Cooling UK labour market questions need for Bank of England rate hikes; grocery inflation slows to two-year low – business live

Government borrowing costs in several advanced economies continued to rise to levels not seen in decades on Tuesday, as hopes of an end to the US-Iran war faded.

Concerns about the inflation outlook worsened after the ceasefire between Washington DC and Tehran ended on Monday night without an agreement, with no progress on the reopening of the strait of Hormuz.

Donald Trump's threat to bomb Oman if they “get in the way†of negotiations helped to push oil higher on Tuesday, to above $91 a barrel, and investors fear higher energy prices will push inflation up, leading to higher interest rates. Brent is currently trading 0.6% higher at $91.47 a barrel.

Fiscal pressures are also rising as governments ramp up defence spending, which is expected to drive borrowing higher in leading European countries such as Germany and the UK.

US government bond yields rose for a third session, â as fears over the US-Iran â conflict and ​inflation converged with a global bond selloff.

The US 30-year Treasury yield rose to 5.3%, its highest level since 2007, while the benchmark 10-year yield, which has been climbing since the start of the Iran conflict, touched its highest â point since early 2025 at 4.74% and is pushing towards 4.75%.

US industrial production cooled by a tenth ​of a percentage point to 0.2%, undershooting economists' expectations in part due to a decline in production of consumer goods.

Will Compernolle, macro strategist at FHN Financial in Chicago, told Reuters that US yields are partly ​drifting higher in light ‌summer trading volumes because this week is light on economic data and there are no public remarks from US central bank policymakers, leaving Middle East ‌tensions to set the direction. The collapse of the memorandum of understanding reached by Washington and Tehran in June showed that the energy shock is likely to persist, he added.

I think that's weighing on bonds because we're living in this world where we're going to have supply shock after supply shock.

He added that government bonds are also competing with ‌capital attracted to the soaring capital expenditures for artificial intelligence.

Wage growth in the UK slowed in June and vacancies hit a five-year low as workers came under pressure from a renewed cost of living squeeze amid the economic impact from the Iran war.

Figures from the Office for National Statistics show average growth in total earnings, including bonuses, fell to 4.1% in the three months to June, down from 4.4% in the three months to May.

The pay slowdown could deter the Bank of England from raising interest rates this year, some economists suggested.

Liz McKeown, the ONS director of economic statistics, said the data showed “some softening†in the jobs market despite a broadly unchanged picture overall, in a potential sign of stabilisation after a sharper slowdown earlier this year.

Regular wage growth has remained broadly stable in recent months. However, private sector pay growth has continued to ease, while public sector pay growth remains elevated due to the timing of the latest NHS pay awards.

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Thank you for reading. We'll be back tomorrow. Bye! – JK

“We're pleased to welcome Stonegate Pub Partners as a sponsor for the Great British Pub Awards 2026†read a post on the event's Facebook page. Within minutes it had backfired.

“Must be 1st April again,†said one commenter. “This is like Pontius Pilate being appointed child welfare ambassador,†said another. Other comments about the UK's largest pub company were significantly less polite.

Days earlier, Stonegate had been named as the subject of an investigation by the industry regulator, the Pubs Code Adjudicator (PCA) over alleged mistreatment of the tenants who run more than 3,000 of its venues.

Melissa Phillips's father, known locally as “Philâ€, was one of them. After taking over a more or less derelict venue in Basingstoke, Hampshire, he renamed it Laarsen's, an anagram of his beloved Arsenal FC, and turned it into a highly successful football pub that the company cited to trainee publicans as a success story.

Great Britain risks running out of gas in the 2030s despite its growing clean energy sources, unless ministers take “unprecedented†action to guard against a future gas supply shock, according to an official assessment of the country's gas security.

The government is considering plans to provide direct financial support to safeguard the country's ageing gas infrastructure after a consultation found that a “high stress scenario†could mean homes and businesses run out of gas within the next decade.

A range of measures to support Britain's gas sector is now being considered after most respondents said the industry was not likely to prepare for “low probability, high-impact eventsâ€, in which gas supplies could run dry as North Sea reserves continue to deplete.

Three-quarters of respondents agreed with a warning issued last year by the National Energy System Operator that an “emerging risk to gas supply security†could mean that by 2030 homes and businesses would be left without gas during a prolonged period of cold weather.

Michael Shanks, the energy minister, said:

Any form of government intervention or investment in the gas market would be unprecedented and cannot be a decision we take lightly.

These could include offering financial support to the owners of gas storage facilities and gas pipeline operators, to make it economic to upgrade and maintain them in the decades ahead.

Shanks said the UK would continue to cut the UK's reliance on fossil fuels by growing its clean energy source.

However, we recognise that this transition will not happen overnight; the gas system will still play an important role in our energy system for decades to come.

Ikea is taking on eBay, Facebook Marketplace and Vinted with its own secondhand selling site in the UK.

The new platform, which will enable shoppers signed up to the Swedish company's membership scheme to connect directly to one another to buy and sell pre-owned Ikea items locally, is due to launch in the next few months.

The move by the world's biggest furniture retailer follows its trials of online secondhand marketplaces in Spain and Norway, and comes five years after it began buying and selling used Ikea items in some of its UK stores.

A spokesperson said:

Our goal is to make passing on beloved Ikea pieces as seamless as possible. We're creating a trusted and vibrant space to make it quick and easy for our Ikea Family [loyalty scheme] members to trade directly with one another.

Further details of the UK online site will be announced in the coming months, the company said. On the Spanish version selling is made easier with pre-filled product descriptions and price suggestions provided by Ikea. The retailer also offers sellers 15% extra on the price of the item sold if they agree to be paid in the form of an Ikea gift card.

Buyers in Spain – where a Poäng armchair is being sold for €56, about half the price of a new version – will have to pay a 5% “protection fee†from January next year to fund various costs related to the sale, in a similar system to that operated by Vinted.

Britons are increasingly embracing secondhand buying, pushing up sales at Vinted, which began as a clothes resale site but is now expanding into homewares and electronics, as well as at Facebook Marketplace, Gumtree and smaller, more upmarket sites such as Vinterior.

The US secondhand site eBay recently bought the UK fashion seller Depop for $1.2bn. Preloved items now make up about a 10th of global fashion sales.

The second US data release showed a small 0.2% rise in both manufacturing output and overall industrial production in July.

Bradley Saunders, North America economist, has looked at it in detail:

The small rise in manufacturing output in July told much of the same story of late, with production of high-tech products amid the AI buildout sustaining modest growth in an industrial sector being knocked about by whipsawing oil prices. With the S&P Global New Orders PMI close to a four-year high last month, the sector should return to more solid footing once oil prices eventually fall back.

The 0.2% monthly rise in industrial production in July was softer than we had expected, although it was accompanied by an upward revision to June's gain to 0.3%, from 0.1%. The miss last month was down to much softer gains in mining (+0.2%) and utilities output (+0.5%) than implied by timelier data on oil and electricity production.

More encouragingly, the 0.2% monthly rise in manufacturing output was closer to what had been expected and would have been even stronger, at 0.4%, were it not for the 2.1% fall in motor vehicle production.

With auto sales steady in recent months, the latter likely reflects timings around typical July auto plant shutdowns, rather than a sudden downward shift in output. Beyond this, the key driving force was once again the AI buildout, with output in the selected high-technology industries (computers, communications equipment and semiconductors) rising by 1.9% m/m.

Non-durable manufacturing fared worse, down 0.4% m/m, partly due to a 0.2% m/m decline in output in the petroleum-intensive chemicals sector, which may reflect the rebound in oil prices last month. That said, most of the drag came from food, beverage, and tobacco product manufacturing.

Wall Street has opened lower.

The S&P 500 fell 0.5% and the Nasdaq lost 0.8%, while the Dow Jones was little changed.

We've had two US data releases.

First, housing starts slumped last month, both for single- and multi-family homes, suggesting developers are wary of new projects amid rising mortgage rates.

Total housing starts fell more than 12% month on month in July, to an annualised 1.24m, from 1.42m. Multi-family starts plunged 16%, to 0.42m annualised, but the weakness was also matched by single-family starts, which fell almost 10% to 0.81m annualised.

Thomas Ryan, senior North America economist, said:

This likely reflects a pullback by builders, who are already sitting on large amounts of unsold ‘spec inventory', in response to mortgage rates rising from around 6.6% at the start of the month to more than 6.8% by the end. The decline in starts was reasonably broad based by geography, so we aren't attributing any of the blame to wildfire activity last month.

But stronger permit issuance across both segments means homebuilding could quickly pick up again if mortgage rates fall back, he added.

In slightly better news, single-family permits, which typically lead starts by about a month, rebounded by 3% month on month, while multi-family permit issuance also picked up. This may not translate into stronger starts immediately. 30-year fixed mortgage rates have barely moved from 6.8%, while NAHB homebuilder confidence remained historically weak at 35 in August, with weakness clearest in the prospective buyer traffic sub-index.

Even so, the fact that builders are still applying for permits lends some support our view that, if mortgage rates edge down slightly before year-end, single-family starts will regain some momentum. We expect them to trend towards 0.9m annualised in the latter stages of the year.

Corn and soybeans traded on the Chicago exchange have gone up in price for a third session, as crop data and weather reports triggered worries over this year's harvest in America's Midwest.

Higher oil costs and Chinese demand for American soybeans have also pushed up prices.

The most active corn contract on the Chicago Board of Trade (CBOT) rose 0.6% to $4.92 1/4 a bushel, after hitting $4.93, its highest since April last year.

CBOT soybeans climbed 0.9% to $12.27 a bushel, after touching $12.27 1/4 a bushel.

South Dakota's corn yield prospects and soybean pod counts are below last year's and the three-year average, according to findings by scouts on their annual tour of top US producing states.

The US Department of Agriculture cut its corn and soybean yield forecasts last week, following heavy rain in the Midwest.

Wheat rose 0.2% to $690 3/4 a bushel, holding on to recent gains linked to war disruptions to Black Sea supplies, with Russia's war on Ukraine in its fourth year.

Over on Wall Street, shares in Klarna are set to fall by a fifth when trading begins after the buy now, pay later company cut its revenue guidance.

Klarna cut its expectations for how much revenue it will generate this year, blaming trends in German retail.

It now expects to bring in revenues of between $4.08bn and $4.16bn of revenue this year, down from about $4.3bn.

Klarna has trimmed its forecast for Gross Merchandise Value – the value of the goods and services bought using Klarna – to between $149.0bn and $151.0bn this year, down from a previous forecast of $155.0bn.

Shares in Klarna are down 21% in pre-market trading.

Klarna also reported a rise in GMV, revenue and operating income in the second quarter of the year.

Sebastian Siemiatkowski, CEO & co-founder of Klarna, said:

“Over 120 million consumers now use Klarna, and each is using it for more of their everyday spend — revenue per active consumer grew 24%. That deepening engagement is why transaction margin dollars grew 42%, well ahead of revenue and volume. We measure our progress in transaction margin dollars.â€

US stock futures are down, pointing to a lower open on Wall Street later.

The FTSE 100 index in London edged 13 points, or 0.1%, higher to 10,733. The German, French and Italian markets have lost between 0.25% and 0.5%, while the Spanish market is 0.3% higher. In Asia, Japan's Nikkei slumped 2.5%.

Brent crude is trading above $90 a barrel, at $90.91, after touching $91.85 a barrel, after the ceasefire between the US and Iran expired on Monday, with Donald Trump ruling out an extension.

The rise in energy prices has sparked increases in government borrowing costs to multi-decade highs, as investors worry about higher inflation on the back of rising energy prices, as well as higher government borrowing, partly driven by soaring defence spending in Europe.

The yield on the 30-year US Treasury bond rose above 5.3%, the highest level since 2007, while the benchmark 10-year yield is pushing towards 4.75%, near its highest level since January 2025.

The UK's 10-year gilt yield is up 3 basis points at 5.08%.

Daniela Hathorn, senior market analyst at the trading platform capital.com, said:

Markets are showing a more cautious tone today as the calm that characterised the start of the week begins to crack. US equity futures are pointing lower, with the Nasdaq underperforming, as investors contend with a combination of rising long-term bond yields, renewed geopolitical uncertainty and some fresh nervousness around AI-related stocks. The S&P 500 remains close to record highs, but the backdrop is becoming less forgiving.

The bond market is arguably the bigger story. The US 10-year yield has pushed towards 4.75%, while the 30-year has climbed above 5.3%, its highest since 2007. This is happening despite softer recent economic data reducing expectations for an imminent Fed hike. Instead, the long end is responding to persistent inflation risks, heavy government borrowing and growing competition for capital—including debt issuance associated with the AI investment boom. That creates an uncomfortable environment for equities because financial conditions can tighten even without the Fed raising rates.

Geopolitics is adding to that pressure. Brent is back around $90 after the US-Iran negotiating window expired without a comprehensive agreement, while a vessel was struck attempting to transit the Strait of Hormuz today. Continued disruption in the Red Sea adds another layer of uncertainty. Markets are not treating this as an immediate systemic shock, but the longer oil remains elevated, the harder it becomes to dismiss the inflationary consequences.

The US-Israeli war on Iran, which began with airstrikes on Tehran on 28 February, has also had an impact on the UK housing market.

Half of homes in Great Britain are taking longer to sell than last year as volatile conditions in the mortgage market amid the Iran war prompt buyers to “wait and see†if they can get a better deal, according to a report.

As the Middle East conflict continues to unfold, the property platform Zoopla said homes in 180 out of 363 local authorities in England, Scotland and Wales were taking longer to sell compared with a year ago.

It said that although the national average time to sell a home had not changed – at 42 days – a widening regional gap had emerged as buyers in property hotspots raced to complete deals, while uncertainty over mortgage costs fuelled a more cautious approach elsewhere.

The report found the UK's 10 fastest-selling markets were all in Scotland, with the lowest average time to sell at just 11 days in Falkirk. Carlisle and Barnsley in England were the fastest non-Scottish markets at 23 days each.

It said eight local authorities had an average time to sell of two months or more, led by Melton in the East Midlands, at 76 days, Westminster in London, and Teignbridge in the south-west.

Property buyers shopping for a mortgage deal have faced months of heightened volatility as the stop-start Iran war rattles financial markets – with a knock-on impact for the pricing of home loans.

The war in the Middle East led many lenders to pull deals in March, while the cost of a typical home loan soared amid fears that the conflict would reignite global inflationary pressures and force the Bank of England to raise interest rates.

The latest figures from the financial data provider Moneyfacts show the rate on an average two-year fixed residential mortgage stood at 5.61% on Monday – significantly higher than the rate of 4.83% before the outbreak of the conflict at the end of February.

The rate peaked at close to 6% in April. However, uncertainty remains as the Iran war continues to unfold, in a challenge for Threadneedle Street's rate-setters.

Despite the easing in grocery price increases in recent weeks to a two-year low reported by a survey, overall inflation in the UK is expected to have risen to close to 3% in July.

British households are facing a renewed cost of living squeeze, with official figures expected to show ton Wednesday that soaring energy bills drove up inflation in July.

As the Iran war continues to send shock waves through global energy markets, economists predict the surge in UK gas and electricity bills last month will push Britain's headline inflation rate to 2.9%.

In a fresh squeeze on household budgets, the figures from the Office for National Statistics (ONS) due on Wednesday are forecast to show a jump from a rate of 2.6% in June.

The Bank of England is considering raising interest rates from as early as September in response to fears over stubbornly high inflation becoming entrenched in the economy, although the latest jobs market data show it is stabilising or cooling, suggesting a rate hike may not be needed.

Reports also emerged that the water regulator Ofwat was considering plans to impose “surge pricing†on water usage during droughts. It could see customers charged more for water use during summer and less in winter, or else charged higher prices when they pass a threshold of water use, according to the Daily Telegraph.

The latest snapshot will highlight the challenge facing Andy Burnham's government to ease the financial pressure on households and businesses before a difficult autumn budget.

Sentiment in the eurozone, driven by Germany, has improved again this month, suggesting the summer heatwaves and low water levels in key shipping routes along the Rhine and Danube won't derail wider economic growth, analysts say.

Economic expectations rose further in August, as the main indicator from the ZEW institute (Zentrum für Europäische Wirtschaftsforschung in Mannheim) rose eight points from July to 31.4 points. The assessment of the economic situation improved even more, by 16.2 points but, at -21.5 points, remained in negative territory.

In Germany, the bloc's biggest economy, sentiment climbed 7.9 points to 34.2 points, while the current conditions measure jumped 16.5 points to -61.1, the sharpest improvement in over a year.

Although current conditions remain deeply negative, expectations are a bright spot, having risen steadily since April's low. At the sectoral level, gains were strongest in automobiles, chemicals, and mechanical engineering, a sign respondents see the domestic recovery gaining traction even as current conditions stay weak, according to analysts at Oxford Economics.

ZEW president Professor Achim Wambach said:

The positive trend in expectations further consolidates in August, likely due to the good quarterly results and the recent high level in exports. The German economy continues to benefit from the federal government's infrastructure programmes although the record low water levels on the Rhine River present an additional acute risk affecting economic activity.

All industries report brighter expectations in Germany, especially the car industry where prospects improved by 22.2 points, although the balance is still in negative territory. The chemical and pharmaceutical industries, along with the mechanical engineering and metal industries, also recorded strong growth.

Expectations for private consumption continue to increase, by 9.0 points to minus 6.2 points. The construction industry improved by 1.4 points to 2.1 points.

Analysts at Oxford Economics said:

We are wary of reading too much into this optimism among financial market experts, as it may partly reflect recently strong equity performance. But it does support our view that the summer heat waves and low water levels on inland shipping routes won't derail the wider economy.

We still expect economic momentum to slow in Q3 after the eurozone economy displayed remarkable resilience in Q2. The unwinding of temporary supports and rising energy prices pose a headwind for industry and will weigh on consumers' purchasing power, which poses a risk to the consumption outlook.

Energy prices have risen again, boosting input costs and squeezing households' purchasing power, while Q2's order frontrunning ahead of tighter supply chains is set to unwind. We expect these headwinds to slow growth in Q3, before Germany's fiscal stimulus lifts momentum later in the year.

As Dan Coatsworth, head of markets at AJ Bell, explained, there are several factors at play behind the rise in long-term government borrowing costs, as manifested by the rise in bond yields in several major countries, including the US, UK, Japan, Germany and France.

Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears. They can also reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds.

Neil Wilson, investor strategist at Saxo UK, said:

We are seeing bond yields across developed markets strike multi-year highs as fixed income investors grow nervous about a range of factors, from inflation and the Iran conflict to deeper structural concerns and fiscal worries. Issuance is clearly a factor – both on the government side (they can't stop spending!) and on the corporate side (AI capex).

In financial markets, government borrowing costs are continuing to rise, to levels not seen in decades, as the US-Iran war worsens again with the ceasefire now ended, and hopes for a permanent deal fading.

Also, governments are ramping up defence spending, which is expected to drive borrowing higher in major European countries such as Germany and the UK.

There is no progress on the reopening of the strait of Hormuz, a key shipping passage through which a fifth of global oil and gas supplies pass in normal times.

A senior Iranian official told Reuters on Monday that Tehran will shift to a “fully offensive†military posture because talks for a peace deal have stalled. And Donald Trump threatened to bomb Oman if they “get in the way†of negotiations, and ruled out extending the temporary ceasefire with Iran that expired on Monday.

Brent crude is up 0.2% at just over $91 a barrel this morning, and investors fear higher energy prices will push inflation higher.

The yield, or interest rate, on the 30-year US Treasury bond rose to 5.324% on Tuesday, the highest since June 2007.

The yield on the 10-year Treasury bond rose to 4.736% while the equivalent Japanese government bond yield climbed 2.5 basis points to 2.945%, the highest in three decades.

The yield on the UK's 10-year gilt (as UK government bonds are known) rose 2.6bps to 5.076%. Germany's 10-year Bund yield rose to the highest level since 2011 while France's equivalent bond yield hit a 16-year peak.

Gordon Kerr, European macro strategist at KBRA, told Reuters:

Markets are increasingly focused on the prospect of higher government spending across Europe. combined with inflation concerns, that is contributing to upward pressure on long-dated bond yields.

In Asian stock markets, Japan's Nikkei slumped 2.5% while European indices are trading slightly lower.

The UK's FTSE 100 index dipped 0.15% and the pan-European Stoxx 600 index lost 0.5%, on track for a fifth day of losses.