July saw UK investors navigating a shifting landscape, which domestic political developments, doubts about the long-term strength of the AI boom, and renewed tensions in the Middle East all competed for attention.
- Andy Burnham became the UK’s latest Prime Minister
- The benchmark gilt yield breached 5%
- Higher oil prices stoked inflationary concerns
Domestic and international uncertainty: July saw UK investors navigating a shifting landscape, which domestic political developments, doubts about the long-term strength of the AI boom, and renewed tensions in the Middle East all competed for attention. Renewed conflict between the US and Iran drove up the yield on the ten-year gilt to over 5% for the first time since May. Meanwhile, the price of Brent crude oil climbed above US$100 per barrel, stoking concerns over the outlook for inflation. Over July, the FTSE 100 Index rose by 3.5%, while the FTSE 250 Index climbed by 4.2%.
“‘The time for tinkering around the edges has long gone’” (BCC)
“Good growth in every postcode”? Andy Burnham replaced Keir Starmer as leader of the Labour Party and therefore became the UK’s seventh Prime Minister in a decade. In his first speech, he promised “a new political model and a new economic model”. Gilt yields rose on Mr Burnham’s first day in office amid uncertainty over economic policy. He appointed John Healey to replace Rachel Reeves as Chancellor of the Exchequer, and the autumn Budget was set for 28 October. Andy Burnham also announced a range of measures, including a 20% cut to business rates for pubs, social clubs and live music venues. The British Chambers of Commerce responded: “Any action on rates is long overdue and very welcome” but went on to warn: “The time for tinkering around the edges has long gone”.
Spotlight on the triple lock: the new Prime Minister faces a range of economic and fiscal challenges; in particular, the Office for Budget Responsibility warned that maintaining the triple lock uprating on the state pension is likely to prove unsustainable – a view echoed by the Organisation for Economic Cooperation & Development.
Short-term dip in inflation: the Bank of England (BoE) maintained its key base rate at 3.75% in July. Six members of the Monetary Policy Committee voted in favour of leaving rates unchanged, while three voted for an increase to 4%. The annualised rate of inflation eased from 2.8% in May to 2.6% in June, dampened by lower prices for food and fuel, but the BoE expects inflation to rise over the rest of this year, bolstered by high energy prices. Elsewhere, having contracted by 0.1% in April, the UK economy grew by 0.1% in May, boosted by activity in the services sector.
To view the series of market updates through July, click here
