Graeme Wearden 

Liz Truss warns there is ‘a reckoning coming’ for central banks, and backs Trump in battle with Fed – business live

Rolling coverage of the latest economic and financial news, as former PM criticises Bank of England and claims UK faces ‘economic doom loop’
  
  

Liz Truss, former UK prime minister.
Liz Truss, former UK prime minister. Photograph: Bloomberg/Getty Images

The financial markets aren’t convinced that the Bank of England will be able to cut interest rate again this year.

After five quarter-point cuts since last summer, the Bank may struggle to agree a sixth until 2026.

Shane O’Neill, head of interest rates at Validus Risk Management, explains:

  • Knife-edge cut to 4.0% [earlier this month]: The MPC trimmed Bank Rate from 4.25% by a razor-thin 5–4 vote after an initial 4–4–1 split and re-vote. Markets price roughly 50/50 odds of another cut this year and ~1.5 cuts by mid-2026.
    • Growth flattered by the state: GDP rose 1.2% y/y vs 1.1% expected, but gains were driven by government spending; private consumption was flat and investment slipped after Q1 front-loading.
    • Cracks in jobs: Since the last Budget, the economy has shed 165k jobs; unemployment is 4.7%—the highest since 2016 outside Covid. The latest print showed a smaller-than-feared 8k decline vs 20k expected.

As this clip shows, Liz Truss fears the UK is further down the “negative spiral” created by slow growth and the shortfall between tax revenues and spending:

Liz Truss also told Bloomberg that she is even more convinced that the UK is at risk of a 1970s-style economic crisis than a year ago, when she warned of the risk of a bailout.

Today, though, the bond market is calm.

UK government borrowing costs are unchanged today, with the yield (or interest rate) on 30-year British debt pretty-much flat at 5.594%.

Earlier this week it hit 5.63%, close to the 27-year high (5.663%) reached in April.

Professor: Truss commments are troubling

Professor Costas Milas, of the Management School at the University of Liverpool, is very troubled by Liz truss’s comments about central banks and the conduct of monetary policy.

Prof Milas tells us:

Clearly, Trump wants to take full control of US monetary policy and is not shy of saying so. Is it the case of Liz Truss advocating a similar scenario for the UK?

More worryingly, Liz Truss needs to explain how to go about that. In the US, Trump is forcing Fed Governor Lisa Cook out of the Fed with a series of unproved (so far) accusations, at the same time while giving a “signal” that he will follow similar tactics with the remaining Fed Governors.

Is former PM Liz Truss advocating a similar strategy to be pursued by Sir Keir Starmer, or something else in order to bring monetary policy back in the hands of the UK government?

Zero farmers would vote Labour again after inheritance tax row, poll finds

Keir Starmer enjoyed a boost from the rural community during the 2024 general election after he and environment secretary Steve Reed went on tour of the farming conferences and other countryside events to assure those in attendance that they understood their struggles.

But now, that support has evaporated, according to farmers polled by the Country Land and Business Association (CLA).

This is due to fury over the inheritance tax on agricultural assets brought in at last year’s budget, which is projected to put some farms out of business when they are passed on.

A survey of 490 farmers and landowners by the rural business group puts Reform UK (36%) just behind the Conservatives (38%) in farmer support, with Labour attracting 0%.

“The Treasury says these reforms will barely touch rural Britain,” CLA president Victoria Vyvyan said, adding:

“Our polling shows they will force hard choices on farms that have sustained communities for generations – selling land, laying off workers, shelving future plans.

“Rural Labour MPs can see what’s coming. They know it will drain the life from the countryside and strip away the trust of the people who sent them to Westminster.

“If they support it, their voters won’t forget.”

Supporters of central bank independence argue that it has played an important role in recent decades in subduing inflation, and persuading investors that governments wouldn’t inflate their debts away.

Finland’s central bank chief Olli Rehn (who we heard from earlier) has made this point this morning.

Rehn told a panel discussion on democracy held in Turku, Finland:

“If the central bank’s independence were truly to crumble, and the U.S. Federal Reserve began making decisions on grounds other than sound monetary policy principles — for example, because the president demands lower interest rates — the inevitable consequence would be inflation picking up.”

Updated

Liz Truss’s comments show how Trump’s efforts to roll back the decades-old consensus on the value of independent monetary policy has “an eager audience in some of the world’s largest economies”, point out Bloomberg.

They add:

In the UK, officials for the populist Reform UK, which has led public opinion polls for months, have suggested they might be willing to rein in some of the BOE’s powers. And Reform’s leader, Nigel Farage — a long-time Trump supporter — has privately discussed the possibility of taking back independence from the central bank, Bloomberg reported in June, citing people familiar with the discussions.

How have you been affected by the rise in food prices?

With UK food inflation now hitting 4.2%, we would like to hear from people on how they feel about food inflation and if it’s affected their shopping habits….

Truss: 'a reckoning is coming' for central banks

Former UK prime minister Liz Truss is backing Donald Trump in his fight with the Federal Reserve.

Truss has told Bloomberg’s Odd Lots podcast that it is wrong that unelected central bankers can undermine (as she sees it) elected politicians.

Truss, who was briefly prime minister in September and October 2022, said:

“I think the Bank of England needs to be accountable to politicians. I think the current system doesn’t work. This is why I’m very sympathetic to what Donald Trump is saying about the Fed.”

In the interview, Truss explains that people who owned assets and capital had done very well from the easy money created by the Bank of England (BoE) since the financial crisis, while that loose policy also made it hard for young people to buy homes.

Given the importance of monetary policy of setting the allocation of assets within society, she argues that it’s wrong that people who make those decisions aren’t accountable to the electorate.

She says:

“It’s also very difficult, as I found as prime minister, to combine fiscal and monetary policy if you don’t hold one of the levers. So, I think it’s got to change.

I think there is a reckoning coming for the central banks, not just in Britain but also in the United States, also the ECB.

The current system does not work.

Truss, who lost power after her mini-budget spooked the financial markets, crashing the pound and driving up borrowing costs, also claimed the BoE had “sabotaged” what she tried to do because she had been a critic of central banks, and wanted the Treasury to have a larger role setting the Bank’s mandate.

“They didn’t like their power being challenged.”

Truss has previously blamed the Bank of England for failing to anticipate the market consequences of her budget. Governor Andrew Bailey has rejected that criticism, pointing out that the Bank used its intervention tools to stabilise the bond market and protect pension funds.

In her Bloomberg interview, Truss argues that democratically elected leaders shouldn’t “cowtow”, criticises the “failing economic orthodoxy” and warns that Britain is heading for a “very, very serious crisis.”

Truss, who lost her parliamentary seat in last year’s general election, says the UK now faces an “economic doom loop of higher taxes, lower growth, higher debt, and it’s very difficult now to see the political way out of that.”

Updated

Trump's challenge to Fed independence holds global risk, Finland's Rehn warns

Finland’s central bank chief has warned that President Donald Trump’s attacks on the US. Federal Reserve have a significant impact on the financial markets and the world economy.

Olli Rehn warned in a speech this morning that the Fed’s independence has remained an inviolable principle since the 1980s, but was now under attack, Reuters reports.

Rehn explained:

“Now, however, this principle is wobbling badly. This could have substantial, global knock-on effects on both the financial markets and the real economy.”

Rehn’s comments follow Donald Trump’s attempt to fire Federal Reserve governor Lisa Cook over unconfirmed allegations of mortgage fraud; Cook is refusing to step down, and pledging to sue the Trump administration.

Trump has also repeatedly criticised the Fed, and its chair Jerome Powell, for not cutting US interest rates.

The FCA’s investigation into Drax comes five months after the company’s former top lobbyist accused it of “misleading the public, government and its regulator” over its sourcing of wood for biomass pellets.

In a claim for unfair dismissal, Rowaa Ahmar, Drax’s former head of public affairs, said evidence suggested Drax was “unable to prove that it only sourced sustainable wood for its biomass, and that it was in fact using unsustainable wood”.

More here.

An accounting probe at WH Smith has delayed its former finance chief from joining high street baker Greggs.

Greggs has told the City that Robert Moorhead has asked to defer his appointment until Deloitte has conducted its review into a profit overstatement which rocked WH Smith’s share price last week.

WH Smith startled investors on 21 August by slashing its full-year profit forecasts and reveaing it had discovered an overstatement in profits at its US arm.

The problem is due to the “accelerated recognition of supplier income” in the US – the practice where retailers receive money from their suppliers for, for example, promoting certain products or hitting certain sales targets. Under accounting rules, such income can only be recorded in the financial year it is received.

Updated

Swiss growth slows

Economic growth in Switzerland has slowed, as the country braces for a bruising hit from Donald Trump’s trade wars.

Switzerland’s GDP adjusted for sporting events increased by just 0.1% in the second quarter of this year, down on the 0.7% gorwth recorded in January-March.

Switzerland’s State Secretariat for Economic Affairs (SECO) warned that new tariffs on sales to the US will hurt growth, saying:

After the above-average growth seen in the previous quarter, the anticipated correction has now occurred. Industrial value added and exports declined sharply, whereas the services sector delivered broadbased growth.

An updated economic scenario from SECO shows that, as a result of higher US import tariffs, the Swiss economy is likely to grow more slowly than previously expected, particularly in 2026.

Trump has set a 39% tariff on Swiss exports to the US, leaving the country scrambling to agree a better trade deal.

Drax shares tumble 10%

Shares in power generator Drax have tumbled by 10% after it revealed this morning it is being investigated by the City watchdog.

Traders drove Drax’s share price down to 630p in early London trading, down from 703.5p last night, following the news that the FCA is probing whether its recent annual reports comply with UK Listing Rules.

As covered earlier (see 7.18am post for more details), the investigation appears to centre on Drax’s statements regarding the sourcing of the biomass it uses in its wood-burning power station.

Over in Manila, the Philippines central bank has cut interest rates despite trade war concerns.

The Bangko Sentral ng Pilipinas lowered its overnight target reverse repurchase rate by 25 basis points (a quarter of one percentage point) to 5% today, in line with expectations.

It cut borrowing costs after concluding that inflation expectations remain well-anchored, with inflation forecast to average 1.7% this year.

But, it added:

Meanwhile, possible electricity rate adjustments and higher rice tariffs could raise inflationary pressures over the policy horizon.

The Monetary Board observed that domestic demand has held firm. However, the impact of US policies on global trade and investment continue to weigh on global economic activity. This could temper the outlook for the Philippine economy.

Ford first manufacturer to receive UK's £3,750 EV grant

Back in the car sector, Ford has today become the first manufacturer to be awarded the UK’s full electric car grant of £3,750, cutting the cost paid by consumers.

Two Ford models, the Puma Gen-E and e-Tourneo Courier, now qualify for the grant, the Department for Transport has announced.

They are the first to benefit from the full £3,750 subsidy. Another 26 models now get the smaller grant, which knocks £1,500 off their price.

The scheme is meant to make it cheaper and easier to own an electric car.

Transport Secretary Heidi Alexander said:

We’re putting money back in people’s pockets and making it easier and cheaper for families to make the switch to electric, by delivering discounts of up to £3,750 on EVs.

Our measures are driving competition in the UK EV market, boosting economic growth and supporting jobs and skills as part of our Plan for Change.

Updated

Drax being investigated by FCA over biomass sourcing

Newsflash: UK energy producer Drax is being investigated by the Financial Conduct Authority (FCA).

Drax has told the City that it learned on Tuesday that the City watchdog had begun an investigation into “historical statements regarding Drax’s biomass sourcing and the compliance of Drax’s 2021, 2022 and 2023 Annual Reports with the Listing Rules and Disclosure Guidance and Transparency Rules.”

Drax, which operates a wood-burning power station in North Yorkshire, added that it will cooperate with the FCA’s investigation.

The FCA has confirmed that it has opened an investigation, without giving more information.

The company has faced pressure to disclose full details of its tree consumption; last year it agreed to pay £25m for submitting inaccurate data on the sourcing of wood pellets.

Elsewhere in the auto industry this morning, new data shows that Britain’s car production grew for the second month in a row in July.

Car production rose 5.6% in July from last year to 69,127 units, the Society of Motor Manufacturers and Traders (SMMT) reported.

However, total vehicle production dropped by 10.8% at 72,006 units, due to a fall in commercial vehicle manufacturing.

The European Automobile Manufacturers’ Association are also concerned that European take-up of electric cars is not rising faster.

Sigrid de Vries, director general of ACEA, says:

“Battery-electric vehicles still account for just 15.6% of the EU car market. Not only is this well below the level where it needs to be at this point in the transition the share in unevenly distributed across member states.

To accelerate uptake, Europe must continue to expand public recharging infrastructure, secure lower recharging prices, and ensure well-coordinated purchase incentives schemes. The market data demonstrates why a technology-neutral approach must drive this transition.

EVs will lead the charge, but there must also be space for (plug-in) hybrids, range extenders, highly efficient internal combustion-engine (ICE) vehicles, hydrogen and decarbonised fuels.”

Introduction: Tesla sales fall 40% across Europe

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Tesla’s European sales slump has continued, as it faces rising competition in the battery-powered electric car market.

New sales figures released by the European Automobile Manufacturers Association (ACEA) this morning show that Tesla shipments tumbled 40% last month. The company sold 8,837 vehicles across the European Union, the EFTA trade block and the UK in July, down from 14,769 in July 2024.

The sales slump, which began at the start of this year, continued despite the recent revamp of Tesla’s signature Model Y, indicating that the backlash against CEO Elon Musk’s political views could still be hurting the company.

Musk’s recent break-up with Donald Trump hasn’t, yet, revived the company’s fortunes. July’s 40% sales fall was worse than the total for 2025 to date, which are down 33% for the January-July period.

Tesla also faces rising competition, particularly from Chinese manufacturers. BYD, the Shenzhen-headquartered carmaker, more than tripled its sales year-on-year in July, up from 4,151 a year earlier to 13,503 last month, a rise of 225%.

This gave BYD a 1.2% market share, higher than Tesla’s 0.8%.

BYD, which overtook Tesla for European sales back in April, recently launched its Dolphin Surf EV car, which is priced from £18,650 in the UK.

ACEA also reports that in the first seven months of 2025, 1,011,903 new battery-electric cars were registered, accounting for 15.6% of the EU market share.

Hybrid-electric car registrations proved more popular, though, with 2,255,080 units sold across the EU so far this year. This was driven by growth in the four biggest markets: France (+30.5%), Spain (+30.2%), Germany (+10.7%), and Italy (+9.4%). Hybrid-electric models now account for almost 35% of the total EU market.

Overall, new car sales in Europe rose 5.9% in July, to 1.085 million.

The agenda

  • 10am BST: Eurozone confidence data

  • 1.30pm BST: US Q2 GDP (second estimate)

  • 1.30pm BST: US weekly jobless claims

Updated

 

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