Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK households. businesses could be spared a rise in borrowing costs today, as the British economy creaks under the strain from the Iran war.
The Bank of England is widely expected to leave interest rates unchanged at 3.75% at noon today. after its latest monetary policy committee meeting.
Policymakers at the BoE will try to balance the challenge of containing imported inflation from the Middle East conflict, while avoiding intensifying the squeeze on firms. consumers who have been hit by the rise in energy costs.
With the economy shrinking slightly in April,. inflation lower than forecast in May ( we learned yesterday ), a hike in borrowing costs appears unnecessary. The City of London money markets indicate there’s a 98% chance that interest rates are left on hold,. just a 2% chance of a rise.
Tomasz Wieladek, chief European macro economist at investment management firm T. Rowe Price, argues that the Bank may not need to tighten monetary policy at all in the coming months.
double quotation mark Monetary policy in the UK appears to be finally working. A prolonged period of restrictive monetary policy has, to a degree, weakened inflation dynamics.
Given the good news on inflation. the recent decline in oil prices, the MPC will likely conclude that no more hikes are necessary to stabilise inflation in the UK.
7am BST: UK labour market data
Noon BST: Bank of England interest rate decision
1.30pm BST: US initial jobless claims
1.30pm BST: Philadelphia Fed Manufacturing Index
The US dollar has climbed to its highest level in over a year. after America’s central bank indicated it could raise interest rates later this year.
Half the policymakers at the Federal Reserve predicted there would be at least one increase in US interest rates this year. The Fed also left rates on hold last night, as expected.
This has pushed the dollar index up to its highest level since May 2025.
Conservative leader Kemi Badenoch has called on City firms to back her at the next election. promising sweeping reforms to boost risk-taking, at a time when, she says, “the rest of the world is eating London’s lunch”.
She has told executives gathered in Westminster’s QEII Centre this morning that a Conservative government would usher in an economic “revolution”. that would involve scrapping:
ring-fencing – the protections. her Conservative party brought in after the 2008 financial crisis to protect everyday bank customers from riskier operations; and
the Financial Ombudsman Service (FOS), which is a key adjudicator when consumers feel they have been mistreated by financial firms.
Badenoch said this is part of a UK growth plan that will revitalise the UK’s powerhouse financial sector, which she says is “smothered in red tape”, being burdened by taxes,. has lost a quarter of its stock market listings over the past decade.
double quotation mark Every great enterprise is built on risk. The desire for a zero risk environment means Britain’s financial services sector is now more regulated in any of the major markets in the world. It is cheaper and easier to do business elsewhere. The rest of the world is eating London’s lunch.
Reception to Badenoch’s speech was mixed, with some people in the audience grimacing at her proposals,. others nodding in enthusiastic agreement as her assessment of the red tape and taxes holding back the City.
It’s worth keeping in mind that the Labour government is currently planning to reform the ring-fencing regime,. that there isn’t a consensus among bankers – with Barclays having been a vocal opponent to changing the protections that cost so much to implement in the first place.
The Labour government is also looking at reforming the FOS. following heavy lobbying by banks embroiled in the motor finance scandal, in part by aligning it more closely with FCA rules.
Badenoch clearly believes this does not go far enough.
The Bank of England may not be unanimous in its interest rate decision, due in just over an hour’s time.
A Reuters poll found that City economists predict seven of the nine MPC policymakers will vote to leave interest rates on hold. with two pushing for a rise.
At last month’s meeting. the Bank voted 8-1 to hold rates, with BoE chief economist Huw Pill the lone vote for a rate hike.
Kathleen Brooks, research director at XTB, says:
double quotation mark At the last meeting, one member dissented and voted in favour of a hike. We could see a similar 8-1 split in favour of no change, later today.
Hawks at the BOE. including Megan Greene, are likely to point to the high levels of input inflation, which could eventually boost consumer prices. Added to this, inflation will rise in July, due to the 13% rise in the energy price cap.
The market will hope that the spike in price pressures caused by the energy price cap is temporary. does not lead to a wage-price spiral in the UK.
The head of the International Energy Agency has warned. the Iran war has shown that the strait of Hormuz could be closed again in future.
Speaking in Istanbul, IEA chief Fatih Birol welcomed the interim agreement to end the Iran war. called for the strait of Hormuz to be reopened without conditions.
double quotation mark We will now see the details of the agreement and the negotiation process, and what happens next.
Echoing comments made to the Guardian in April, Birol added:
double quotation mark The vase is broken.
Now all actors know that the strait of Hormuz was closed once and it can be shut down again.
The UK government has declared it is “strongly minded” to nationalise British Steel. having taken control of the company from its owners Jingye Steel.
Nationalisation of the Scunthorpe steelworks already looked likely. after the Steel Industry (Nationalisation) Bill was introduced to Parliament earlier this month.
In a written ministerial statement today, the government says:
double quotation mark The government is strongly minded to use the powers in the bill to bring British Steel into public ownership in the future. subject to the public interest being satisfied.
Jingye, though, won’t let the steelworks go lightly, or indeed cheaply. It has begun a formal process under an international treaty to win compensation from the UK government.
Insurance market Lloyd’s say six “practical steps” must be taken before vessels. have been stranded in the Gulf for the last 110 days can resume transiting the strait of Hormuz.
Sheila Cameron, CEO at the Lloyd’s Market Association. Neil Roberts, head of marine and aviation at the Lloyd’s Market Association, say:
The first step is the importance of cooperation between Iran, US. other states such as Oman on navigational safety and the prioritisation of vessel passage.
The second is verified mine clearance and ongoing surveillance. The threat of mines remains a significant barrier to the resumption of trade in the region. Ongoing monitoring of the seaways is required to provide reassurance. confidence to shipowners and their crew, particularly when it comes to vessels who are considering re-entering the Gulf in the future.
The third is clarity of provision of emergency services support in the event of a vessel or crew requiring rescue whilst in Iranian territorial waters. In order to return to the ‘shipping as usual’ state, ordinary salvage. maritime services, including for incoming vessels, should be readily available.
Fourth, vessels will need to be fully restored to a seaworthy state prior to transiting the Strait, including GPS services,. there are reports of issues, such as stores, fuel and bottom scraping, from vessels as a result of being at anchor for such an extended period.
Fifth, there needs to be a full reopening of the port infrastructure system, including pilotage, berthing. bunkering, to enable the safe loading and discharge of cargos.
And finally, clarity around sanctions, terrorism legislation and toll payments. There must be clear advice. consistency of approach from the UK, EU and US on the extent to which sanctions and designations of Iranian entities have been amended. The MoU refers to shipments of Iranian oil and that there will be no toll payments. However, a greater level of detail will be required before insurers. insureds can be clear as to what trade can safely take place.
UK wholesale gas prices have fallen to their lowest level since the start of the Iran war.
The month-ahead UK gas price fell as low as 95p per therm this morning, following the signing of the interim peace deal by the US. Iran.
That’s the lowest since 2 March, the Monday after the conflict began. Reminder: Brent crude oil has also fallen to its lowest since 2 March today ( see earlier post ).
However. this still leaves UK gas prices above their level just before the start of the war – 78.57p per therm.
Continential European gas prices have also fallen today, down 3% to €40.6 per megawatt hour.
Hopes for a resumption of traffic through the strait of Hormuz are pushing down energy costs. despite concerns that it will take time for the situation to return to pre-war levels.
Oxford Economics say:
double quotation mark With the new US-Iran ceasefire including an agreement to reopen the Strait of Hormuz. Oxford Economics anticipates an initial surge in traffic as ships that have been stuck are finally able to exit. Flows are then expected to slow until confidence builds that the ceasefire is durable. The firm expects the recovery in shipping to be gradual as logistics are adjusted and oil and gas production restarts
In a sign that oil flows from the Middle East are returning to normal. three Saudi-flagged supertankers with six million barrels of crude onboard have sailed through the Strait of Hormuz, ship tracking data showed on Thursday.
The sailings from Saudi ports were the biggest departures through the strait in weeks. according to Reuters analysis of shipping movements.
The head of the International Monetary Fund has predicted that oil prices are likely to ease. not plummet, as the U.S.-Iran interim peace deal lets shipments through the Strait of Hormuz resume.
IMF chief Kristalina Georgieva pointed out that countries will want to replenish oil reserves which were run down during the conflict,. that it will take time for maritime traffic through the Strait to return to normal, Reuters reports.
Georgieva was speaking at a “fireside chat” at a conference hosted by the Austrian National Bank.
Oil has already eased quite a long way in the last week. Brent crude is now trading around $78 a barrel. down from $95.50 a week ago, having hit a peak over $126 a barrel at the end of April. Before the Iran war began, Brent was trading around $72 a barrel.
It’s a busy day for central bankers.
In Oslo, Norway’s central bank has kept its policy interest rate on hold at 4.25%,. hinted that rate rises could be on the way.
Governor Ida Wolden Bache says:
double quotation mark Inflation is too high,. the rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead. New information indicates that inflation pressures are slightly stronger than we had anticipated earlier.
We expect. a somewhat tighter monetary policy stance will be needed to bring inflation down to target within a reasonable time horizon. If developments turn out as currently envisaged. the policy rate will be raised at one of the forthcoming monetary policy meetings”.
Switzerland’s central bank has left interest rates on hold.
The Swiss National Bank voted to keep its key interest rate at zero for a fourth quarterly meeting. after inflation rose to 0.6% in May, saying:
double quotation mark Inflation has risen in recent months as a result of higher energy prices. Medium-term inflationary pressure, however, is virtually unchanged compared with the last monetary policy assessment.
The SNB’s monetary policy is appropriate to keep inflation within the range consistent with price stability. it supports economic development. The SNB will continue to monitor the situation. adjust its monetary policy if necessary, in order to ensure price stability.
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