UK borrowing costs jump on fears for chancellor

Tesla refreshed its top-selling Model Y crossover earlier this year to boost demand, but the redesign forced a production halt and prompted some buyers to delay purchases in anticipation of the updated version.

The scale of the June quarter decline was, however, less bad than Wall Street had feared: shares, which have shed more than 25 per cent this year, rose 7 per cent in premarket trading.

Chris Scicluna, Daiwa Capital Markets: “The market is revaluating the outlook for fiscal policy and hence the significant steepening in the gilt curve. The vote in the House of Commons gives reason to think again about the likely outlook for public borrowing.

“The market has understood for some time that the government was off track on borrowing and was anticipating corrective measures in the budget but if markets continue to move in the direction we see today, it might have to make some announcements on the revenue side than on public expenditure cuts.”

Jane Foley, FX strategist, Rabobank: “Since the savings from welfare reform that chancellor Reeves had pencilled in have now evaporated, UK budget issues are back in the fore. The gilt curve steepened at the open this morning as concerns about supply returned. In addition, the UK press is speculating that a cabinet reshuffle could be in the pipeline. Some of this has hinted that Starmer could even replace Reeves as Chancellor.”

UK government borrowing costs have jumped and the pound has fallen, with traders speculating that the chancellor Rachel Reeves will lose her job.

Bond prices and the pound fell after Reeves was seen crying in the House of Commons during prime minister’s questions.

The yield on 10-year gilts, which reflects the government’s borrowing costs, rose by 0.22 percentage points in the last hour, reversing a decline recorded before Prime Minister’s Questions. It was on track for the steepest one-day increase since October 2022, during the ill-fated Liz Truss premiership.

The yield on 30-year gilts gained 0.25 percentage points.

The moves came after Sir Kier Starmer refused to confirm that Reeves would stay as chancellor until the next election, as he also failed to rule out further tax rises to pay for the government’s welfare climbdown.

A Labour spokesman said: “The chancellor is going nowhere. She has the prime minister’s full backing.”

The pound dropped by over 1 per cent to $1.3589, while domestic mid-cap stocks tumbled.

Private payrolls unexpectedly fell in the US last month, while job gains in the previous month were smaller than initially thought.

ADP National Employment data, which comes out one day ahead of the more closely-watched monthly figures from the Labor Department, shows that private sector jobs fell 33,000 jobs last month after a downwardly revised 29,000 increase in May.

Economists polled by Reuters had forecast private employment increasing 95,000 following a previously reported gain of 37,000 in May.

Job growth has been hit as businesses grapple with trade policy uncertainty, but companies have not yet resorted to widespread layoffs which totalled 247,256 in the second quarter, down by 50 per cent from the January-March quarter. Hiring plans, however, dropped to 3,191 last month from 9,683 in May.

“Without a strong economic driver, hiring may remain measured through the rest of the year,” said Andrew Challenger, senior vice-president at Challenger, Gray & Christmas.

The UK competition watchdog is preparing to take legal action against Ticketmaster, having concluded that they are in “fundamental disagreement” over its pricing model for Oasis concert tickets.

The Competition and Markets Authority said that Ticketmaster had declined to accept suggested remedies to address its concerns, and had not offered its own undertakings.The CMA is now preparing to litigate in the matter.

An investigation found that fans who joined an online queue for tickets for the Britpop band’s reunion tour last year were offered “platinum” tickets once the initial batch of standing tickets had sold out. These were 2.5 times the price despite offering “no additional benefit”, and often being located in the same area of the stadium.

This resulted in “many fans waiting in a lengthy queue without understanding what they would be paying and then having to decide whether to pay a higher price than they expected”. The CMA said that it would continue to engage with Ticketmaster to secure a voluntary resolution, “should it indicate a clear and timely commitment to do so”.

Noel and Liam Gallagher reunite on stage at Cardiff’s Principality Stadium on Friday for their first gig in 15 years, opening a five-month tour of stadium shows across the UK, Ireland, Japan and America.

Britain’s second-largest privately-owned housebuilder turned another record profit last year despite building fewer homes.

Hill Group, based in Waltham Abbey, Essex, turned a pre-tax profit of £90.5 million on revenues of £1.15 billion in the 12 months to the end of March, surpassing the £70.1 million it delivered in its previous financial year.

The developer built 2,811 homes last year, down from 2,886 in 2023-24, although it sold them for £100,000 more, on average. That increase was more to do with “product mix rather than general market price growth”.

Andy Hill, founder and chief executive, said it “remains a challenging market”. He and his family received £5.26 million of dividends during the year, slightly less than the £5.36 million they received in the previous year.

Japan’s prime minister has said he is determined to protect his country’s national interests as trade negotiations with the US struggled and President Trump threatened even higher tariff rates on its Asian ally.

Shigeru Ishiba, who heads the world’s fourth largest economy, said: “Japan is different from other countries as we are the largest investor in the United States, creating jobs.

“With our basic focus being on investment rather than tariffs, we’ll continue to protect our national interest while working to reduce the US trade deficit with Japan,” he said.

Trump has cast doubt on a possible deal with Japan, indicating that he could impose a tariff of up to 35 per cent on Japanese imports, well above the 24 per cent he announced amid a slew levies on April 2 ‘Liberation Day’, which knocked more than 20 per cent from the Nikkei 225 index.

Tokyo has yet to secure a trade deal after nearly three months of negotiations as it scrambles to find ways to exempt vehicle makers from 25 per cent industry-specific tariffs. Japan’s tariff negotiator, Ryosei Akazawa, is reportedly organising his eighth visit to the United States as early as this weekend.

UK interest rates may need to fall to below 3 per cent over the next two years to support a weakening economy and a slowing labour market, one of the Bank of England’s rate-setters has said, Mehreen Khan, Economics Editor, writes.

Alan Taylor, an external member of the Monetary Policy Committee, said the economy’s “soft landing” from years of high inflation was at risk from trade disruption and weak consumption, warranting a faster pace of interest rate cuts this year.

He said at the European Central Bank’s annual conference in Sintra, Portugal: “I see [the] soft landing as being at risk, and greater probability of a downside scenario in 2026 pushing us off track, as demand weakness and trade disruptions build.”

Taylor said three more interest rate cuts would be necessary this year to help support the economy. He estimated that the neutral rate for UK interest rates — when monetary policy is consistent with low inflation and an expanding economy — was around 2.75-3 per cent. The current base rate is 4.25 per cent.

Taylor voted to cut interest rates in June, when the MPC voted 6-3 to hold.

Tesla’s sales of its China-made electric vehicles inched up 0.8 per cent in June from a year earlier, breaking an eight-month losing streak.

Deliveries of Model 3 and Model Y vehicles made in its Shanghai factory, including both China sales and exports to Europe and other markets, rose 16.1 per cent from May to 71,599 units, data from the China Passenger Car Association showed.

By comparison, global car sales for BYD, Tesla’s biggest Chinese rival, increased 11 per cent year-on-year to 377,628 units last month.

Tesla recorded the fastest-ever model ramp-up with just six weeks to full production of the refreshed Model Y in its largest manufacturing hub in Shanghai earlier this year. But its sales in China and Europe have been cooling and mounting pressures from rivals and the political backlash against Elon Musk, the chief executive, are dragging on demand.

For all of 2025, Tesla’s EV sales are expected to drop 10 per cent this year to make up 13 per cent of the global market, while BYD’s global EV sales are forecast to grow by 45 per cent to one-fifth of the world’s total, according to Counterpoint Research.

The more UK-focused FTSE 250 has fallen 0.5 per cent, or 111 points, this morning to 21,631 with corporate results weighing on the index.

Bytes Technology, the computer reseller, and Greggs, the bakery chain, have both warned on profits this morning. The shares are down 26.86 per cent and 14.3 per cent respectively.

The warning from Bytes hit sentiment in the sector, with Softcat and Computacenter both down more than 7 per cent.

SPP was the biggest riser in the index after the catering group, which runs outlets such as Upper Crust and Caffè Ritazza in airports and railway stations, delayed the listing and trading of the shares in a joint venture in India until later this month.

Ferrari has scored a win at the EU’s second-highest court, which said the luxury sportscar maker had been wrongfully stripped off rights to the Testarossa brand name.

Ferrari’s rights on the mark were revoked in 2023 by the European Union’s Intellectual Property Office, which said the company had not put them to “genuine use” for a continuous period of five years between 2010 and 2015.

But the EU’s General Court annulled that decision, stating that Ferrari had used the trademark, through giving explicit or implied approval to dealers selling second-hand Testarossas and through licensing the brand for scale models.

“The use of the trademark to guarantee the identity of the origin of the goods for which it was registered, when reselling second-hand goods is capable of constituting genuine use,” the court said.

Ferrari built its Testarossa cars, made famous by the 1980s TV show Miami Vice, between 1984 and 1996, and now only second-hand models are available. Its rights to the brand name had been challenged by the head of German toy maker Autec.

A quarter of the market value was wiped from Bytes Technology after the software reseller warned that profits would be flat during the first six months of the year.

The FTSE 250-listed IT company had said only two months ago that it was on course for “double digit” gross profit growth over the first half.

A challenging macroeconomic environment has pushed some companies to defer their “buying decisions”, the company said. The tough trading backdrop had been compounded by a reorganisation of its sales teams.

Bytes Technology shares were 128p, or 25.1 per cent, lower 381p in morning trading. Shares in FTSE 250 companies Softcat and Computacenter fell 7.9 per cent and 7.3 per cent, respectively.

Santander shares have risen 3 per cent this morning after it said it would buy British lender TSB from Spain’s Sabadell for £2.65 billion in cash.

The acquisition comes after Santander has entertained bids from both NatWest and Barclays for its UK retail arm, but rejected the offers due to disagreements over price.

Sabadell shares rose 5 per cent today. The bank is fighting an €11 billion hostile approach from its domestic rival BBVA. It confirmed last week that it had received some preliminary non-binding expressions of interest for TSB.

TSB was spun out of Lloyds Banking Group and briefly floated in 2014 before being bought by Sabadell for £1.7 billion in 2015.

Greggs shares have dropped more than 14 per cent after the bakery chain issued a profits warning as the “very high temperatures impacted consumer purchasing patterns” in June, leading to a decline in footfall to its shops.

The FTSE 250 company said the drop in sales of sausage rolls and steak bakes was not offset by a jump in demand for its cold drinks. It expects full-year operating profit to be “modestly” below the £195.3 million achieved in 2024.

Greggs fell 286p, or 14.5 per cent, to a three-month low of £16.88.

Read in full: Greggs warns on profits as heatwave hits sausage roll sales

BP shares have risen on a report that another bidder has emerged for its Castrol lubricants business.

Sky News said Clayton Dubilier & Rice, the US private equity firm, is among the suitors which have tabled offers. Outgoing chairman Helge Lund is an adviser to CD&R.

Murray Auchincloss, BP’s chief executive, announced in February that the company was launching a strategic review of Castrol as part of its $20 billion divestment target as part of a turnaround at the troubled group. It is expected to fetch around $10 billion.

Other parties reported to be interested include India’s Reliance Industries, Saudi Aramco, and US buyout firms Apollo Global Management and Lone Star Funds.

BP share rose 2.4 per cent to 377p this morning.

Secure Trust Bank, a specialist lender, is to stop new lending in vehicle finance and put the existing book into run-off.

The move is part of “strategic pivot” as the bank withdraws from an underperforming segment amid industry-wide uncertainty after a court ruling on commission on motor finance.

David McCreadie, chief executive, said the company would redeploy capital into “higher-returning” retail finance, real estate finance and commercial finance businesses.

Vehicle finance accounted for 30 per cent of Secure’s adjusted operating costs in 2024 and generated a loss before tax and exceptional items of £21.8 million.

It will support its existing customers and loan portfolio in vehicle finance, but expects 284 jobs to be at risk by 2030, including 78 roles in 2025. Secure share rose 7 per cent, or 56p, to 836p this morning.

Chinese carmaker Geely is to start selling its electric EX5 SUV in Britain.

Geely, which in the UK owns Lotus and the black cab maker LEVC, said in a statement that the EX5, which is still undergoing “intensive development work” to meet British car buyers’ standards, will be the first in a “diverse range of high-quality, accessible vehicles tailored for the UK”.

The car is expected to be on sale in the last quarter of the year.

It joins a number of other Chinese carmakers which are selling in Britain, including BYD, MG, and Chery’s Omoda and Jaecoo brands.

Investors remain wary about the economic outlook as they look ahead to US payroll data, Trump’s trade deal deadline, and assess Federal Reserve chairman Jerome Powell’s cautious stance on interest rate cuts.

The dollar has strengthened slightly but is still close to 3½-year lows against a basket of currencies. This weighed on the pound, which has eased back but is still trading above $1.37. The price of gold has also dipped to $3,330.56 an ounce on the rise in the dollar.

Banks, insurers and miners are higher this morning, while gold miners and retailers are down.

The triple lock on state pensions should be scrapped after this parliament and employers should pay into workplace pensions even if their employees do not, according to a think tank calling for a sweeping overhaul of Britain’s retirement system.

The Institute for Fiscal Studies (IFS) warned that mounting pressure on the state pension system and the fact that some workers were not saving enough privately for retirement meant the system faced “significant challenges”.

Ben Martin has the full story here.

The energy regulator Ofgem has launched an investigation into the fire that caused a shutdown at Heathrow airport in March after the National Energy System Operator (Neso) said in a report that the likely cause was the failure of a component at the North Hyde electricity substation.

Neso said in the report: “This review has seen evidence that a catastrophic failure on one of the transformer’s high voltage bushings at National Grid Electricity Transmission’s … substation caused the transformer to catch fire. This was most likely caused by moisture entering the bushing, causing an electrical fault.”

Ofgem said it would review whether National Grid complied with the relevant legislation and licence conditions relating to the development and maintenance of its electricity system at North Hyde.

Greggs, the high street baker, has warned that it will miss City forecasts after sales were hit by the unseasonably warm weather.

Sales rose 6.9 per cent to £1.02 billion in the 26 weeks to June 28, the group reported in an unscheduled trading update.

Greggs said “good progress in May” was followed by “slower growth in June as high temperatures impacted consumer purchasing patterns”.

The FTSE 250 group said it now anticipates that full year operating profit “could be modestly below that achieved in 2024”, having previously guided that it would “deliver another year of progress in 2025”.

The US private equity group KKR has struck a £4.1 billion deal to buy Spectris, the FTSE 250 instrumentation and testing group, trumping an offer from rival private equity group Advent.

Last week, the Spectris board recommended that shareholders accept a cash offer of £37.63 a share from Advent International. It has switched its recommendation after KKR tabled a £40-a-share all-cash deal.

The offer is at a 96 per cent premium to the £20.38 that the shares were trading at before Advent tabled its first offer in June. Spectris shares closed at £38.40 last night.

Spectris shares were trading at more than £40 in late 2021, but the company has been hit by a decline in revenues and profits, and the market volatility prompted by trade war concerns.

Asian stock markets are lower, and the dollar has remained around 3½-year lows against a basket of currencies on concerns about a scramble for trade deals ahead of President Trump’s July 9 deadline for tariffs.

Trump said he was not considering extending the July 9 deadline for countries to negotiate trade deals with the United States. He also cast doubts again that an agreement could be reached with Japan, although he expects a deal with India.

Reaction to Trump’s massive tax-and-spending bill being passed by the narrowest of margins by the US Senate Republicans was muted. The legislation, which is expected to add $3.3 trillion to the national debt, heads to the House of Representatives for possible final approval.

The fiscal worries, trade uncertainties, and the US rate path trajectory have all led investors to sell US assets and look for alternatives. The dollar has had its worst first-half performance since the 1970s. In commodities, gold edged higher to $3,343 an ounce on safe-haven flows.

CBS parent company Paramount has settled a lawsuit filed by President Trump over an interview with the then-vice president and presidential candidate Kamala Harris on its 60 Minutes programme aired in October.

Trump filed a $10-billion lawsuit against CBS in October, alleging the network deceptively edited the interview to “tip the scales in favour of the Democratic Party” in the election. In an amended complaint in February, he bumped his claim for damages to $20 billion.

CBS aired two versions of the Harris interview in which she appears to give different answers to the same question about the Israel-Hamas war, according to the lawsuit filed in federal court in Texas.

Paramount said the money would be for Trump’s future presidential library, and would not be paid to Trump “directly or indirectly”. “The settlement does not include a statement of apology or regret,” the company said.