UK
With the Autumn Budget due in October, Reeves faces increasing pressure as key data released in July 2025 was negative.
Indeed, the Office for Budget Responsibility (OBR) said public finances are in a “relatively vulnerable position” with risks posed by tariffs, defence costs, and an ageing population. Based on current tax and spending policy, the organisation said public debt was on track to hit 270% of GDP by the 2070s. The projection would see public debt almost triple compared to the current level.
The concerns around public debt were further highlighted when UK borrowing increased to £20.7 billion in June 2025 due to interest payments rising. Worryingly, the figure was £3.5 billion more than the OBR’s forecast and could prompt the chancellor to raise taxes or cut spending.
In addition, data from the Office for National Statistics shows the UK economy shrank in May for the second month running. The 0.1% contraction was driven by a slump in industrial output.
The rate of inflation also unexpectedly increased to 3.6% in the 12 months to June 2025. It’s the third consecutive monthly increase and was the highest rate recorded since February 2024.
While the Bank of England’s Monetary Policy Committee didn’t meet to discuss interest rates in July, member Alan Taylor signalled a cut was likely in August, which is largely anticipated by the bond market.. He said the “deteriorating” UK economy warranted a deeper interest rate cut than financial markets currently predict.
A Purchasing Managers’ Index (PMI) measures economic activity, and a reading above 50 indicates growth. In June, S&P Global’s PMI data for the UK found that the:
Manufacturing sector continued to contract with a reading of 47.7, but hit a five-month high
Construction sector was also contracting, but reached a six-month high with a reading of 48.8
Service sector posted its strongest growth in 10 months with a reading of 52.8, and improvements in order books indicate further growth in the months ahead.
So, while there are setbacks for many UK businesses, the figures suggest there’s movement in the right direction.
Europe
The eurozone hit the European Central Bank’s (ECB) 2% inflation target in the 12 months to June 2025.
Over the last 12 months, the ECB has cut its base interest rate by a quarter percentage point eight times, taking the policy rate from 4% to 2%. Despite speculation that there would be a further cut when inflation hit its target, the central bank opted to leave the rate as it was.
S&P Global’s PMI suggests the manufacturing sector across the eurozone continues to contract. However, the data indicates it may have turned a corner as the reading in June 2025 was the highest in 34 months and only just below the 50 mark at 49.5.
As the bloc’s largest economy, Germany’s exports are essential and ongoing challenges could dampen growth this year, though the new US-EU trade deal may ease some of the pressure.
A Destatis report found that German exports fell by 1.4% in May when compared to a month earlier. Exports to the US played a significant role as they were down 7.7% month-on-month and 13.8% lower than the same period in 2024.
Germany’s central bank, the Bundesbank, said the country’s exporters were losing competitiveness and called for urgent reforms to improve the business climate, including reducing barriers for skilled migrants and enhancing tax breaks for private investment.
US
Official data from the Bureau of Statistics shows that inflation increased in the 12 months to June 2025 to 2.7%. The figure is above the Federal Reserve’s 2% target.
Tariffs and uncertainty continued to leave a mark on the US’s trade deficit.
In May, the trade deficit widened by 18.7% when compared to a month earlier, according to official data. The deficit now stands at $71.5 billion (£53.5 billion) as exports dropped by 4%.
The consumer sentiment index from the University of Michigan suggests people are feeling more optimistic. The reading in July was 61.8, up from 60.7 in the previous month. It was the highest score since the trade wars began five months ago.
American chipmaker Nvidia became the first listed company to reach a valuation of $4 trillion (£3 trillion). The company announced it would build high-powered systems to train its AI software, which led to shares soaring. As of the start of July, the company’s shares have gained 22% in 2025.
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