Key events
Europe’s economy is showing “fading industrial resilience and stark divergence across the eurozone”, said Carsten Brzeski, global head of macro at ING, an investment bank.
He wrote in a note to clients:
Industrial production plunged by 1.3% month-on-month in June, from +1.1% in May. On the year, eurozone industrial production was only marginally up. With today’s data, the strong surge in the first quarter due to the US front-loading of eurozone goods ahead of higher tariffs has basically been reversed entirely.
While tariffs and the stronger euro will continue to weigh on the manufacturing sector, the gradual cyclical turning of the inventory cycle as well as the structural shift towards defence should support growth ahead.
Eurozone industrial production slumps
Eurozone GDP’s second reading came in as expected at 0.1% quarter-on-quarter for the second quarter – weak, but not a surprise. However, there were some worrying signs from industrial production data.
Industrial production fell by 1.3% in the eurozone in the year to June, according to figures published by Eurostat. That was an acceleration in the rate of decline from May, and worse than the 1% drop expected by economists polled by Reuters.
Companies raced to produce goods and ship them to the US in the first quarter of 2025 – providing a short-lived boost to economic output – but that looks to have unwound during the second quarter, as the tariffs were actually implemented. European factory output has since fallen back.
Carmakers in particular were badly hit, with a 15% rate agreed last month, after an initial rate of 27.5% on car exports to the US.
However, Matt Swannell, chief economic advisor to the EY ITEM Club, a forecaster, said that “the underlying picture for the UK is one of continued sluggish growth”.
He said:
This largely reflects the strength of domestic headwinds, including a significant tightening in fiscal policy and the lagged impact of past interest rate rises. US tariff announcements will also drag on the near-term growth outlook.
The second-quarter UK GDP figures count as a “major beat”, according to Andrew Wishart, senior UK economist at Berenberg, an investment bank. That is economist-speak for data that will prompt a rethink of the narrative around the economy – and he added there may be good news on productivity as well.
Wishart wrote in a note to clients:
It now looks like the UK economy weathered US tariffs and domestic tax hikes remarkably well in the second quarter.
With the economy benefitting from fiscal support and showing little sign of interest rates slowing it down, the strong data support our view that the Bank of England will wait until next year before cutting bank rate again.
The trade data did not show a marked slump back in the second quarter, even after a rush in the first quarter to get ahead of Donald Trump’s tariffs.
And there was even some positive news from the hotel and restaurant sectors, where output rose by 2.4% quarter-on-quarter despite bloodcurdling warnings on the impact from increases on national insurance and the minimum wage. That made growth in the hotel and restaurant sector positive for the first time in several years, Wishart said. He added:
Improving growth at the same time as the sector cuts staff numbers implies that operators have been able to make significant improvements in productivity. While the hotel and restaurant sector is an extreme example, an economy-wide decline in employment alongside reasonable GDP growth suggests that productivity growth is improving. At the margin, that will give the government’s official forecaster, the Office of Budget Responsibility, some confidence that it is right to assume a recovery in productivity growth after a dismal three years. If so, the government will not need to raise taxes by anywhere near as much this autumn as the most pessimistic analysts claim in the press.
Let’s get some more economists’ thoughts on the UK’s GDP numbers – surprisingly strong in June.
One of the key upshots of the data may be to allow the Bank of England to wait longer before deciding whether to cut interest rates again, according to Bruna Skarica, an economist at investment bank Morgan Stanley. She wrote in a note to clients:
The optics of a “resilient” economy allow for BoE patience as headline inflation bobs around between 3.5% and 4% in the coming months. That said, we think softer underlying details and the likely softening of the growth momentum from here keep a November cut in play.
Interest rates are too high for a sustained and broad-based growth uptick. If the government ensures that the autumn budget does not repeat the 2024 slew of inflation-boosting policies, and measured inflation falls through 2026, we think the [Bank’s rate-setting monetary policy committee] will acknowledge the need to cut rates amid the ongoing build-up of slack. If that is not the case, we will see more of the same stagflationary dynamics, we think.
Rachel Reeves’s message is that there is “more to do” on the UK economy ahead of the budget in the autumn – although the chancellor has focused on improving productivity rather than addressing questions on whether taxes will increase.
The Guardian’s senior economics correspondent, Richard Partington, explains:
Setting out her priorities for the budget for the first time, the chancellor said tackling the efficiency of the economy through higher investment and a fresh assault on planning rules would form the backbone of her tax and spending plans.
However, Reeves pushed back against what she called “speculation” over tax increases being explored by the Treasury to close a yawning gap in the public finances that is estimated to reach more than £40bn.
Reeves wrote:
Because Britain’s productivity problem is not an abstract, technocratic one – it directly affects every working family in Britain who feel they are squeezing every penny to make ends meet. When businesses can’t grow, wages stagnate and there is less money in the pockets of working people. When infrastructure is inadequate, costs rise, and opportunities are lost.
When skills do not match economic needs, potential goes unfulfilled. With lower productivity, tax revenues go down and our public services face cuts. And with the world changing, Britain has been left too exposed to global shocks.
You can read it in her own words here:
Rachel Reeves says tax decisions must wait until budget amid inheritance tax questions
UK chancellor Rachel Reeves has said that tax decisions will have to wait for the autumn budget after she was asked about the Guardian’s report that officials are considering inheritance tax changes as a way of raising money.
The Guardian’s City editor, Anna Isaac, reported: “A lifetime cap could be introduced to limit the amount of money or value of assets an individual can donate as part of their IHT planning and the Treasury is also reviewing rules around the taper rate, people familiar with the matter said.”
Asked about the possibility of inheritance tax increases on Thursday, Reeves did not rule it out. PA Media reported that she said:
Any decision around taxation is a … decision for the budget, and I’ll make those announcements.
We haven’t even set the date yet for the budget, but the key focus of the budget is going to be to build on numbers that we’ve seen today to boost productivity and growth and prosperity all across the country.
“That is my number one priority as chancellor, to get our economy firing off all cylinders so that working people in all parts of the country will feel the benefits of that economic growth.
Pushed on whether taxes will have to increase in the autumn, Ms Reeves added:
We’ll wait for the official forecast from the Office of Budget Responsibility, and we’ll make those decisions in the round.
Aviva share price rises after strong first-half operating profits
Aviva’s share price has jumped after it reported strong earnings for the first half of 2025 and said its integration of Direct Line was going well.
The FTSE 100 insurance group’s operating profit rose 22% year-on-year to £1.1bn during the first half of 2025, it reported on Thursday.
Amanda Blanc, Aviva’s chief executive, said:
Aviva’s performance in the first half of 2025 was outstanding, growing operating profit by 22% and extending our track record of delivery. Another set of high-quality results, combined with excellent strategic progress, are further evidence of how we are pushing Aviva forward. This excellent performance allows us to achieve even more for our customers and our shareholders, and today we are increasing the interim dividend to 13.1 pence per share.
Blanc added that “integration is well underway” for Direct Line, which it agreed to buy in December for £3.7bn.
Aviva’s share price rose by 3.6% on Thursday, hitting a new high point since way back in December 2007, when the global financial crisis was starting to shake markets (and Aviva was still named Norwich Union, a 200-year-old name given by the founding wine merchant and banker, after he could not find anyone willing to insure him against the threat posed by highwaymen).
National Grid sells Grain gas import terminal for £1.7bn to Centrica and Bridgepoint
National Grid has agreed a £1.7bn deal to sell its Grain LNG business to British Gas owner Centrica and US private equity group Bridgepoint.
Grain LNG owns and operates the UK’s largest LNG import terminal, at the Isle of Grain in Essex, under long-term take or pay contracts. National Grid has been looking for the last year to get rid of businesses that are not its main focus on electricity networks.
Grain has been one of the key parts of the UK’s energy system ever since the UK opted to increase its consumption of gas for power generation. It previously took in large quantities of gas from Russia before the full-scale invasion of Ukraine, although that focus has shifted to the Qatar, Australia and particularly to the US thanks to its shale gas boom making it a major energy exporter.
John Pettigrew, chief executive of National Grid, said:
Today’s announcement of the sale of Grain LNG marks another successful step in delivering National Grid’s previously communicated strategy to streamline our business and focus on networks, and follows the completion of the sale of our NG Renewables business in May 2025.
Centrica’s share price rose 1.3% on Thursday. It said it had injected £200m in equity, with the bulk of the purchase funded by debt.
Chris O’Shea, group chief executive of Centrica, said:
The Isle of Grain terminal is a strategic asset that will support the UK’s energy security for many decades to come, keeping energy flowing reliably and affordably to households and businesses across the country as we transition to net zero. That’s why we are so pleased to be investing, continuing Centrica’s pivot towards long-term, predictable infrastructure cash flows, underpinning our medium-term guidance and creating valuable future options.
O’Shea also threw the UK government a bone, saying: “Our decision to commit £3bn of capital in both Sizewell C and the Isle of Grain demonstrates the attractiveness of the UK as an investment location underpinned by supportive government investment policies.”
Stronger-than-expected GDP figures have not helped the FTSE 100 very much this morning: London’s main stock market index dropped 0.3% in the first few minutes of trading on Thursday.
That is bucking the trend across most of Europe’s big companies. Here are the opening snaps for European indices, via Reuters:
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EUROPE’S STOXX 600 UP 0.09%
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GERMANY’S DAX UP 0.08%
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FRANCE’S CAC 40 UP 0.19%
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SPAIN’S IBEX UP 0.33%
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EURO STOXX INDEX UP 0.18%; EURO ZONE BLUE CHIPS UP 0.22%
The positive surprise from stronger-than-expected UK GDP should not give the government too much comfort, according to the National Institute of Economic and Social Research (Niesr), a respected economic thinktank.
Donald Trump’s trade wars are still a major source of uncertainty – not least as the crucial US relationship with China is still undecided – while the tariffs he has definitely imposed will likely be a drag on global growth. In the UK, meanwhile, households and businesses are expecting tax increases at the upcoming budget in the autumn.
Fergus Jimenez-England, an associate economist at Niesr, said:
GDP growth was slightly higher than forecast, recording 0.4% in June owing to stronger-than-expected growth in services and construction. The economy therefore grew by 0.3% in the second quarter.
Despite this positive surprise, we expect growth to remain subdued in the third quarter of this year as uncertainty over fiscal policy and international trade continues to weigh on economic activity.
As outlined in our recent UK economic outlook, the chancellor must build a substantial fiscal buffer in the autumn budget to avoid uncertainty plaguing growth into next year.
Rachel Reeves: stronger-than-expected GDP is ‘positive’ but ‘more to do’
Rachel Reeves, the chancellor, has welcomed the stronger-than-expected GDP growth figures.
However, it is not a resounding celebration, perhaps given all of the uncertainty in the global economy.
She said:
Today’s economic figures are positive with a strong start to the year and continued growth in the second quarter. But there is more to do to deliver an economy that works for working people.
I know that the British economy has the key ingredients for success but has felt stuck for too long.
That is why we’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay. There’s more to do and today’s figures only fuel my ambition to deliver on our plan for change.
UK GDP grew by 0.3% in second quarter thanks to surprise June acceleration
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
The UK economy grew by 0.4% month-on-month in June according to new data that helped the second quarter to end with better-than-expected output.
British output rose by 0.3% in the second quarter of 2025, the Office for National Statistics said. That was higher than the 0.1% expected by economists polled by Reuters.
The faster-than-expected growth was down to better performance from the services and construction sectors, which grew at 0.4% and 1.2% respectively in the quarter – although production output (which includes manufacturing) fell.
Real GDP per head is estimated to have grown by 0.2% in the latest quarter and is up 0.7% compared with the same quarter a year ago.
Nevertheless, it was still a slowdown compared to the first quarter, when the UK economy grew by 0.7%. Economists expected slower growth because of Donald Trump’s trade war, which caused chaos in the second quarter after his “liberation day” announcement on 2 April.
It is also unclear whether the help from the construction sector can be sustained, given more recent purchasing managers’ index data for July showing a steep drop in UK housebuilding.
We’ll have all the reaction to the GDP figures this morning.
The agenda
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10am BST: Eurozone GDP growth rate second estimate (second quarter; previous: 0.6% quarter-on-quarter; consensus: 0.1%)
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10am BST: Eurozone industrial production (June; previous: 1.7% month-on-month; consensus: -1%)
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1pm BST: US producer price inflation (July; previous: 0%; consensus: 0.2%)
