Pound weakens after GDP report
The pound has weakened since today’s GDP report showed the UK economy failed to grow in July.
Sterling is down 0.2% at $1.355 against the US dollar this morning.
The pound against the US dollar over the last 24 hours (timings in GMT) Photograph: LSEG
Kathleen Brooks, research director at XTB, points out there is “not much to like” from the July monthly GDP update, with zero growth in the economy at the start of the third quarter.
If the third quarter is not going to be a disaster for the UK economy, then growth in August and September will need to do the heavy lifting.
The pound is extending losses on this news and is eroding some of Thursday’s gains. For now, GBP/USD is hanging on to $1.3550, however, if bond yields start to rise on the back of this data, then we could see pound weakness later on Friday. The pound is the third worst performer in the G10 FX space so far today.
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Updated at 08.25 BST
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Ocado shares slide after US partner warns on robotic warehouses
Shares in Ocado have now slumped even deeper into the red – down a hefty 17% today.
As flagged earlier, Ocado’s shares are under pressure after key customer Kroger, the US grocery giant, said it would undertake a site-by-site analysis of its automated fulfilment network. That has raised fears of weaker demand for its robotic warehouses.
Russ Mould, investment director at AJ Bell, comments:
Kroger also said it was using stores ‘very heavily’ to fulfil e-commerce orders and implied that was its key focus from now on.
“These comments imply that Ocado might find it harder to sell more automated solutions to Kroger, and that existing agreements might come under review. It’s the worst kind of news imaginable for Ocado investors as they’ve bought into a company which has positioned itself as the technology solution to grocery providers’ needs. While Ocado has continued to win new contracts, the pace has been erratic. The prospect of existing relationships starting to deteriorate adds another level of risk. Then there is the big question of when Ocado will ever make a sustainable profit.”
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There’s a quiet start to trading on Wall Street, a day after stocks hit record levels.
The Dow Jones industrial average has dipped by 126 points, or 0.27%, to 45,982 points.
The broader S&P 500 share index is down just 3 points at 6,583 points, while the tech-focused Nasdaq has nudged up to an intraday record high.
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The oil price has jumped today, as Russia faces more sanctions over the Ukraine war.
This morning, the UK government implemented 100 new sanctions designed to hit Russia’s revenues and military supplies, including against its so-called shadow fleet carrying oil and electronics companies.
US President Donald Trump has also threatened Moscow with new economic sanctions, saying that his patience with Russian President Vladimir Putin was “running out fast”.
Trump told Fox News:
“It’ll be hitting very hard on – with sanctions to banks and having to do with oil and tariffs also.”
Brent crude is up almost 2% today, at $67.65 per barrel.
A Ukranian drone attack on Russia’s northwestern port of Primorsk, which led to a suspension of oil loading operations overnight, is another factor.
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Updated at 14.41 BST
The UK economy could get a boost next week, during Donald Trump’s state visit.
According to Bloomberg, the leaders of OpenAI and Nvidia plan to pledge support for billions of dollars in UK data centre investments when they head to the country next week, as part of Trump’s trip.
Sam Altman, the boss of ChatGPT maker OpenAI, and chipmaker Nvidia’s chief executive Jensen Huang are reportedly working with London-based data centre business Nscale Global Holdings on the project. More here.
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The pound is sliding further against the US dollar.
It’s now lost almost half a cent, to $1.3525, as the dollar picks up against rival currencies.
Raffi Boyadjian, lead market analyst at XM, says this week’s political ructions could be weighing on sterling:
The pound is slightly underperforming today following a slump in UK industrial output in July.
Overall GDP growth was flat, but traders are more likely distracted by UK Prime Minister Keir Starmer’s repeated unsuccessful attempts at resetting his government, following two high-profile resignations recently.
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NIESR predicts 0.4% growth in Q3
In better news for Rachel Reeves, the National Institute of Economic and Social Research have predicted the economy will grow in the current quarter.
Following this morning’s news that GDP was unchanged in July, NIESR estimate that UK GDP will rise by 0.4% in the July-September quarter. That would be slightly faster growth than the 0.3% recorded in the second quarter of this year.
NIESR says:
We expect GDP to grow by 0.4 per cent in the third quarter, as we forecast better monthly growth outturns for August and September. However, elevated uncertainty among businesses and households continue to pose downside risks to this forecast.
Fergus Jimenez-England, associate economist at NIESR, warns that economic activity in the third quarter will be constrained by fiscal uncertainty weighing on household and business sentiments, adding:
“Growth at this pace will do little to ease the fiscal challenges confronting the Chancellor this Autumn.”
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Ocado shares fall 12% on Kroger worries
Back in the financial markets, shares in Ocado have slumped by 12% on fears that one of its key customers could be pulling back from automation.
Online grocery firm Ocado is the top faller on the FTSE 250 index of medium-sized companies, after US supermarket chain Kroger said it plans to conduct a site-by-site analysis of its automated fulfilment network.
This suggests Ocado might struggle to sell more automated solutions to Kroger, who has been an important customer in the past.
Neil Wilson, UK investor strategist at Saxo Markets, explains:
Last night on its earnings call, the US retailer, which is Ocado’s biggest partner for its warehouse automation technology, said it would take a “hard look” at some of its automated facilities and carry out a “full site-by-site analysis” of its existing network.
The comments are clearly a negative for Ocado as Kroger seems likely to move away from the kind of large CFCs provided by the British company and instead seems to be looking to lean on local stores to fill orders.
Back in 2018, Ocado’s shares soared after it announced a deal to provide its technology to Kroger – a breakthrough in its push to licence its services to grocers around the world.
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TUC blasts Barclays chief over call to limit public sector pay rises
The TUC have hit out at the chief executive of Barclays for saying the UK government needs to limit pay rises for public sector workers
Barclays boss CS Venkatakrishnan told the Financial Times that the government needed to look at its own spending levels, including restricting rising “public sector” wages.
He argued:
“We need to curb expenditure at the government level.
We need to find a way to curb wage inflation.”
TUC General Secretary Paul Nowak has said in responcse that “the prize for the most tone-deaf comment of the year goes to C. S. Venkatakrishnan”, adding:
“This banking boss has some brass neck. It’s frankly insulting for him to call on nurses, teachers and paramedics to tighten their belts when he’s just pocketed a bumper pay rise.
“He seems to have conveniently forgotten we’re in the middle of a recruitment and retention crisis in our public services. That’s bad for the country and it’s bad for businesses.
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Updated at 12.27 BST
Russia’s central bank disappoints with 100bp rate cut
Over in Moscow, Russia’s central bank has cut interest rates by a whole percentage point, disappointing those who expected an even larger reduction.
The Bank of Russia has decided to cut its key lending rate by 100 basis points to 17.00%, down from 18%.
Economists surveyed by Bloomberg had expected a cut of 200 basis points.
Announcing the decision, the Bank points out that inflation is still running above its 4% target:
Underlying measures of current price growth have not changed significantly and generally remain above 4% in annualised terms.
The economy continues to return to a balanced growth path. Lending growth has accelerated in recent months. Inflation expectations remain high.
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Goldman Sachs: Reeves ‘very likely’ to extend tax threshold freezes to 2030
Mel Stride is probably right when he says that tax rises in the autumn budget are all but certain.
Goldman Sachs has predicted that the government’s headroom against its deficit rule will decline by around £20bn, requiring either tax increases or spending cuts for the government to stick within its fiscal rules.
As a result, Goldman economist James Moberly says it is “very likely” that Rachel Reeves’s extends the existing tax threshold freezes for a further two years, up until 2030.
That would raise around £10bn, according to the IFS, as more workers would be dragged into higher income tax rates as their wages rise.
Moberly adds:
The government also has scope to raise significant additional sums from changes in pensions and property taxation, while the Chancellor could raise smaller sums from changes in gambling taxes or measures aimed at reducing tax avoidance.
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UK public’s long-term inflation expectations rise to highest since 2019
UK households’ inflation expectations have jumped, in a blow to the Bank of England in its battle to keep price pressures under control.
The central bank’s lates Inflation Attitudes Survey shows that households expect prices to rise 3.6% over the next 12 months. That’s up from 3.2% in May and the highest since August 2023.
In the longer term, the British public’s expectations for inflation in five years’ time rose to their highest since 2019 at 3.8% in August, up from 3.6% in May. That’s the highest reading since 2019.
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Analysis: Stagnant July GDP shows scale of Reeves’s challenge
Today’s UK GDP figures highlight the scale of the challenge for Reeves at her autumn budget, my colleague Richard Partington writes.
Some of the weakness can be explained away. Most economists had anticipated a slowdown after Britain recorded the strongest growth in the G7 in the first half of the year.
Manufacturers and exporters had rushed to beat the introduction of Donald Trump’s tariffs early in 2025. However, with US stockpiles now filled, and global uncertainty weighing on industry, new orders have slumped – reflected by a 1.1% plunge in manufacturing output in July.
Tax changes this spring had also pulled forward activity in the property market and influenced car sales, leading to more monthly volatility in the GDP numbers.
More here:
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Shadow chancellor Mel Stride has said this morning:
“While the Government lurch from one scandal to another, borrowing costs recently hit a 27-year high – a damning vote of no confidence in Labour that makes painful tax rises all but certain.”
However…the rise in long-dated UK bond yields was also part of a global bond market move (arguably a vote of no confidence in many governments’ ability to achieve long-term fiscal sustainability).
And happily, those 30-year borrowing costs have fallen in the last week. After hitting a 27-year high of 5.75%, they’re now back down at 5.44%.
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UK trade deficit widens
Britain’s trade gap with the rest of the world has widened, with exports to the US still weaker than before Donald Trump launched his trade war.
The latest trade data shows that the UK’s total goods and services trade deficit widened by £400m to £10.3bn in the three months to July 2025, because total imports rose by more than exports.
In July, goods imports rose by £2.7 billion, with a rise in imports from both EU and non-EU countries. Exports only increased by £1.9bn.
The Office for National Statistics also reports that exports of goods to the United States, including precious metals, rose by £800m in July 2025 to £4.7bn, but remain below their pre-tariff levels.
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Business secretary Peter Kyle has said doing business with China is “desirable” and “unignorable” before he headed home to the UK after a two day trip to drum up business for exporters and Chinese investors.
After meeting the commerce minister Wang Wentao, Kyle said:
“China, because of its emerging economic status, isn’t just unignorable, it is also desirable to engage with”.
The UK said highlights of the trip including a meeting with Sandy Xu, the chief executive of JD.com, China’s largest retailer by revenue, “to discuss possible investment opportunities into the UK as well as opportunities for UK exporters into China”.
Ahead of the trip, Kyle said he hopes to bring back £1bn in business over the next five years for exporters.
Experts say this will do little to grow Britain’s economy, saying the trip was largely about reviving a trade relationship centring on a meeting between Kyle and Wentau who hosted the first UK-China Joint Economic and Trade Commission (Jetco) in seven years.
Kyle told Jetco:
“We meet as the global trading system faces significant strain; slower growth, supply chain disruptions, and geopolitical tensions. As major economies, we share a responsibility to strengthen a rules-based trading system that is predictable, fair, transparent, and fit for purpose.”
He added:
“We must also be candid where there are challenges. Businesses thrive on predictability and fairness, with transparent regulation and improved market access.”
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A geeky aside: the Office for National Statistics has changed the way it presents UK GDP, to lead with changes across three-month periods, rather than the monthly change.
That could nudge the focus away from the volatile monthly data.
Kallum Pickering, chief economist at UK investment bank Peel Hunt, points out that monthly GDP data are “prone to heavy revision and should be taken with a pinch of salt”.
Ignore the headlines about stalling UK GDP. Note that if we just had the quarterly series, the result would be that Q1 was a beat at 0.7% QoQ (vs. 0.6% expected) and Q2 was a beat at 0.3% (vs. 0.1% QoQ). And no -ve revisions. The monthly series does more harm than good #ukgdp https://t.co/xLfo4FZ9YD
— Kallum Pickering (@KallumPickering) September 12, 2025
UK GDP QUICKTAKE
UK real GDP flatlined MoM in July following an outsized 0.4% MoM gain in June. The June print was in line with consensus expectations.
Looking at the data on a 3M/3M basis to abstract from the usual volatility that comes with the monthly GDP series, the UK… pic.twitter.com/QnNov0hSII
— Kallum Pickering (@KallumPickering) September 12, 2025
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FTSE 100 heading towards record high
Share price are rising in London this morning, as the City shakes off the disappointing news that the UK economy stagnated in July.
The FTSE 100 index of blue-chip share has risen by 25 points, or 0.27%, to 9322 points in early trading. That lifts it close to the record high (9357 points) set in August.
Mining companies are among the top risers, with Fresnillo up 4% and Antofagasta gaining 2.4%.
The Footsie’s small rise comes amid a wider rally in global stock markets; America’s Dow Jones Industrial Average hit a record high on Thursday, and Japan’s Nikkei has ended at a record closing high today.
Investors are increasingly confident that the US central bank will cut interest rates several times in the coming months, to ward off a slowdown in America’s jobs market. Data yesterday showed a jump in applications for jobless benefits, suggesting a rise in layoffs.
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Manufacturing output fell 1.1% in last quarter
Britain’s manufacturing sector contracted by over 1% in the last quarter, today’s GDP report shows.
The ONS reports that manufacturing output fell by 1.1% in the three months to July, which was a major cause of the 1.3% drop in wider production output.
There were also falls in electricity, gas, steam, and air conditioning supply (down 5.1%), and mining and quarrying (down 1.8%) in the three-month period.
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ShareA chart showing UK GDP Photograph: ONSShare