Weekly Briefing

Andy Burnham's first week in Downing Street ends with a tax cut, better borrowing figures and a bond market that remains distinctly unimpressed.

The new Government's first economic move was to scrap VAT on domestic electricity, cutting the rate from 5% to zero from October. It should knock around £44 off the annualised Ofgem price cap — set against the 13% increase in that same cap on 1 July, a partial refund rather than a windfall.

The problem is how it is being paid for. The measure will cost £850m this financial year and is funded only until the end of March. Ministers say the money will come from cancelling the £1.8bn digital-ID programme. Yet the Government's own announcement makes clear that those savings have not actually been identified. They are still to be found by reprioritising existing departmental budgets.

Tuesday's public-finance figures were kinder. Borrowing in April and May was revised down, leaving the deficit for the financial year so far at £57.6bn. That is still £2.7bn above the OBR forecast, but considerably better than the roughly £8bn overshoot implied by the previous estimates.

Even so, public debt remains close to £3 trillion, equivalent to 94.9% of GDP, at levels last seen in the early 1960s.

The gilt market appears to agree. Thirty-year gilt yields remain close to the 28-year high of 5.822% set on 15 May. The 10-year closed the week at 5.03%, having started it at 4.97% — still short of the 5.15% it reached on that same day in May.

Elsewhere, the economic news was a little brighter. Friday's flash purchasing managers' survey put the services sector back above the 50 mark separating growth from contraction. The services reading rose to 51.8, from 48.8 in June, while the composite index reached 52.1, its first expansionary reading in three months.

Retail sales volumes rose 1% in June and 0.6% over the second quarter, helped by sales promotions and the second-warmest June on record. The heat sent shoppers looking for fans, air-conditioning units, outdoor gear and sportswear. A welcome lift, but not quite evidence of a consumer boom. With Wetherspoons issuing a fourth profit warning in seven months you know things are bad out there.

Oil supplied more bad news. Brent settled above $100 a barrel on Thursday after Houthi attacks on two tankers carrying Saudi oil intensified fears over Red Sea export routes. Brent closed Friday at $96.78 a barrel, still sharply higher over the week and another complication for inflation and interest rates.

All eyes now turn to the Bank of England, with its latest interest-rate decision announced on Thursday. Expect Bank Rate to be held at 3.75%.

The public sector borrowed £57.6bn in April–June 2026 — £3.7bn less than a year ago, but £2.7bn above the OBR profile.

Borrowing fell in each of the first three months of the financial year: £23.0bn in April, £18.6bn in May, £16.0bn in June — the April and May figures both revised down from earlier estimates, which is most of why the year-to-date total, £57.6bn, looks better than it did a month ago. June's outturn came in £0.3bn below the OBR's forecast for the month, the first undershoot of the year.

The sequence is encouraging, though three monthly observations do not establish a trend. It does not change the starting point: the public sector has still spent £57.6bn more than it received in three months, £2.7bn ahead of what the OBR expected, and the new government has just committed a £850m revenue cost to a tax cut on electricity bills, funded, on the Government's own account, by savings still to be identified. Lenders who buy the gilts covering the gap are charging among the most for the privilege in almost three decades.

June's inflation figures gave the Bank a mixed picture: the headline rate fell, but a key measure of domestic price pressure barely moved.

A better-than-expected 2.6% CPI print (2.7% expected) — but likely short-lived, with June's data collected before July's 13% Ofgem cap rise and the new spike in oil prices. See our full analysis here.

Oil touched a fresh high this week.

Brent crude settled above $100 a barrel on Thursday for the first time since May, after Houthi attacks on two tankers carrying Saudi oil intensified fears of disruption to Saudi Red Sea export routes. It fell 3.9% to $96.78 on Friday, but still gained 9.9% over the week.

Yields climbed for a fifth straight week. The pound and share prices held up better.

The 10-year gilt yield stood at 5.03% in late Friday trading, a fifth straight weekly rise; the 30-year reached 5.72%. Both remain just short of the peaks they set on 15 May — 5.15% and 5.822%, the latter a 28-year high for the long bond. Britain now borrows for ten years at 1.05 percentage points more than France and 1.83 points more than Germany.

Healey's Treasury pledges fiscal discipline. Parliament won't get to test it until September.

Andy Burnham named his top team this week. John Healey took the Treasury; Angela Rayner returned to Government as Housing Secretary; Wes Streeting was brought back to Cabinet as Defence Secretary. Starmer supporters Rachel Reeves, David Lammy, Peter Kyle and Darren Jones all left. Miliband moves to the Foreign Office; Mahmood and Pat McFadden were reappointed to their existing posts at the Home Office and Work and Pensions respectively, and Jonathan Reynolds returns to an enlarged business department.

Healey used his first speech to Treasury staff to call fiscal discipline his “first duty” and commit to meeting the fiscal rules with a buffer against shocks.

Parliament will not scrutinise any of this in ordinary sittings before September: the Commons rose for recess on 16 July and does not sit again until 1 September, though a recall remains constitutionally possible.

A brief run above $100 oil is a Westminster problem.

Brent's spike past $100 has its roots entirely outside the UK, but the transmission into Britain's own inflation and growth numbers is direct. Houthi forces attacked two tankers carrying Saudi oil this week, intensifying fears of disruption to Red Sea export routes that exist specifically to bypass the Strait of Hormuz. Roughly a fifth of the world's oil passes through that strait; existing pipelines and alternative export routes could replace only a fraction of the displaced volumes. Three major central banks decide on rates within three days of each other this coming week — the Federal Reserve on Wednesday, the Bank of England on Thursday, and the Bank of Japan on Friday — each taking its own view of how lasting this latest oil shock will prove.