Trump tariffs trigger US inflation shock

US wholesale inflation jumped at the fastest pace in three years in the wake of Donald Trump’s tariff tirade - Andrew Harnik/Getty Images

Stocks slumped after a key indicator of US inflation jumped at the fastest pace in three years in the wake of Donald Trump’s tariff campaign.

US producer prices – a measure of wholesale costs – rose 3.3pc annually in July, which was much higher than forecasts of 2.5pc.

Wholesale prices bounced by 0.9pc in July compared to June, government data showed, which was the fastest growth since 2022 and well above the 0.2pc expected by analysts.

Producer prices measure wholesale inflation and are often a precursor to rises in consumer prices. The data also serves as an early indicator of the impact of president Trump’s tariffs on the US economy.

Stephen Brown of Capital Economics said the data showed “some signs of tariff effects” with underlying wholesale inflation rising at the fastest pace in more than a year.

Stocks on Wall Street fell at the open, while the FTSE 100 also declined as traders reduced bets on the Federal Reserve cutting interest rates in September.

Bond yields began to rise in debt markets as money markets indicated that the chances had faded of a bigger half a point rate cut, encouraged by US treasury secretary Scott Bessent this week.

Christopher Rupkey, chief economist at research firm Fwdbonds, said: “It will only be a matter of time before producers pass their higher tariff-related costs onto the backs of inflation-weary consumers.”

06:13 PM BST

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05:53 PM BST

European stocks close at two-month highs propelled by defence industry

European shares closed at their highest level in more than two months on Thursday, with aerospace and defence stocks, and the finance sector, providing the biggest boost as investors assessed a spate of corporate earnings.

The pan-European Stoxx 600 index, which includes some of Britain’s biggest companies, closed 0.6pc higher.

Industrial stocks were among the biggest sectoral gainers, with aerospace and defence companies taking charge.

Richard Flax, chief investment officer at Moneyfarm, said that despite expectations of Europe spending more on defence, questions remained about when it would come through and how much would go to European firms.

Upbeat corporate earnings reports also aided sentiment. Insurers were up 0.9pc, after trading near record highs touched last Thursday earlier in the session.

Britain’s Admiral hit a record high, rising 6.6pc after a strong first-half profit, while Aviva jumped 2.6pc to its highest since December 2007, after raising its interim dividend and reporting stronger half-year operating profit.

Story Continues

05:50 PM BST

Inflation data ‘a strong validation’ of Fed

Higher wholesale inflation in the US is a “strong validation” of the Fed’s repeated decisions to wait and see before cutting interest rates, an economist has said.

“This [the latest producer prices index report] is a kick in the teeth for anyone who thought that tariffs would not impact domestic prices in the United States economy,” said Carl Weinberg, chief economist at High Frequency Economics. “This report is a strong validation of the Fed’s wait-and-see stance on policy changes.”

Peter Andersen, founder of Andersen Capital Management in Boston, said: “We have been too anxious to draw a conclusion that the economy is fine; it’s not overheated.

“But this wholesale data does show that perhaps there is some inflation working and we shouldn’t be so quick to conclude, we need to cut interest rates.”

05:40 PM BST

FTSE 100 hits record closing high

The FTSE 100 hit a record closing high today, despite struggling for direction in trading

The blue-chip index closed up 0.1pc, at 9,177.24, with investors weighing better-than-expected UK growth figures and a surprise pick-up in producer price inflation across the pond.

The FTSE 250 ended down 0.2pc, at 21,801.67, and the AIM All-Share finished 0.3pc higher, at 759.71.

In Europe, the Cac 40 in Paris rose 0.7pc, while the Dax in Frankfurt advanced 0.8pc.

The Office for National Statistics said UK gross domestic product (GDP) rose 0.3pc in the second quarter from the first, slowing from a 0.7pc expansion in the first three months of the year.

According to the market consensus, cited by FXStreet, growth of 0.1pc on-quarter had been expected for the three months to June.

05:13 PM BST

Bessent’s ‘neutral’ interest rate is unknowable, economist suggests

Scott Bessent’s call for a “neutral rate” of interest has come under fire from an economist at Liverpool.

Prof Costas Milas of the University of Liverpool Management School, said: “I have some difficulty with Bessent and his argument regarding the neutral rate.

“This is the rate expected to prevail when an economy is at ‘equilibrium’ [maximum sustainable output and employment] and inflation is ‘stable’.

“Nevertheless, ‘equilibrium’ output cannot be measured accurately.

“At the same time, a 2pc inflation rate prevailing over (say) four years is mathematically as ‘stable’ as (say) a 4pc inflation rate prevailing over four years.”

04:34 PM BST

Bessent denies pressuring the Fed to cut rates

Scott Bessent has denied pressuring the Fed to make rate cuts, hours after wholesale inflation data was unexpectedly high.

The US Treasury secretary told Fox Business: “I didn’t tell the Fed what to do.

“What I said was that to get to a neutral rate on interest, that would be an approximately 150 basis point [1.5 percentage point] cut. I did not call for them to get there.”

Economists define a neutral rate of interest as one that allows full employment and stable inflation.

Mr Bessent added: “The other thing that I said was that perhaps because they had bad BLS [Bureau of Labor Statistics] data in June and July [on employment] that perhaps, perhaps, a 50 basis point [half a percentage point] cut in September was warranted.”

Julia Coronado, of the research firm MacroPolicy Perspectives, told Bloomberg: “It’s not really the role of the Treasury secretary to opine [on interest rates].

“The fact that the most senior economic official in the administration is saying these things publicly is direct, public pressure on what he wants the Fed to do.”Scott Bessent has denied toelling the Fed what to do - Bonnie Cash/UPI/Bloomberg

04:22 PM BST

Interest rates ‘not to blame for slowing economy’

Worries about rising costs, not high interest rates, are to blame for the US economy slowing down, a leading market commentator has claimed.

Michael Hewson said: “All this chatter from the likes of President Trump, as well as many armchair critics comes across as a little reckless when inflation risks in the US are becoming increasingly two-sided due to the effects of tariffs.

“You will hear no end of commentary from people insisting that the Fed is being too slow, and that may well be the case, however there is also the risk that they could cut too quickly, and be forced to raise rates again if inflation ramps up above 3pc in the coming months.

“This is why talk of a [half a percentage point] rate cut in September [by the Trump administration] comes across as reckless at a time when tariff effects remain a huge unknown, and in a lot of cases have yet to be felt.

“You only have to look at today’s [producer price index] numbers to understand that inflation pressures are far from benign.

“The US economy may well be slowing however it’s not due to interest rates being too high, but due to concerns about rising prices.”

04:06 PM BST

US companies poised to raise prices further

Companies are poised to raise prices for US consumers in the coming months as the effects of Donald Trump’s trade policies flow into the domestic economy.

Ben Ayers, a senior economist at US insurer Nationwide, said: “While businesses have assumed the majority of tariff costs increases so far, margins are being increasingly squeezed by higher costs for imported goods.”

He said that tariff price hikes were most obvious within metal and food categories, with readings for steel and aluminium – both targeted with 50pc levies – jumping in recent months and adding to cost concerns for manufacturers.

Mr Ayers expects more of the tariff burden borne by companies so far to pass through to consumer prices in the coming months.

Matthew Martin, at Oxford Economics, said: “Tariff-exposed goods are rising at a rapid clip, indicating that the willingness and ability of businesses to absorb tariff costs may be beginning to wane.”

03:51 PM BST

Wall Street recovers following inflation setback

Stocks have been recovering on Wall Street after being hit earlier this afternoon by today’s inflation data.

The benchmark S&P 500 index is flat, having fallen as much as 0.4pc.

The Dow Jones Industrial Average is down 01.pc, having fallen 0.5pc, while the tech-heavy Nasdaq is up 0.2pc, having been down 0.4pc earlier this afternoon.

The inflation data forced traders to second guess their widespread consensus that the Federal Reserve will deliver some relief next month by cutting interest rates. Lower rates can boost investment prices and the economy by making it cheaper for US households and businesses to borrow to buy houses, cars or equipment, but they also risk worsening inflation.

“This doesn’t slam the door on a September rate cut,” but it may raise some doubt, according to Chris Larkin, of E-Trade.

Meanwhile, the FTSE 100 is now flat, having dropped by 0.3pc earlier. The FTSE 250 is down 0.3pc.

03:40 PM BST

Dollar rises after US producer prices surge

The US dollar has risen as much as 0.4pc against a group of key rivals today as a result of higher-than-expected US inflation.

The hot measure of inflation at the wholesale level follows the release on Tuesday of a better-than-feared rise in consumer prices in July.

The latest data has raised worries that tariffs could still stir up inflation in coming months and change the course of interest rate cuts for the rest of the year.

Yesterday, US Treasury secretary Scott Bessent urged the Fed to make a half a percentage point rate cut next month.

“I think that [a half point cut] was never particularly likely, but presumably this [producer prices index] report quashes that,” said Matt Weller, global head of market research at StoneX.

The dollar is currently up 0.2pc against the pound.

03:12 PM BST

Bond markets hit by inflation fears

US stagflation fears have seeped into global markets after the surprisingly strong inflation data applied heavy pressure to US bonds.

Government bonds everywhere from Britain to Germany and Japan were sold after the unexpectedly large jump in producer prices.

Two-year Treasury yields, which track monetary policy expectations, leapt four basis points immediately after the data to 3.73pc as expectations for jumbo Fed rate cuts faded.

Money markets showed traders still almost unanimously expect the Federal Reserve to lower borrowing costs next month after keeping its main funds rate at 4.25pc-4.5pc since December.

But bets on a bigger half a point rate cut, encouraged by comments from US treasury secretary Scott Bessent on Wednesday, quickly faded out of the market.

Russell Investments analyst Paul Eitelman said: “Inflation is starting to come through. It’s not massive yet but that could certainly continue in coming months.”

02:53 PM BST

Congrats, you’re paying for tariffs, Americans warned

The latest jump in US wholesale inflation is proof that American consumers will soon begin “paying for tariffs”, according to Ritholtz Wealth Management analyst Callie Cox:

02:40 PM BST

Wall Street falls back from record highs after inflation data

The S&P 500 and the Nasdaq retreated from record highs after stronger-than-expected wholesale inflation raised concerns about whether the Federal Reserve will cut interest rates this year.

The Dow Jones Industrial Average fell 31.4 points, or 0.1pc, at the open to 44,890.84.

The S&P 500 fell 13.1 points, or 0.2pc, at the open to 6,453.46​, while the Nasdaq Composite dropped 63.9 points, or 0.3pc, to 21,649.211 at the opening bell.

02:06 PM BST

Borrowing costs rise as data indicates tariffs hitting US economy

The cost of government borrowing rose after US wholesale inflation was stronger than expected last month, raising doubts about the Federal Reserve’s ability to cut interest rates.

US producer prices – a measure of wholesale costs – rose 3.3pc annually in July, which was much higher than forecasts of 2.5pc.

Shortly afterwards, bond yields began to rise in debt markets in a sign that traders have doubts about the Fed’s ability to cut interest rates in September.

The yield on 10-year US treasury bonds rose one basis point to 4.25pc. UK 10-year gilt yields led rose by two basis points to 4.61pc following stronger-than-expected growth figures.

The rise in US wholesale inflation signals that tariffs may be beginning to push up prices in the American economy, which would make it harder for the Fed to reduce interest rates.

01:53 PM BST

US wholesale inflation jumps as tariffs take hold

Wholesale inflation in the US lurched higher in a sign Donald Trump’s tariff campaign is impacting the American economy.

US stocks fell in premarket trading after wholesale inflation was stronger than expected last month, dampening hopes for the Federal Reserve to cut interest rates in September.

US producer prices bounced by 0.9pc in July compared to June, government data showed, which was the highest in three years and well above the 0.2pc expected by analysts.

Data from the Labor Department showed the producer price index rose 3.3pc compared to the same month last year, compared to forecasts of 2.5pc.

Producer prices measure wholesale inflation and are often a precursor to rises in consumer prices. The data also serves as an early indicator of the impact of Donald Trump’s tariffs on the US economy.

In premarket trading, the Dow Jones Industrial Average slipped 0.4pc while the S&P 500 and Nasdaq 100 declined 0.6pc.

01:44 PM BST

Britain’s economy poised to weaken further, says Morgan Stanley

Britain’s economy likely faces a further weakening in growth, a Wall Street bank has said,  raising the chances of an interest rate cut by the Bank of England.

Morgan Stanley said it would stick with its forecast for 0.1pc quarterly growth in the second half of the year.

Chief UK economist Bruna Skarica said the Bank of England’s “reluctance to cut further and the Budget uncertainty, paired with the global growth slowdown” would hit the economy.

She said there was “a lot to like” from the Government’s efforts to reform planning and boost investment.

She said: “Cyclically, however, our message is simple – interest rates are too high for a sustained and broad-based growth uptick.”

She said “softer underlying details and the likely softening of the growth momentum from here” would keep in play the possibility of a November rate cut by the Bank of England’s Monetary Policy Committee (MPC).

She added: “If the Government ensures that the autumn Budget does not repeat the 2024 slew of inflation-boosting policies, and measured inflation falls through 2026, we think the MPC will acknowledge the need to cut rates amid the ongoing build-up of slack.

“If that is not the case, we will see more of the same stagflationary dynamics, we think.”

01:14 PM BST

Growth slowdown because of Reeves’s choices, say Tories

The shadow chancellor said the slowdown in Britain’s economic growth was “not by accident”.

Mel Stride said: “That’s because of the choices the chancellor has taken, whacking taxes on businesses, stoking inflation through borrowing and spending lots of money, keeping interest rates higher than they would otherwise have been.”

12:50 PM BST

US stocks muted ahead of wholesale inflation data

UK investors are not the only people examining economic data closely today.

Wall Street was muted in premarket trading ahead of wholesale inflation figures which could indicate whether tariffs are beginning to put pressure on prices in the US.

The benchmark S&P 500 and tech-heavy Nasdaq have hit record highs in the previous two sessions, and blue-chip Dow Jones Industrial Average is within striking distance of an all-time high amid hopes the Federal Reserve will cut rates in September.

Traders are fully pricing in a quarter-point rate cut by the central bank next month, with reductions also expected to follow in October and December.

The producer price index for July, measuring inflation on wholesale prices, could upend those expectations.

The S&P 500 and Nasdaq 100 were little changed in premarket trading, while the Dow was down 0.1pc.

12:05 PM BST

FTSE 100 falls amid slump in economic growth

The FTSE 100 edged lower after the latest decline in economic growth.

The blue-chip index was down 0.1pc, after three consecutive sessions of gains, while the domestically focused FTSE 250 dropped also 0.1pc.

Britain’s economy slowed less than expected despite US trade tariffs and a weaker jobs market, prompting traders to reduce bets on cuts to interest rates this year.

George Brown, senior economist at Schroders, said much of the slowdown was due to manufacturers front-loading goods in the previous quarter to avoid tariffs.

He said: “This drag should ease in the third quarter, even against a tougher global trade backdrop.

“We expect the Bank of England to keep rates on hold for the remainder of the year.”

The energy sector was the main drag on the FTSE 100, which Harbour Energy falling 4.6pc and oil majors Shell and BP each dropping more than 1pc.

Among individual stocks, British Gas owner Centrica rose 2.9pc after announcing it will jointly buy Britain’s biggest gas import terminal from National Grid on the Isle of Grain in Kent for £1.5bn.

Insurer Aviva jumped 3.5pc to a 17-year high after raising its interim dividend and reporting a 22pc rise in half-year operating profit.

11:46 AM BST

Britain’s growth per head lags behind Italy

Whether Sir Keir Starmer has met his pledge to have the fastest growing economy in the G7 depends on how you cut the numbers.

After the 0.3pc expansion in the second quarter, Britain’s overall GDP growth during the first half of the year was the fastest in the group of advanced economies, rising by 1.1pc, ahead of the US and Canada at 0.6pc and France on 0.4pc.

However, when measuring on GDP per capita, Britain lags behind Japan, the US and even Italy.

A higher GDP per capita generally suggests a higher average income and a greater capacity for a country to provide for its citizens.

One accusation made against governments in recent years has been that GDP growth has been propped up by rising migration.

Pranesh Narayanan of the IPPR think tank said GDP per capita was a better way of measuring economic benefit but said it was hard to “project what is going to happen”, pointing to uncertainty in the US and Europe.

He said: “Population projections are set to go down and there will be a slowing down of migration flows in the data.

“That is also going to mean that those per capita growth figure does improve. If you have got higher growth rates also now through some of the policy initiatives that Labour have done, you can see how it is possible for GDP per capita to increase.

“But it is all uncertain how it plays out.”

11:15 AM BST

Brexit benefit as UK growth outstrips EU

Britain’s growth more than halved in the second quarter but it remained ahead of the eurozone, latest figures show.

GDP in the single currency bloc rose by 0.1pc in the second quarter of the year.

Economist Julian Jessop said was an example of a “Brexit benefit” as the UK was less exposed to the impact of Donald Trump’s tariff war.

10:51 AM BST

The dangerous driver behind Britain’s growth

Britain has become dangerously reliant on public spending to fuel the economy.

Growth slowed in the three months to June, with the economy expanding by 0.3pc compared with 0.7pc in the first quarter of 2025.

However, it is still better than the 0.1pc expected by analysts and a figure that will be welcomed by Rachel Reeves, with GDP per person – a proxy for living standards – also seeing growth in the first half of this year.

However, scratch below the surface and it’s clear that the factors behind this growth are unsustainable.

10:34 AM BST

Consumers reluctant to open their wallets, warn economists

Consumers are showing signs of “reluctance”, economists have warned after the latest slowdown in UK growth.

The ONS said household spending growth was weak in the three months to June, up just 0.1pc. Meanwhile, business investment fell by 4pc from the first quarter.

Thomas Pugh, economist at accountants RSM UK, said: “The continued reluctance of consumers to open their wallets is concerning.

“We don’t expect growth to pick up much from here as continued consumer caution, weaker global demand and tax increases all continue to drag.”

10:10 AM BST

Starmer’s pre-election growth pledge under threat

Sir Keir Starmer’s pledge to make Britain the fastest-growing economy in the G7 has been put at risk by the latest slowdown in GDP.

The Prime Minister made the promise before the election last year but has since watered down the target to an “aim”.

Britain’s economy grew by 0.3pc in the second quarter of the year, according to the ONS, which was sharply lower than 0.7pc recorded in the first three months of 2025.

Simon French, chief economist at Panmure Liberum, said Britain was “middle of the pack” a year into the Labour government, with 0.7pc growth per capita.

He said the trend “has been on an improving profile in the first half of the year as population growth slows and aggregate GDP growth picked up”.

Sanjay Raja, chief UK economist at Deutsche Bank, said Britain was “on course to become the second fastest growing economy in the G7 (after claiming the top prize in the first quarter of 2025)”, missing Sir Keir’s target.

09:45 AM BST

Debt-laden Italy now better for living standards than Britain

Britain’s living standards fell behind those in Italy for the first time since 2001 in a fresh blow to Rachel Reeves’s efforts to boost economic growth and renew the nation’s competitiveness.

Slow growth, rising worklessness and high inflation are all damaging Britain, raising fears that the UK is losing its status as a rich nation at the same as Italy shakes off its image as an economic basket case.

Once adjusted for the cost of living, GDP per capita – a critical measure of wellbeing, and a favoured target of Sir Keir Starmer’s Government – is now higher in Italy than Britain.

09:24 AM BST

Economic growth beat expectations, insists Reeves

Rachel Reeves has said that today’s GDP figures “show that the economy beat expectations in the second quarter of this year”.

Speaking at a construction site in Doncaster, the chancellor said “there’s still more to do to make sure that people in all parts of the country benefit” from growth.

She said: “We are the fastest-growing economy in the G7 for the first half of this year, with a GDP growth of 0.3pc this quarter, and that’s after GDP growth of 0.7pc the quarter before that.

“I recognise there’s still more to do to make sure that people in all parts of the country benefit from that growth, but since the general election, when I became chancellor, the economy has grown by 1.2pc and GDP per capita – so for every person in the country – GDP per capita is up by 0.7pc.

“So, encouraging numbers today but, of course, we need to build on that to make sure people in all parts of the country are better-off.”Rachel Reeves spoke from a construction site in Doncaster - BBC

09:09 AM BST

‘Stuttering’ economy has lost momentum, say analysts

Britain’s economy has “anaemic growth with little sign of improvement”, according to analysts.

Michael Brown of Pepperstone said the ONS figures “pointed to the economy having lost momentum once again in the three months to June”.

Samuel Edwards of payments firm Ebury said: “Today’s figures show an economy stuttering in the face of considerable uncertainty.”

Lindsay James, an analyst at Quilter, said the “encouraging growth seen in the first quarter was somewhat of a mirage and unlikely to be repeated anytime soon”.

He said: “GDP growth in the second quarter has dropped to 0.3pc, and the UK appears to be stuck back where it was – anaemic growth with little sign of improvement. Although today’s GDP data is slightly better than expected and June’s growth came in at 0.4pc, figures released earlier this week highlight where a lot of the issues lie.

“The labour market is weakening, the Government appears to be planning for additional tax hikes in the autumn and global factors make business planning difficult.

“None of these issues carry easy fixes and there are very few short-term solutions. With global growth set to slow at the same time as this slowdown in the UK, the picture is only becoming more challenging.

“Investors too continue to be fairly pessimistic on UK growth despite that stellar first quarter. In our own survey of global fund managers, expectations for real GDP growth in the UK for 2025 sit at 0.9pc, suggesting that very little growth will be eked out in the second half of this year.”

08:44 AM BST

Watch: Reeves admits economy ‘trapped in a cycle of low growth’

Rachel Reeves admitted Britain’s economy has “got stuck” in a video released after data showing growth more than halved in the second quarter of the year.

The chancellor said the economy had been “trapped in a cycle of low growth, repressed investment and stagnant incomes”.

She said there is “more to do” and nodded to her upcoming Budget in the autumn, insisting she does not “accept that decline is inevitable”.

She is expected to raise taxes at the fiscal event to steady the public finances.

08:33 AM BST

Britain faces tax rises as growth halves

Britain will face tax rises in the autumn following the latest growth figures, economists have warned.

GDP expanded by 0.3pc in the second quarter, which was better than than analysts had forecast, although less than half the growth of 0.7pc in the first three months of the year.

Ruth Gregory, deputy chief UK economist at Capital Economics, said the “new-found momentum will soon fade”.

She said: “We doubt the economy will maintain this pace of growth in the third quarter.

“The weak global economy will remain a drag on UK GDP growth for a while yet.

“The full drag on business investment from April’s tax rises has yet to be felt. And the ongoing speculation about further tax rises in the Autumn Budget will probably keep consumers in a cautious mood.”

She added: “With policy choices and higher market rates eroding the Chancellor’s already-slim fiscal headroom, we doubt this will be enough to prevent tax rises in the Autumn Budget.”

08:18 AM BST

Government spending is main driver of economic growth

Government spending was the biggest contributor to Britain’s economic growth in the second quarter of the year

The Office for National Statistics said government spending rose by 1.2pc compared to the previous three months.

Deutsche Bank’s chief UK economist Sanjay Raja said “there’s much to be desired” from the underlying growth data.

He said: “Public consumption and investment shot up 2pc on the quarter and was the largest contributor to GDP (adding 0.5pp to quarterly GDP).

“We also saw a further build up of inventories in spring as President Trump’s trade war began – stocks added 0.2 percentage points to GDP growth.

“And most surprisingly, net trade was also a positive contributor to growth, outpacing almost all expectations.”

He added: “To be sure, the economy is growing. Positive momentum is brewing. But animal spirits remain tepid.

“While the chancellor is poised to focus her Budget on improving productivity – a very welcome focus for the UK – Number 11 should also prioritise lifting household and business confidence to sustain the UK’s outperformance.”

08:05 AM BST

UK stocks slump as growth halved

The FTSE 100 slipped at the open after Britain’s economic growth was cut in half in the second quarter of the year.

The UK’s flagship stock index dropped 0.3pc to 9,134.72 after the latest GDP figures, which were better than analysts had forecast.

The better-than-expected growth meant traders reduced bets on the Bank of England cutting interest rates.

The mid-cap FTSE 250 declined by 0.2pc to 21,816.44.

07:58 AM BST

Traders scale back bets on interest rate cuts

Money markets indicate there is less chance that the Bank of England will cut interest rates again before the end of the year after the latest UK growth figures.

Traders are betting that there is a 66pc chance that policymakers will lower borrowing costs again over the next three meetings, compared to odds of 79pc at the start of the week.

07:48 AM BST

Growth figures ‘not good enough’

Economists appeared divided on how to read the latest growth data from the ONS.

Simon French of Panmure Liberum said Britain had enjoyed “decent” growth in June, which deliver growth of 0.3pc for the second quarter.

Mohamed El-Erian of Allianz said the data was “relatively upbeat” but Julian Jessop of the Institute of Economic Affairs warned it was “good news, but not good enough”.

He said Britain’s economy remained “too weak to fix the public finances, and there are already signs that momentum is fading again as a tight Autumn Budget looms”.

07:38 AM BST

Pound rises as growth better than expected

The value of the pound rose after Britain’s economy performed better than expected in the second quarter of the year.

Although economic growth more than halved from the previous quarter to 0.3pc, this was better than the miserly 0.1pc that had been forecast by analysts.

Sterling rose 0.2pc against the dollar to $1.359 and gained 0.1pc versus the euro to €1.161 as the stronger growth made interest rate cuts by the Bank of England less likely.

ICAEW economics director Suren Thiru said: “While these stronger than expected figures may not ease concerns among rate-setters over the health of the UK economy, a September interest rate cut remains implausible given mounting concerns over rising inflation.”

He added: “The economy lost some momentum in the second quarter as several sectors weakened under pressure from ‘awful April’s’ surge in costs and the explosion of global trade turbulence, despite a robust return to growth in June.

“Following the bumper first three months of 2025, this second quarter slowdown offers a more authentic insight into the UK’s underlying growth path given persistent problems with anaemic productivity and poor public finances.

“The UK’s economic performance in the third quarter may be similarly modest with higher inflation and anxiety over more tax hikes in this Autumn’s Budget likely to mean more caution on spending, despite lower interest rates.”

07:29 AM BST

Britain avoids contraction after strong June

A strong June saved the chancellor was saved from an overall downturn in economic growth during the second quarter of the year.

UK GDP expanded by 0.4pc during the month, which was better than the 0.2pc projected by economists.

It came after the economy contracted by 0.1pc in May and by 0.1pc in April.

The April figure was revised higher from a previous estimate of a 0.3pc decline.

07:23 AM BST

Reeves says ‘more to do’ on economy

Rachel Reeves said there is “more to do” to boost the economy after growth more than halved in the second quarter of the year.

The chancellor said: “Today’s economic figures are positive with a strong start to the year and continued growth in the second quarter. But there is more to do to deliver an economy that works for working people.

“I know that the British economy has the key ingredients for success but has felt stuck for too long.

“That is why we’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay. There’s more to do and today’s figures only fuel my ambition to deliver on our Plan for Change.”

07:21 AM BST

Trump tariffs distorted prior growth figures, says ONS

Donald Trump’s tariff campaign artificially boosted growth in the first quarter of the year, the Office for National Statistics said, as the economy slowed down in the three months to June.

ONS director of economic statistics Liz McKeown said: “Growth slowed in the second quarter after a strong start to the year.

“The economy was weak across April and May, with some activity having been brought forward to February and March ahead of stamp duty and tariff changes, but then recovered strongly in June.

“Across the second quarter as a whole growth was led by services, with computer programming, health and vehicle leasing growing.

“Construction also increased while production fell back slightly.

“Growth for the quarter was also boosted by updated source data for April, which while still showing a contraction, was better than initially estimated.

“Services also drove growth in June with scientific R&D, engineering and car sales all having a strong month.

“Within production, which recovered, manufacture of electronics performed especially well.”

07:04 AM BST

Good morning

Thanks for joining me. Britain’s economic growth was cut in half in the second quarter of the year, official figures show, as businesses grappled with the effects of Rachel Reeves’s tax raid.

Gross domestic product (GDP) – the closely watched measure of economic growth – weakened from 0.7pc in the first quarter to just 0.3pc in the three months to June, according to the Office for National Statistics (ONS).

The performance was better than analyst projections of a decline to 0.1pc.

The slowdown in Britain’s economy comes after the chancellor imposed increases in national insurance contributions on employers in April, as well as rises in the national minimum wage.

Ms Reeves will use her upcoming Budget to try to raise Britain’s dire productivity growth, which has fallen sharply since the financial crisis and threatens to blow an even bigger hole in the public finances.

The decline in growth was also partially due to the unwinding of an economic surge in the three months to March as companies stockpiled goods and completed deals rapidly ahead of Donald Trump’s tariff tirade.

The US president promised to unleash a wave of “reciprocal” tariffs on trading partners from April, causing turmoil in financial markets before the levies were suspended. Here is what you need to know.

5 things to start your day

Debt-laden Italy now better for living standards than Britain | Giorgia Meloni’s reforms are making Italy attractive to those fleeing British taxes

Cost of first reservoir in 30 years trebles to up to £7.5bn | Thames Water customers face higher bills because of Oxfordshire project

Claire’s Accessories on brink of collapse with 2,100 jobs at risk | Retailer appoints administrators and cancels online orders in fresh blow to ailing high streets

Reverse non-dom crackdown to get Britain building, Reeves urged | Balfour Beatty’s outgoing chief says UK is missing out on chance to attract wealthy investors

Jeremy Warner: Trump’s stooge has a crazy plan to weaken the dollar | The president’s pick as Federal Reserve governor seeks to downgrade America’s reserve currency status

What happened overnight

Bitcoin hit a new peak during Asian trading hours as the yen surged after the US treasury secretary said he expects Japan to hike interest rates.

The cryptocurrency rose above its previous July record, briefly exceeding $124,500 before retreating.

Bitcoin’s value has recently soared, fuelled by US regulatory changes under Donald Trump, a strong backer of the crypto sector.

Japan’s currency rose significantly against the dollar, climbing to its highest level since late July after US treasury secretary Scott Bessent said he had told the Bank of Japan (BoJ) governor that it was “behind the curve” in its fight against inflation.

The Bank of Japan, which has long maintained a negative interest rate policy, began monetary tightening in 2024.

Tokyo’s Nikkei 225 fell 1.4pc to 42,657.94 as investors sold to lock in recent gains that have taken the benchmark to all-time records.

On Wall Street, the benchmark S&P 500 and the Nasdaq Composite indexes scored record highs for the second day in a row, while the Dow Jones Industrial Average finished stronger.

The Dow gained 1pc, to close at 44,922.27, the S&P 500 rose 0.3pc, ending at 6,466.58, and the Nasdaq added 0.1pc, to 21,713.14.

In the bond market, the yield on benchmark 10-year US Treasury notes fell to 4.245pc, from 4.290pc on Tuesday night.

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