UK in the spotlight - the week ahead

Last week, the Bank of England did what the market expected it to do: it lowered interest rates from 4.25% to 4%. However, it managed to surprise everyone along the way.

Until Thursday, a cut was considered ‘nailed on’ by analysts. In reality, it almost didn’t happen, with the Monetary Policy Committee required to hold an unprecedented second vote after failing to reach a majority. In the end, five panel members backed a quarter-point cut and four voted to hold.

This has muddied the economic waters. Although the trajectory of interest rates ‘continues to be downward’, according to the bank’s governor Andrew Bailey, investors suspect borrowing costs will stay higher for longer. The chance of a November cut is now judged to be 50/50.   

Data dive

This week’s economic updates are particularly important, therefore. Tuesday will bring the UK’s latest official labour figures, which will tell us more about unemployment and salary growth. Signs have been mixed so far, and questions about the quality of the data have added to the confusion.

Information from elsewhere suggests the jobs market is cooling, however. A survey published this morning by KPMG and the Recruitment & Employment Confederation suggests UK hiring activity is close to a two-year low.  

Rumours that chancellor Rachel Reeves will impose tax hikes in her Autumn Budget are unlikely to boost business confidence.

Thursday is another big day for the UK, with quarterly GDP figures due at 7am. After making a decent start to 2025, the economy took a turn for the worst in April and May. The consensus view is that GDP will rise by just 0.1% in the second quarter, versus 0.7% in the first quarter.

The Bank of England will be keenly aware of these sluggish predictions. At the same time, however, inflation rose again in June, and Bailey thinks it could hit 4% by September - twice the target level. This leaves the Monetary Policy Committee with a horrible conundrum: how does it avoid ‘stagflation’, a worst-of-both-worlds scenario, where growth is low and inflation is high?

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Across the pond

The UK economy is not the only point of interest next week. On Tuesday, the US will publish key inflation data. Early previews suggest there will be a bounce in used car prices, a decline in the cost of car insurance, and higher air fares. The real talking point will be goods prices, however. Are the effects of tariffs finally kicking in?

They are certainly being felt elsewhere. On Friday, US gold futures surged to a record high after Donald Trump announced an unexpected levy on certain gold bars. This would be the first tariff ever imposed on bullion by the US and looks particularly painful for Switzerland, which is a big exporter of the metal.

• Read: How is the gold price calculated?

As usual, however, nothing is clear. After the news broke on Friday, the White House promised to ‘clarify misinformation’ on the gold tariff policy.

President Trump is busy elsewhere too. He is due to meet Russian leader Vladimir Putin in Alaska on Friday to discuss a ceasefire in Ukraine. This has caused oil prices to fall as analysts weigh up the likelihood of a peace deal.

Meanwhile, the 90-day tariff truce between the US and China is due to expire on Tuesday. It is still uncertain whether Donald Trump will agree to another extension, or whether ‘substantially higher’ levies will actually be imposed.  

Stock market calm

A summer of geopolitical drama has failed to rock the stock market, however. As we begin another week, the aura of eerie calm persists. European indices are largely steady this morning, while US equities finished higher on Friday after another week of strong gains.

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