4 July 2025: The economy is showing signs of life

The Labour Party has suffered a tumultuous first year in power, but has one great advantage in its favour: time

It is feasible that by the time the next election rolls around, the disasters that occurred in 2024/5 will be little more than a distant memory.

Over the past week, the Government has been forced to take full advantage of its huge majority, but even then, there were fears that it would suffer a humiliating defeat over welfare reform.

The Prime Minister is now well aware that his critics have gained power this week, and he will have to be less of a populist leader and adhere more closely to Labour principles if he is to remain in charge of the party come 2029.

Jeremy Corbyn is launching a new hard-Left party to fight Labour across Britain, one of his allies has announced.

Zarah Sultana, who resigned from Labour on Thursday, announced that she will co-lead the new party with the former Labour leader, who was expelled by Sir Keir Starmer five years ago.

The new party is yet to be named, but Ms Sultana said it would comprise other independent MPs, along with campaigners and activists. It raises the prospect of a split on the Left that mirrors the divide between Reform UK and the Conservatives on the Right.

A recent poll found that a new Left-wing party could win 10 per cent of the vote in a blow to Labour, which would be tied with the Conservatives on 20 percent.

The average price of a home fell by 0.8% to £271,619 in June, after a 0.4% gain in May, according to Nationwide, Britain's biggest building society. This is the biggest monthly decline since February 2023. The annual rate of house price growth slowed to 2.1% from 3.5% in May.

Estate agents said a slump in demand after Rachel Reeves’s stamp duty raid is being met with an “almost biblical flood of supply”.

The stamp duty holiday ended in April, returning the threshold at which buyers start paying the levy to £125,000 from £250,000.

For first-time buyers in England, the threshold for not paying stamp duty was also reduced, from £425,000 to £300,000.

A second home premium also came into effect on April 1, doubling the council tax for thousands of families across England. It has sparked fears that many will be forced to sell up.

The pound recovered a little poise yesterday as it recovered from Rachel Reeves' apparent breakdown in the House of Commons, which she labelled “a personal matter”

Sterling rallied to a high of 1.3675 and closed at 1.3657.

Yesterday’s release of the June Employment report may have taken some investors by surprise since it was released a day early due to the Independence Day celebrations, which take place today. However, the data itself also provided a shock, coming in stronger than expected at 147k, versus an average expectation of 110k.

Every time President Trump either criticises Fed Chair Jerome Powell or calls for him to resign, the economy seems to contradict his rhetoric and prove Powell right in continuing to leave interest rates unchanged as they have been for the entire year so far.

Powell has remained firm, putting the majority of the blame on Trump for creating the uncertainty that prevails in the markets with his on-again, off-again threats to invoke tariffs on finished goods and raw materials imported into the U.S.

Trump will be wary of being too “hands-on” in the departure of Powell from the Fed whenever that happens, since, while Powell remains in the job, Trump has a potential scapegoat for any lack of growth in the economy.

Should Powell leave the Central Bank, and his replacement be instrumental in lowering interest rates, were inflation to rise to such an extent that rates would need to be raised to combat it, Trump would be forced to take the blame, something he is not very good at.

In any event, even with a more pro-Trump Chairman in place, there is no guarantee that the remaining members of the FOMC would vote for rates to be cut. The regional Fed Presidents have constantly given speeches in which they agree with Powell's “wait and see” policy, while the Fed Governors, who make up the rest of the committee, are seen as being even more hawkish.

Earlier this week, Richmond Fed President reaffirmed that the Fed is broadly in no rush to cut interest rates in the face of potential fallout from the Trump administration's tariffs, although Powell was quoted as saying that the FOMC may be looking at an easing of policy at its August meeting.

The dollar continued its nascent rally yesterday, as it climbed to a high of 97.42, although it slipped back a little to close at 97.12.

It is becoming more likely that the next President of the ECB could be an Irishman. While several of the powerful figures within the Central Bank favour a technocrat like Philip Lane, a former Governor of the Irish Central Bank, an Irish Politician is likely to put up a strong challenge for the post.

Finance Minister Paschal Donohoe declined to rule himself out of contention to replace European Central Bank president Christine Lagarde when her term ends next year, although he indicated such a move was unlikely. This is unlikely to deter his supporters from continuing to try to persuade him to run.

The next ECB President, I believe, will be a central bank governor, someone who has run a Central Bank,” Donohoe has said.

Donohoe is currently standing for a third term as president of the Eurogroup, effectively chairing the finance ministers for the euro member countries.

A vote by ministers is due on Monday, with Mr Donohoe as incumbent and a representative of the European People’s Party seen as the frontrunner.

Spanish economy minister Carlos Cuerpo and Lithuania's finance minister Rimantas Sadzius, who are also in the running, belong to the centre-left Party of European Socialists bloc at the EU level, potentially splitting that vote.

The Eurozone’s private sector expanded more than previously estimated in June as both the manufacturing and services sectors registered higher output, final survey results from S&P Global showed on Thursday.

The HCOB final composite output index advanced to 50.6 in June from 50.2 in May. The initial estimate showed that the score held steady at 50.2 in June.

Although the score signalled only marginal growth, it was the highest in three months.

The survey showed that higher output was recorded for the sixth consecutive month, and employment increased for the fourth month in a row.

Further, the ongoing downturn in new orders showed signs of ending, and the outlook hit its strongest in nearly a year.

On the price front, the survey showed that input price inflation was unchanged from May's six-month low. Manufacturing output prices declined in June, whereas service providers lifted their charges at a rate that remained above the long-run average.

Among Germany, France, Spain and Italy, Spain reported the fastest expansion in June. The composite output index stood at 52.1 in June, up from 51.4 in May.

Italy's economy expanded for the fifth month running, albeit at the softest rate since March. The composite PMI registered 51.1 compared to 52.5 a month ago. The services PMI declined to 52.1 from 53.2 and was also below the forecast of 52.8.

Germany returned to growth with a fifth rise in output in 2025 so far, albeit at a weak pace. The composite output index climbed to 50.4 in June from 48.5 in the prior month. The flash score was 50.4.

At the same time, the services PMI improved more than estimated to 49.7 in June from 47.1 in the previous month. The flash reading was 49.4.

France remains the laggard, with activity declining for the tenth straight month in June. The HCOB composite output index logged 49.2 in June, broadly unchanged from the reading of 49.3 in May and well above the flash score of 48.5. At 49.6, the services PMI was up from 48.9 in May and the initial score of 48.7.

It is interesting to note that the data is viewed by members of the Eurozone through a competitive lens when they should be working together to achieve a higher level of average activity in the entire region.

The Euro has now lost ground for two consecutive sessions, following a continuous rally lasting three weeks.

Yesterday, it fell to a low of 1.1717; its recovery was nowhere near as strong as on the previous day, and it closed at 1.1756.

With the 9th of July, which marks the expiry of President Trump's temporary moratorium on tariffs, happening next week, the markets will be primed for further volatility.

Have a great day!