10 July 2026: Car dealers face a massive surplus of manual cars

Oil and the pound are more tightly linked in the UK than in many neighbouring economies because Britain imports much of its energy, which is priced in dollars. So when crude falls from May’s highs above $120 a barrel and Sterling strengthens against the dollar, the UK’s effective energy bill can drop even if domestic demand hasn’t changed much.

That matters for inflation expectations: cheaper imported fuel and heating inputs can take some heat out of near-term price pressures. In turn, money markets have shifted from pricing as many as three Bank of England hikes to expecting at least one, with roughly a 25% chance of a second.

Some strategists note that energy-driven supply shocks can still support the currency at the margin, while overseas investors’ growth and political worries may limit how far it runs. Options markets echo that unease, with traders paying up for protection against bigger-than-usual pound swings this week.

A lot of what UK households pay for fuel and heating can be traced back to two factors: the dollar price of oil and the Sterling exchange rate. When crude eases and Sterling firms, importers need fewer pounds to buy the same barrel of dollar-priced energy, which can ease pressure in the supply chain.

If that shows up in lower energy-related inflation, it can also change the interest-rate path households face, since the Bank of England sets rates partly to keep inflation in check. That’s why traders have shifted from expecting several hikes to pricing one, with only limited odds of a second.

One important part of petrol and diesel vehicles could soon disappear from UK roads, as the vital switch becomes “increasingly rare” in new models. Demand for manual gearboxes has hit a record low, with new data showing that just one in 12 buyers has enquired about a car with a traditional gearbox.

According to data from Carwow, just 7.9% of new-car enquiries are for manual vehicles, down from 21% just two years ago. The number of cars on sale with a manual gearbox has also plummeted, with Auto Express data revealing that just 72 of the 356 unique car models available come with a manual transmission.

The core economic implication is that manual gearboxes are becoming uneconomic to produce, pushing manufacturers, fleets, and consumers toward a faster transition to automatics and EVs. This shift affects production costs, industry structure, labour markets, and the used‑car ecosystem.

The fall in manual‑gearbox sales means manufacturers can no longer justify the R&D, certification, tooling, and production overheads required to maintain manual variants.

There are several macroeconomic gains from this shift: Productivity gains, as automatics and EVs reduce driver fatigue and improve fleet efficiency. Fewer manual ICE cars mean a faster reduction in CO₂ and NOx emissions, while UK manufacturers must keep pace with international EV entrants, reallocating capital away from legacy manual systems.

The International Monetary Fund said that Silvana Tenreyro will serve as the lender’s new chief economist and lead its research department from August, according to a statement on Tuesday.

Formerly an external member of the Bank of England’s Monetary Policy Committee from 2017 to 2023, she is an economics professor at the London School of Economics. She was also president of the European Economic Association.

“At a time of profound transformation and heightened uncertainty in the global economy, Silvana’s blend of intellectual leadership and policy experience will help ensure that the Fund’s analytical work, multilateral surveillance, and policy advice remain at the cutting edge in support of our membership,” IMF Managing Director Kristalina Georgieva said in a statement.

She will likely keep a close watch on monetary policy decisions in the UK in her new role.

The pound climbed to a high of 1.3431 yesterday as the dollar continued to lose its recent sheen. It eventually closed at 1.3408, but it looks likely to continue posting daily gains.

Federal Reserve Bank of New York President John Williams has said that among the drivers of inflation in the US, he’s most focused on demand driven by artificial intelligence. And if that demand persists, it could force the Central Bank to raise interest rates.

“If this creates a sustained impulse to demand relative to supply in inflation, I do think that’s the kind of situation where you don’t look through this,” Williams said yesterday during an event organised by his New York Fed. If inflation proves more persistent and meaningfully higher than his baseline forecast, he said, “then monetary policy would need to respond to that.”

“On the other hand, if it isn’t and things play out more benignly, I do think monetary policy is, and continues to be, well-positioned.”

As he monitors inflation, Williams said that if the Fed’s preferred gauge of underlying price pressures, the core personal expenditures price index, comes in at a monthly pace of 0.2% over the second half of 2026, it would suggest inflation is on track to return to the Fed’s 2% annualised target.

“A rate of core PCE of 0.2% a month in the second half of this year, that would be consistent with my view of a disinflationary process that’s continuing,” Williams said. “If it’s higher than that, that would be a sign of inflation being a bit more persistent.”

By voicing this opinion, in particular, Williams is demonstrating his willingness to provide markets with advance guidance on his and possibly a few of his colleagues’ views on monetary policy.

This week’s release of the minutes from Federal Reserve Chair Kevin Warsh's first Federal Open Market Committee meeting is rated the most hawkish in over four years, according to recent sentiment analysis shared by SoFi.

This intense hawkishness draws immediate comparisons to the economic backdrop of 2022. During that period, the Fed began aggressively raising interest rates and reducing its balance sheet to combat inflation that was surging well above its 2% target.

The June FOMC minutes show policymakers are deeply concerned about elevated inflation and prioritising price stability, signalling a continued tight monetary policy environment rather than imminent rate cuts in response to the jobs data trend. Some Fed officials made the case for raising rates at the FOMC's June 16-17 meeting, though they didn't support a hike at that gathering. Rather, rates were held steady at 3.50%-3.75%.

The shift in tone is corroborated by Augur Infinity's data, which also spiked to a multi-year high.

Yesterday’s publication of existing home sales data showed that sales fell 2.4% in June to a seasonally adjusted annual rate of 4.09 million units, contrary to economists’ expectations of an increase.

The decline was attributed to record-high home prices and persistently high mortgage rates, which deterred many potential buyers.

The inventory of previously owned homes on the market fell 0.6% from May to 1.56 million units in June, though supply was up 1.3% compared with a year ago. The national housing shortage persists, especially for entry-level homes; the shortfall is estimated at 1.2 million units. At June’s sales pace, it would take 4.6 months to exhaust the current supply, unchanged from a year ago.

The median existing home price increased 1.8% from a year earlier to a record $440,600, and first-time buyers accounted for 33% of purchases, up from 30% a year earlier, but still below the 40% share historically considered healthy for the market.

The dollar has so far failed to react to Trump’s comments about the end of the ceasefire between the U.S. and Iran. The index fell to a low of 100.79 and closed at 100.94.

The ECB’s recent rate hike was not “insurance”, as some market analysts described it, but a rate hike based on thorough analysis. This was the main message from ECB President Christine Lagarde at the last press conference, and it was also repeated in the just-released minutes of the meeting.

Several analysts still think that an insurance rate hike should always be based on thorough analysis. The aim of the ECB’s communication was clear: higher inflation and higher inflation projections called for a rate hike, rather than the ECB's concerns about its own credibility.

Regarding economic activity, members concurred with Philip Lane's assessment. Adjusting for a temporary factor in Ireland, the Eurozone economy had grown in the first quarter of the year, supported by domestic demand and exports.

When this adjustment was not taken into account, regional GDP had unexpectedly contracted by 0.2% in the first quarter, owing to a sharp reduction in measured multinational activity in Ireland. The economic assessment and communication needed to distinguish statistical effects in Ireland from economic fundamentals, primarily by focusing on the modified domestic demand indicator for economic activity in Ireland, developed by the Central Bank’s own staff.

Members also assessed that the risks to the growth outlook were to the downside, mainly owing to the war in the Middle East, which had added to the volatile global policy environment. It was also argued that the Eurozone economy had become more adaptable to energy shocks, reflecting its reduced dependence on fossil fuels.”

The French presidential campaign remains highly uncertain. The number of potential candidates remains large, reflecting the continued fragmentation of the French political system. French political history shows that opinion polls remain highly volatile nine months before a presidential election. Being the frontrunner at this stage does not guarantee victory.

Outside Marine Le Pen’s RM Party, three leading candidates currently stand out on the centre-right and the right: Édouard Philippe (Horizons), Gabriel Attal (Renaissance, the former party of Emmanuel Macron), and Bruno Retailleau (Les Républicains, representing the traditional conservative right). On the left, Jean-Luc Mélenchon has already announced his candidacy and remains the most visible figure of the radical left. Raphaël Glucksmann is regularly tested in polls as a social-democratic and pro-European candidate. Marine Tondelier (Greens) and Fabien Roussel (French Communist Party) also feature in various electoral scenarios.

By shortening Marine Le Pen’s disqualification from electoral politics from four years to one, the French court of appeal has cleared up one of the biggest uncertainties in European politics.

The leader of the far-right National Rally has confirmed she will lead her party into next year’s presidential election, albeit as a convicted felon, wearing an ankle tag and subject to a curfew, unless she can get her sentence overturned in a further appeal.

It was not the outcome that much of Europe’s political mainstream wanted. Many would have preferred her 30-year-old protégé, Jordan Bardella, to top the ticket, given signs that he would be more pragmatic and free-market-oriented. French centrists, meanwhile, would have considered his youth and inexperience vulnerabilities they could exploit. As it is, Le Pen will stand for a fourth time, and polls suggest that this time she is the favourite to win.

The prospect is already causing anxiety in Brussels. That’s clear in the rush to finalise the next Multiannual Financial Framework by year-end, to avoid negotiating it with an incoming French president who is campaigning on a pledge to halve France’s contributions to the EU budget. A Le Pen Presidency also promises friction on multiple other fronts, including reintroducing border controls, subsidising domestic energy, and blocking further aid to Ukraine.

Yet there is little evidence of anxiety in the bond market. The spread between French and German 10-year government bonds has averaged around 0.75 percentage points since the 2024 snap election produced a hung parliament, up from around half a percentage point over the two years before, and widened only briefly when the court ruling was overturned, before settling back down.

Are investors right to be so complacent? The next French President will inherit a genuine fiscal mess. Debt-to-GDP is forecast to hit 120% next year, and Morgan Stanley now reckons the budget deficit will widen this year to 5.2%, up from 5.1% last year and the 5% target.

That implies more fiscal tightening will be needed in next year’s budget, one that will have to be agreed by the current divided parliament, to keep France on track for its 3% target by 2029 under EU rules.

Le Pen says RN will honour the current government’s deficit-reduction commitments. She has yet to show how. Her platform pulls in opposite directions, cutting taxes while increasing social spending, and she remains personally committed to reversing Macron’s pension reform, vowing to hold the retirement age at 62.

The Euro again mirrored the dollar’s performance yesterday, but this time it rallied as the dollar fell. It reached a high of 1.1449 and closed at 1.1430.

Have a great day!