Updated at\u00a003.21 EDT<\/p>\n
Key events<\/p>\n
UK services sector grows more than expected in August<\/p>\n
Back in the UK, a similar economic survey points to unexpected strength in the services sector, where an output tracker hit its highest point since the start of the Iran war.<\/p>\n
S&P Global\u2019s flash poll<\/a> of purchasing managers showed the sector reaching a six-month high of 52.8 in August, up from 52.1 in July, with companies citing improving domestic trading.<\/p>\n \u201cThe expansion is being helped by sunny weather and tech investment, though as expected we have seen some softening of growth in the manufacturing sector as precautionary stock building cools,\u201d said Chris Williamson, chief business economist at S&P Global.<\/p>\n The services sector, which encompasses shops and pubs as well as accountants and law firms \u2013 among many others – makes up about 80% of the UK economy, meaning it is a closely followed indicator of how things are going.<\/p>\n People drinking outside a pub in Leith, Scotland. Photograph: Iain Masterton\/Alamy<\/p>\n Williamson said:<\/p>\n double quotation markThe expansion is being helped by sunny weather and tech investment, though as expected we have seen some softening of growth in the manufacturing sector as precautionary stock building cools.<\/p>\n This reflects easing concerns, for now, over the economic impact of the war in the Middle East. Businesses are feeling more upbeat than at any time since the war began. Job losses are also moderating.<\/p>\n It\u2019s clear, however, that the Middle East and concerns over domestic government policy continue to have a damaging effect.<\/p>\n Most worryingly, cost pressures remain high, largely due to energy prices and supply disruption linked to the Middle East conflict alongside high staffing costs.\u201d<\/p>\n A reading that covers the whole economy, meanwhile, was slightly lower, at 52.5, though still a four-month high. It was pulled down by the manufacturing sector which cooled to a five-month low of 51.5, down from 51.9 in July.<\/p>\n Energy intensive factory businesses have been hit especially hard by the war in Iran,<\/a> which has driven up oil and gas prices.<\/p>\n Share<\/a><\/p>\n Updated at\u00a004.53 EDT<\/p>\n French business activity contracted more than forecast in August, new data shows, in the first of several flash economic surveys this morning.<\/p>\n A poll of purchasing managers by S&P Global found that heatwaves dealt a blow to the country\u2019s services sector, which is the dominant part of its economy.<\/p>\n The index for August fell to a two-month low of 48.4 points from \u206049.6 in July. Figures below 50 \u200bindicate a contraction \u200cin activity, \u200cwhile above 50 shows growth.<\/p>\n \u201cThe flash PMI report revealed \u200banother month \u200bof frail economic conditions, \u200bwith some firms, mainly in the \u200bservice sector, \u200chighlighting the \u200bextreme heat \u200bas a reason for lower activity and demand,\u201d said Joe Hayes, senior principal economist at S&P Global Market Intelligence.<\/p>\n It is perhaps understandable that heatwaves took their toll, given the country battled with a series of devastating wildfires<\/a> that forced hundreds of thousands of people from their homes in July.<\/p>\n Share<\/a><\/p>\n Updated at\u00a004.25 EDT<\/p>\n Returning briefly to July\u2019s retail sales figures, and there is some disagreement among the experts over whether the World Cup was good or bad for retailers.<\/p>\n Of course there is no doubt that it was a big boost for publicans, who enjoyed the best football-related uplift of recent years, of \u00a3150m<\/a>.<\/p>\n But did that translate to shops too? If you tried visiting a corner shop before an England match then you might assume so \u2013 but Jacqui Baker, head of retail at the consultancy RSM UK, thinks otherwise:<\/p>\n double quotation markRetail was not a World Cup winner, with many opting to cheer on England from the pub and prioritising their summer getaway, boosting hospitality and travel rather than retail sales.\u201d<\/p>\n On the other hand Justin Parr, the chief credit officer at trade finance provider Treyd, said:<\/p>\n double quotation markFor half the month England were in the knockout stages of the World Cup. In a football-mad nation, that always helps to support sales, particularly for retailers of food and drink and clothing.\u201d<\/p>\n And even the ONS itself, in its data release<\/a> this morning, said food stores enjoyed rising sales volumes, which retailers \u201cattributed to both the weather and the World Cup\u201d.<\/p>\n England fans in South London watching the World Cup earlier this summer. Photograph: Jill Mead\/The GuardianShare<\/a><\/p>\n Updated at\u00a004.02 EDT<\/p>\n Experts are urging caution on public spending after this morning\u2019s public finances data, which was worse than expected.<\/p>\n Elliott Christensen, a senior economist at the Resolution Foundation think tank, said:<\/p>\n double quotation markStronger growth in the first half of the year contributed to strong tax receipts in July. But it has failed to deliver a wider public finances windfall as the economic impact of conflict in the Middle East has taken its toll on borrowing costs.<\/p>\n The Chancellor\u2019s margin against his fiscal rules is now razor thin, with the healthy headroom of around \u00a324 billion last spring likely to have fallen below \u00a38bn. He should use his first Budget to put the public finances on a firmer footing and ensure that any new policy announcements are fully funded.<\/p>\n July data showed total public debt was \u00a32.98tn, or 94% of GDP \u2013 up \u00a396bn on a year earlier.<\/p>\n The graph below shows what that looks like in the context of the last two years.<\/p>\n UK public sector net borrowing from July 2024 to July 2026 (\u00a3bn) Photograph: ONS<\/p>\n Meanwhile, Henning Diederichs, the director for public sector at the Institute of Chartered Accountants in England and Wales (ICAEW), said the latest figures will make it \u201cchallenging for the Chancellor to both increase public spending significantly and stay within the government\u2019s existing fiscal rules\u201d.<\/p>\n Share<\/a><\/p>\n Updated at\u00a003.36 EDT<\/p>\n The FTSE<\/a> 100 has opened slightly up, helped by strength in mining stocks and banks.<\/p>\n The blue-chip index was up 0.1% at 10,760 points in early trading, with miners Fresnillo, Antofagasta, Endeavour, Anglo American and Glencore all among the top risers.<\/p>\n Meanwhile, the pound was also slightly up against the US dollar, rising 0.12% at $1.364.<\/p>\n Share<\/a>UK reports unexpected deficit of \u00a31.8bn as John Healey prepares for first budget Elsewhere, official data shows that the UK government ran a larger than expected \u00a31.8bn deficit in July.<\/p>\n The figures underline the challenges facing the chancellor, John Healey<\/a>, as he draws up his first budget.<\/p>\n City economists had expected a shortfall of zero for July, a month when Treasury receipts tend to be swollen by self-assessment income tax payments.<\/p>\n However, the Office for National Statistics<\/a> said despite strong tax receipts, public sector borrowing last month was \u00a31.8bn.<\/p>\n In the first four months of this financial year, the cumulative deficit was \u00a356.7bn \u2013 lower than last year but still running \u00a32.3bn ahead of the Office for Budget Responsibility<\/a> forecast.<\/p>\n Total public debt was \u00a32.98tn, or 94% of GDP \u2013 up \u00a396bn on a year earlier \u2013 in line with Labour\u2019s plan to borrow for investment in infrastructure projects.<\/p>\n Healey said:<\/p>\n double quotation markFiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties.<\/p>\n We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures and focusing support to get young people into work.<\/p>\n Share<\/a><\/p>\n Updated at\u00a002.58 EDT<\/p>\n Despite the monthly fall, the ONS said, sales volumes still rose for the three months to July (the darker of the two lines), boosted by stronger showings earlier in the summer.<\/p>\n Sales volumes fell back over the month but rose over the three months to July 2026 Photograph: Office for National StatisticsShare<\/a><\/p>\n Updated at\u00a003.37 EDT<\/p>\n The retail sales data suggests that previous resilience among British consumers in the face of war and rising energy prices may be dropping off slightly, experts said.<\/p>\n Even with the World Cup boosting the early part of the month, some have suggested that the hot weather may have (understandably) deterred shoppers from venturing outside, despite earlier reports to the contrary<\/a>\u2026<\/p>\n Sandra Prince, head of consumer at Lloyds, said:<\/p>\n double quotation markAfter an extended spell of warm weather across large parts of the UK, many households will already have bought what they need for the season, while lines of popular summer products come to an end.<\/p>\n The boost from the World Cup that came to an end in the first half of July also meant fewer opportunities to capitalise on the warmer conditions.<\/p>\n Even so, the picture is unlikely to be uniform. Hotter days could have shifted footfall and spending online or towards retail parks.<\/p>\n For retailers, as the summer peak slows down, attention is now turning to the opportunities the autumn could bring to keep consumers engaged.<\/p>\n Andrew Hunter, senior economist at Moody\u2019s Analytics, added:<\/p>\n double quotation markThe 0.5% fall in U.K. retail sales in July suggests the resilience of consumer spending over the first half of the year is fading. The weakness may partly reflect a temporary drag from the exceptionally hot weather, which the ONS notes reduced footfall in many stores.<\/p>\n But alongside the continued boost from the World Cup, warm temperatures are also reported to have helped sales in other retailers, notably supermarkets.<\/p>\n The July fall follows a run of strong monthly gains and the sharp rise in consumer confidence suggests renewed strength could lie in store, with the GfK index surging again in August to its highest level in two years.<\/p>\n That said, the full impact of the jump in energy prices is only now feeding through to households and, with the labour market still struggling and rising inflation eroding real incomes, we expect retail sales growth to slow over the second half of 2026.<\/p>\n![\"Heather](\"https:\/\/www.newsbeep.com\/ie\/wp-content\/uploads\/2026\/08\/Heather_Stewart,_L.png\")
Heather StewartJohn Healey in Downing Street Photograph: Phil Lewis\/SOPA Images\/Shutterstock<\/p>\n