Bank chief says Trump has ‘blown up’ global trade system

The governor of the Bank of England said that “we can’t just say ‘the US administration is just wrongheaded’”, before adding that there were genuine signs before the tariffs were announced that pointed “to the stress that that system has been under”. However, Bailey urged countries to step away from a global trade war and try to re-establish multilateral trade relationships: “If we basically abandon that system and say we’re never going to get it back, that has very serious implications for the world economy.”

Gilt yields have continued to fall after a £1.25 billion sale of 40-year bonds attracted strong demand.

The UK’s 10-year gilt yield dropped to 4.611 per cent, its lowest level in over three weeks, after the auction which saw investors bid 3.51 times the offer up from 2.80 in a previous auction. Yields on the 30-year gilt are now about eight basis points lower. Bond yields fall as bond prices rise.

The yields on long-dated bonds in the UK, US and Japan have been pushed up sharply in recent weeks — with UK 30-year yields, at 5.36 per cent, among the highest among developed economies — amid growing concern over the long-term financial health of the world’s leading economies.

The FTSE 100 has slipped 0.1 per cent to 8765.46 this morning after a drop in China’s factory activity in May suggested tariffs are starting to hurt the country’s manufacturers. Expectations of falling demand for metals hit miners, with Anglo American, Antofagasta, Rio Tinto and Glencore down by between 1.8 per cent and 2.78 per cent.

MJ Gleeson’s profit warning hit housebuilders:Persimmon, Barratt Redrow, and Taylor Wimpey lost between 1.6 per cent and 1.9 per cent.

The defence stocks BAE Systems and Babcock International rose 2.32 per cent and 2.17 per cent after rising strongly yesterday, after the government pledged to increase defence spending. The British Gas owner Centrica was the biggest riser, up 3.34 per cent.

Andrew Bailey said that removing the ring-fence ‘would most likely have a negative effect on UK lending’

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Andrew Bailey has come out strongly against ending the bank ring-fencing regime that was brought in after the financial crisis.

Some commercial banks have suggested that ring-fencing — whereby ordinary retail banking activity is separated from a bank’s other activities such as investment banking — is no longer necessary and acts as a constraint on growth.

Bailey, in a letter to the treasury select committee disagreed. “Removing the ring-fence would most likely have a negative effect on UK lending, both in terms of cost and quantities, with banks directing funding from retail deposits away from UK households and SMEs [small and medium-sized enterprises] and towards investment banking activities or activities outside the United Kingdom,” Bailey wrote.

Andrew Bailey has said that the path for interest rates “remains downwards” but resisted making a prediction on the outcome of the Bank of England’s next meeting on June 19.

The governor reiterated to MPs on the Treasury select committee his long-standing position that borrowing costs will be eased carefully over the course of the next twelve months. However, he stressed that the timing and pace of rate reductions had been complicated by President Trump’s erratic tariff policy-making and the economic uncertainty they have engineered.

“How far and how quickly [the Bank of England lowers rates] is now shrouded in a lot more uncertainty, frankly”, Bailey said.

He added that he would not “make any prediction on the outcome of the June meeting” after inflation jumped to 3.5 per cent in April — the highest rate since January 2024 — from 2.6 per cent in the previous month.

The Bank of England governor Andrew Bailey

CARLOS JASSO/AP

Further moderation in wage growth will be “crucial” in allowing the Bank of England to deliver additional interest rate cuts in the coming months, Andrew Bailey told MPs today.

The governor of the Bank of England said that he was of the view “that we will see pay coming down this year… and at the moment I think that path is intact”. However, Bailey added that greater restraint over pay awards was “going to be a crucial judgement going forward, which is why ‘gradual and careful’ remain my guiding line”.

Bailey, alongside four other members of the monetary policy committee [MPC], voted to cut rates by 0.25 percentage points to 4.25 per cent last month.

He delivered the remarks at a treasury select committee session in which he was joined by the fellow MPC members Sarah Breeden (who voted for a quarter point reduction) and Swati Dhingra (who backed a larger half point cut). The external MPC member Catherine Mann is also giving evidence — she wanted to leave rates unchanged in May.

Eurozone inflation was 1.9 per cent in May, below the European Central Bank’s 2 per cent target and increasing the already strong likelihood of further interest rate cuts when the bank announces its latest decision on rates on Thursday.

Consumer price inflation in the 20 countries that share the euro slowed from 2.2 per cent in April and came in below expectations for 2 per cent, after a fall in energy prices along with a sharp decline in services inflation.

Underlying inflation, excluding volatile fuel and food prices, slowed to 2.3 per cent from 2.7 per cent driven by a slowdown in services price growth to 3.2 per cent from 4 per cent, according to Eurostat, the EU’s statistics agency.

The ECB has cut interest rates seven times since last June.

Alistair Carmichael, the chairman of the Commons’ environment committee, said the water company was in a “perilous position”

HOUSE OF COMMONS

On KKR’s decision to walk away from a takeover of Thames Water, Alistair Carmichael MP, the chairman of the Commons’ environment committee, said: “In our evidence session with Thames Water bosses in May we raised serious concerns that Thames had only pursued one bidder at an early stage for its takeover bid, against the wishes of Ofwat, and highlighted the risks this could pose if KKR chose not to proceed. Unfortunately, our concerns have been realised, putting Thames in a perilous position.”

He continued: “The government has shied away from acknowledging the potential impact of this scenario on the public finances and must ensure that any takeover is in the public interest and does not line the pockets of financial institutions further to the detriment of customers and operational performance”.

A consortium of Scandinavian companies has tabled a €1.3 billion proposal for Dalata, Ireland’s biggest hotel group.

Eiendomsspar, a Norway-based property company and Dalata’s second-largest shareholder with an 8.8 per cent stake, and Sweden’s Pandox, a hotel developer, have made a non-binding offer of €6.05 per share for the group, which represents a 27.1 per cent premium to Dalata’s share price before it launched a strategic review in March.

Dalata operates 55 hotels under the Maldron Hotel and Clayton Hotel brands, mostly in Ireland and the UK, and aims to open new hotels in Europe including in Berlin and Madrid.

The consortium said it believed the offer “would deliver tangible and certain value” for shareholders, adding that they were in talks with a European hotel operator to conclude a framework agreement for the operation of Dalata’s hotels, should a deal go through. Dalata’s shares were up 51p, or 10.9 per cent, to 520p in morning trading in London.

The Lucky Strike maker has raised its group annual sales growth target

Keep exploring EU Venture Capital:  Access Denied

CHRIS RATCLIFFE/BLOOMBERG/GETTY

The maker of Lucky Strike and Dunhill cigarettes said that it would return to revenue and profit growth in the United States this year and raised its group annual sales growth target.

British American Tobacco forecast full-year sales growth of 1 per cent to 2 per cent, up from earlier guidance of 1 per cent, after a better-than-expected first half of the year.

The FTSE 100, London-based company said its combustibles tobacco business had strengthened and its nicotine pouch brand Velo Plus had performed excellently.

“While combustibles industry volume remains under pressure … we have stabilised our total industry volume and value share,” Tadeu Marroco, the chief executive, said.

Shares in BAT traded off 0.36 per cent, or 12p, at £33.33.

The stock market value of MJ Gleeson fell by a fifth in early trading after the housebuilder warned that profits in its current financial year would be at least 15 per cent lower than it had hoped.

It said that profit margins had been dented by a combination of increased build costs, flat selling prices, the ongoing use of incentives and a number of bulk sale transactions. The expectation had been that Gleeson would turn a pre-tax profit of £28 million in its current financial year, which ends in a few weeks’ time, but consensus has now come down to about £22.5 million. Analysts had expected Gleeson to turn a pre-tax profit of £32 million next year but now forecast £26 million.

Gleeson shares are down 106p, or 20.5 per cent, to 410p this morning.

Trump’s “big beautiful budget” bill could give him power to impose “revenge” taxes

EDUARDO MUNOZ/REUTERS

President Trump loves tariffs and he loves his “big beautiful budget” bill, too. Our economics editor Mehreen Khan looks at section 899 of that bill, which would give the White House the power to impose “revenge” taxes on foreigners if their countries are deemed to have discriminatory tax regimes against US firms. Possible targets are the digital services taxes in the UK and across Europe and the global minimum corporate tax rate on multinationals agreed by the UK and European Union and others — both of which the US has criticised previously.

Read Mehreen’s piece here.

Andrew Bailey, the governor of the Bank of England, will give evidence before the House of Commons Treasury Select Committee about last month’s interest rate decision and monetary policy report at 10.15. He will appear alongside Sarah Breedon, a deputy governor of the Bank, and external members Swati Dhingra and Katherine Mann.

The MPC voted to cut rates by a quarter-point to 4.25 per cent in a 5-4 vote. Bailey and Breedon back the cut, while Dhingra and Alan Taylor wanted a larger 0.50 percentage point rate cut due to global trade disruption and lower energy prices. Catherine Mann and Huw Pill, the Bank’s chief economist, wanted to leave borrowing costs unchanged, citing resilience in the labour market and higher household inflation expectations.

Miners in London have dropped after news that China’s factory activity has hit a three-year low

GLENN ARCOS/AFP

The FTSE 100 is down 11 points, or 0.13 per cent, this morning, to 8,762.79 while the FTSE 250 is also down, by 23.36 points, or 0.11 per cent, to 21,005.19.

Following news that China’s factory activity hit a three-year low in May, miners in London felt the pain and dropped to the bottom of the table with Rio Tinto, Glencore, Endeavour Mining and Antofagasta all down.

At the top of the table, Centrica is leading the market as the biggest riser, followed by AstraZeneca. MJ Gleeson, the housebuilder, is down 22 per cent to 403.8p after it warned annual operating profit will be up to 20 per cent below expectations in the face of higher costs and flat selling prices.

Rachel Reeves has responded to the OECD’s comments that she risks breaching her fiscal rules, stating that economic growth is her key mission.

The chancellor said: “Delivering economic growth and improving living standards is my number one mission. That’s why we’ve secured landmark trade deals with the EU, US and India helping to cut costs for businesses, protect jobs and attract investment, we’re getting Britain building with our landmark planning reforms, and investing in public transport to repair our creaking infrastructure.

“The UK was the fastest-growing economy in the G7 for the first three months of this year and interest rates have been cut four times, but we know there’s more to do. I am determined to go further and faster to put more money in people’s pockets through our Plan for Change.”

• Read more: Reeves warned of risk to fiscal rules amid growth downgrade

Rachel Reeves, the chancellor, had previously been warned by the International Monetary Fund

BEN WHITLEY/PA

Rachel Reeves is at risk of breaching her fiscal rules if the UK economy is hit by a growth shock, the Organisation for Economic Cooperation and Development [OECD] has warned.

The Paris-based group became the second major forecaster in a fortnight to warn the chancellor that her “thin” fiscal buffers mean she could breach her deficit reduction target after similar comments from the International Monetary Fund last week.

The OECD also downgraded the UK’s growth outlook for this year and next amid rising trade uncertainty, high interest rates, and failing household and business confidence. The group forecast that the UK economy would expand by 1.3 per cent this year, down from an earlier estimate of 1.4 per cent and slow to 1 per cent next year, lower than an earlier projection of 1.2 per cent.

Robert Lea, the Times industrial editor who has closely followed the Thames Water saga, comments: “The ramifications will be massive. There had been sharp criticism of Thames decision to grant KKR sole preferred bidder status, rather than run a competition; and sharp criticism too of whether an American private equity firm with little experience of running a major and complex UK water company and whose sole goal is to make a large financial return, was the correct candidate.

“It immediately raises the spectre that debt-laden Thames could now fall into the temporary renationalisation of having special administrators appointed.

The only alternatives seem to be to submit to a debt-for-equity takeover by its senior creditors or to start talks with CK Infrastructure, the owner of Northumbrian Water, whose previous Thames bid was rebuffed.”

The private equity group KKR has pulled out of talks to rescue troubled Thames Water.

In a brief statement, Thames Water said that KKR “would not proceed with its equity injection plans, and that the US private equity firm’s preferred partner status has now lapsed”.

Sir Adrian Montague, chairman of Thames Water, said: “Whilst today’s news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.”

Asian shares have edged higher overnight while the dollar fell to a six-week low, as erratic US trade policies spooked investors and hung over markets. The FTSE 100 is expected to open ten points higher when trading begins

Good morning and welcome to our live business coverage.

The Organisation for Economic Cooperation and Development (OECD) will give its latest forecast on Britain’s growth prospects at 8am. In March, the OECD, which represents 38 advanced economies, downgraded UK GDP growth this year and next due to escalating tariff wars.

It forecasts growth would be 0.3 percentage points lower than forecast this year at 1.4 per cent in 2025 and 0.1 percentage points lower next year at 1.2 per cent. Inflation forecasts were unchanged at 2.7 per cent this year and 2.3 per cent in 2026. Trade tensions have eased since then, but have started to ratchet up the end of last week.

Andrew Bailey, the governor of the Bank of England, will give evidence before the House of Commons Treasury Select Committee about last month’s interest rate decision and monetary policy report at 10.15.

• Commercial landlords have been warned they may have to repay “massive” sums received from insurance commissions after a High Court judge told the owner of London’s Trocadero Centre to return payments to a tenant.
• The pay of Stuart Machin, Marks & Spencer’s boss, climbed to £7.1 million thanks to an improved performance at the retailer before a cyberattack that is expected to hit profits by £300 million.
• The government’s plan to build up to 12 attack submarines and invest £15 billion in its nuclear warheads programme has boosted shares in UK defence companies.
• House prices rose more than expected in May and are now back to within a whisker of the record reached three years ago, with April’s ­decline looking increasingly like a blip.
• The world’s largest private equity firms could hold the key to London’s efforts to jump-start its flagging IPO market, City sources believe.