14 July 2026: The Central Bank hawks are gathering

British lawyers, accountants, architects and other service providers are set to benefit from the UK’s most significant trade deal for services to date, following an agreement between the UK and Switzerland.

The new Free Trade Agreement is expected to unlock £5.2 billion per annum in additional UK services exports to Switzerland over the next ten years.

Switzerland is the UK’s 6th-largest services export market, with over £30 billion in bilateral services trade in 2025.

With services contributing 81% of UK economic output and 83% of employment, the agreement will support sectors critical to growth, investment and long-term economic resilience.

In addition to the FTA, UK nationals will soon be able to use Swiss e-gates, helping business travellers, workers, and holidaymakers move more quickly through passport control and avoid lengthy queues when visiting Switzerland.

Bank of England Chief Economist Huw Pill has emerged as a significant “voice of reason” on the Bank’s Monetary Policy Committee over the past year, offering no-nonsense commentary on the need for vigilance in assessing UK inflation.

Pill has said interest rates will need to rise to keep inflationary pressures in check.

Asked on BBC's "Walescast" programme whether rates would need to rise in the coming year, Pill said: "The short answer is yes."

This reflects Pill’s practical approach to the problem. He believes rising prices are the most pressing threat to the economy, while encouraging growth is a more abstract, multifaceted function best left to the Government.

"I am concerned that we've been running the economy a little bit hotter than the supply side," Pill said.

Pill was one of two members of the nine-strong Monetary Policy Committee who voted to raise interest rates from 3.75% last month. The next decision is due on July 30.

Within the G7, Pill has joined a highly experienced and knowledgeable group that includes Chicago Fed President Austan Goolsbee and ECB Governing Council member Isabel Schnabel, who are calling for tighter monetary policy due to the inflationary effects of geopolitical events.

Rachel Reeves, likely to be replaced this month once Andy Burnham becomes Prime Minister, stressed the need for stability in the public finances and defended her decisions in remarks published last week.

Reeves said Britain's economy was strong because of the choices she had made since the Labour Party came to power under Keir Starmer two years ago, adding that there had been progress in delivering on promises of change. Of course, the term “strong” is relative. While the UK is strong compared to most third-world economies, it is struggling to achieve consistent growth compared to the industrialised nations of the G7, as the GDP data due in two days is predicted to show.

"Change is only possible if we maintain the credibility that we have earned, and the stability that we have built, with growth and opportunity in every town, city and region of the UK," Reeves said in a preview of her annual Mansion House speech to the finance industry.

Burnham is expected to be formally announced as Labour leader on Friday and will be officially named as prime minister on July 20.

The former Greater Manchester mayor has set out ambitions to spur "good growth in every postcode", accelerate the decentralisation of power away from London and increase the stock of social housing.

Burnham has said his plans will stay within the existing fiscal rules set out by Reeves and his party's 2024 election manifesto, which ruled out tax hikes on working people.

Britain's economic performance under Reeves fell short of early hopes to "kickstart" economic growth. However, it has outpaced European counterparts in the Group of Seven advanced economies since mid-2024, while lagging behind the US and Canada.

The pound is becoming mired in a relatively narrow range between 1.3425 and 1.3200 as the “Summer lull” approaches. Yesterday, it fell to a low of 1.3342 and closed at 1.3347.

Small business owners head into the second half of 2026 with growing confidence in their prospects, even as faith in the broader economy continues to decline.

The Citizens Bank Q 3 2026 Business Pulse survey found that 50% of small business owners expect their revenue to increase over the next three months, the highest level of optimism recorded this year. Yet that optimism sharply contrasts with owners' views of the macroeconomic backdrop: just 24% say they are extremely or very confident in the US economy, down from 36% in Q 2 2026.

“Small business owners are proving they can hold their own, even when the world around them is full of uncertainty,” said Mark Valentino, head of business banking at Citizens Bank. “The data is not showing a contradiction, but an opportunity. Those who forge ahead and continue to be nimble and innovative will separate themselves from the competition.”

Rising costs remain the defining external pressure. More than half of respondents cite inflation and cost management as their biggest business challenge, outpacing economic uncertainty and customer acquisition.

In the face of these external pressures, business owners are not making dramatic moves. Hiring plans remain largely unchanged, with 64% of respondents planning to keep full-time headcount the same over the next three months and just 18% planning to increase full-time staff.

Credit appetite tells a similar story: 67% expect no real change in their use of loans, lines of credit or other financial resources. Across the board, owners appear focused on running their businesses efficiently and continuing to chart the course, rather than overextending in either direction.

Meanwhile, U. S. consumers are cautiously pessimistic, but their views of the country's economic performance over the next six months are improving. The key forward- looking indicators show a rebound from recent lows, but confidence remains below neutral.

The Six- Month Economic Outlook has risen sharply to 42.1. 1, up from 37.1. 1, but it remains well below the neutral level of 50, indicating that Americans remain more pessimistic than optimistic about the near- term economy.

This glass-half-full comparison is a strong indicator of the K-shaped economy that currently prevails.

If inflation comes in hotter than expected, the Fed is more likely to raise rates soon, as policymakers see persistent, broad-based inflation and several officials already believe additional tightening may be necessary.

The June FOMC minutes show the Fed has fully shifted to a neutral, wait-and-see stance, dropping earlier signals of cuts. Persistent inflation is now the core policy conflict.

Officials noted that inflation is no longer confined to energy or tariffs; transportation, airfares, oil, and supercore services are all rising. This broadening makes the Fed more sensitive to any new upside move.

Supercore services are the subset of inflation that the Federal Reserve watches most closely, as they capture the part of the economy where price pressures are persistent, sticky, and driven by wages rather than commodities or one-off shocks.

This focuses on labour-intensive service categories where prices tend to rise steadily when the economy is running hot.

Federal Reserve Chairman Kevin Warsh is set to testify before both houses of Congress this week, appearing before the House Financial Services Committee later today and the Senate Banking Committee tomorrow. The Fed Chairman is mandated by law to appear before Congress twice a year.

Lawmakers are expected to pepper Warsh with questions about his outlook for the economy, inflation, and interest rates, but they shouldn't expect him to be very forthcoming. While Warsh doubled down on the Central Bank's commitment to bring down inflation during a recent panel in Portugal, he refused to offer any insights into the economy or the path for interest rates.

"I said I'm not going to give forward guidance because we're meeting in six weeks, but I have an update for you, we're meeting in four weeks," Warsh said on July 2.

It will be hard for Warsh to be open and honest with politicians while remaining tight-lipped about the FOMC's monetary policy decisions going forward.

The dollar index is driven by uncertainty, which aligns with analysts' concerns about the Fed’s less-than-forthcoming recent attitude toward forward guidance.

Yesterday it reached 101.33 and closed at 101.30, as traders are left to make up their own minds about the effect of this week’s CPI data.

Major German carmakers saw sharp quarterly sales declines in China as domestic demand weakened and competition intensified in the world’s biggest auto market.

At Volkswagen, Mercedes-Benz, BMW and Porsche, China sales for the April-June quarter plunged 30% to 41% year on year, according to company data released over the past week.

For the first half of this year, they all reported more than a 20% year-on-year drop in China. Falling sales in China have squeezed their overall profits and, in some cases, offset gains from other regions.

This also comes at a time when these legacy German carmakers face intensified competition from Chinese automakers outside China, including in Europe, as leading Chinese brands like BYD make inroads overseas.

The latest quarterly sales declines were among the steepest for German automakers in China, said Lei Xing, an independent auto analyst.

Volkswagen Group, for example, saw deliveries in China down 36.6% during the quarter to 424,300 vehicles, which dragged its global sales down 8.6%, even as deliveries increased in Europe and the Americas.

The Wolfsburg, Germany-based auto group, which has been betting big on the Chinese market, said it would slash its model lineup by up to half after the latest sales declines.

German Chancellor Friedrich Merz has called for a dialogue with China on Beijing's monetary policy, saying that the EU could not win, no matter how innovative or good the bloc may be, against a competitor that artificially manipulates its currency.

"We are now trying to steer the dialogue with China towards a solution, an attempt to persuade China to allow its own currency to float freely, including in the context of competition in the capital markets," Merz said in a speech at a German university.

French Economy Minister Roland Lescure has reacted to Spain's proposal for a new joint EU debt instrument worth up to €850 billion, while warning of potential risks. "If one country transfers its debt to the whole community, that might be an incentive for that country to take on more debt," Lescure says.

Spain is proposing one of the largest joint‑EU borrowing schemes ever considered, a plan that would allow the European Commission to issue up to €850 billion per year in common debt. The proposal is already triggering a major political and financial debate inside the EU.

Spain wants to create a European Sovereign Facility (ESF), a mechanism in which the European Commission would issue EU‑level bonds and member states would pool part of their national debt issuance into this central facility. Funds raised would then be lent back to participating countries. Participation would be voluntary, but Spain says the plan only works if the five largest euro‑area issuers join (Germany, France, Italy, Spain, and the Netherlands).

This would not increase total EU debt, but reorganise who issues it and ultimately who is liable for its repayment.

The Euro is drifting as European politicians and investors prepare for their August vacations.

The Governing Council of the ECB will meet in a little over a week to decide on interest rate policy. There is a possibility that rates will be raised again, but as things stand, that is not considered to be the most likely outcome.

The common currency drifted lower to 1.1377 yesterday and closed at 1.1381.

Have a great day!