures cooled down the expectation of an August rate cut from the Bank of England.
But because the September Fed rate cut is already fully priced in, there is still room for a dovish BoE pricing into late summer – which means that we shall still see a limited upside potential in Cable: the $1.30 level could be hard to clear.
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Introduction: UK inflation stays at 2% in June
Good morning, and welcome to our live coverage of business, economics and financial markets.
It’s inflation day in the UK today.
The headline annual inflation rate stayed at 2% in June, unchanged from May, according to the Office for National Statistics. Analysts had expected a further dip to 1.9%.
Inflation was last lower than this in April 2021, when it stood at 1.5%. On a monthly basis, the consumer prices index rose by 0.1% in June from May.
The largest upward contribution to inflation came from restaurants and hotels, where prices of hotels rose more than a year ago; the largest downward contribution came from clothing and footwear, with prices of garments falling this year having risen a year ago.
The core rate of inflation, which strips out energy, food, alcohol and tobacco, stayed at 3.5%.
Consumer Prices Index (CPI) grew 2.0% in the year to June 2024, unchanged from the previous month.
— Office for National Statistics (ONS) (@ONS) July 17, 2024
Read the release ➡️ https://t.co/xCG9DNmbkX pic.twitter.com/xVbi2oFTel
The inflation figures will be the last the Bank of England sees before it decides on 1 August whether to cut interest rates from their current level of 5.25%.
Darren Jones, chief secretary to the Treasury, said:
It is welcome that inflation is at target, but we know that for families across Britain prices remain high. We face the legacy of fourteen years of chaos and economic irresponsibility. That is why this Government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.
The Agenda
10am BST: Eurozone inflation for June (forecast: 2.5%)
1.30pm BST: US Building permits for June
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