July brought significant political change to the UK, with Andy Burnham taking office as Prime Minister and appointing a new Chancellor. The collapse of the US-Iran memorandum of understanding sent oil prices sharply higher and renewed disruption in the Strait of Hormuz. The BoE held rates at 3.75%, but in an increasingly divided vote. The FTSE 100 touched a new intraday record, yet technology stocks sold off worldwide and gilt yields climbed to levels not seen since the financial crisis. Despite resilience in UK equities, the months ahead remain far from straightforward.
UK Policy
The Bank of England (BoE) chose to hold the base rate steady at 3.75% on 30 July. This was the same decision as in four previous meetings, but the vote was narrower this time (6-3). Three dissenting members called for a 0.25% rise to 4%, citing persistent inflationary pressures from volatile energy prices.
The latest inflation data has offered some encouragement, however. The CPI fell to 2.6% in June – down from 2.8% in May and below the consensus forecast of 2.7%. Services inflation (something the BoE watches most closely) edged down from 3.7% to 3.6%.
There were also some seismic political developments in July. Andy Burnham became the UK’s seventh Prime Minister in a decade on 20 July, following Keir Starmer’s resignation in June.
Burnham moved quickly to reshape the Cabinet, and he has signalled cost-of-living support and help for sectors such as hospitality as early priorities. The full detail of his policy programme, including how it will be funded, is expected in the autumn budget.
One notable development is the rise in UK gilt yields. The ten-year gilt yield moved above 5.0%, a level last seen during the global financial crisis. Bond yields have risen worldwide, with the UK’s benchmark gilt yield rising above 5% and, at points, was the highest among the G7.
This underlines the fiscal pressures facing the new Chancellor, who must also contend with calls for higher defence spending. Bond markets will likely remain the key barometer of investor confidence in the government’s fiscal plans.
UK Economy
Unemployment held at 4.9% in March-May, unchanged from the previous quarter. However, youth unemployment reached 16.4%, the highest level in over a decade. Payrolled employment broadly stabilised, with June’s figure falling by just 4,000 – a smaller decline than expected.
Annual regular earnings growth was 3.4%. However, there was a clear gap between public- and private-sector pay. Public-sector regular pay growth stood at 5.5%, compared with 2.9% in the private sector — its weakest pace in more than five years. With CPI inflation at 2.6%, private-sector regular pay growth was only slightly higher, implying limited real-terms growth. That will be of little comfort to households already stretched by years of above-target inflation.
Government borrowing fell in June. The UK borrowed £16.0 billion, almost £8 billion less than in the same month last year. Lower interest payments on inflation-linked debt drove the improvement, underlining the fiscal benefits of keeping inflation under control.
For anyone relying on cash savings, the picture remains uncomfortable: CPI above 2.5%, a frozen personal allowance and many savings accounts offering rates below inflation. Seek financial advice to explore your savings and investment options.
UK Market
The FTSE 100 closed July at approximately 10,868 and reached a new intraday record of 10,989 on 31 July, driven primarily by strength in energy, mining and defence stocks. Elevated oil prices continued to provide a tailwind for BP, Shell and the index’s broader commodity weighting.
The month was defined by two competing dynamics. In the first half of July, investor sentiment was kept cautious by the UK’s transition to a new government and renewed hostilities in the Middle East. Consumer-facing and domestically exposed stocks remained under pressure. In the second half, energy and banking names powered the index higher, while strong earnings from defence contractors added further support. The net result was one of the stronger monthly performances of the year.
July saw continued strong M&A activity involving UK-listed companies. EasyJet saw a bidding war between US private equity firms Castlelake and Apollo, with Apollo’s £7.15 per share offer (valuing the airline at approximately £5.7 billion) superseding Castlelake’s earlier bid. Rotork agreed to be acquired by ABB in a £4.1 billion deal. All of this supports valuations, but it further highlights a shrinking UK equity market.
Global Outlook
On the global stage, July was dominated by the collapse of the US-Iran memorandum of understanding. Renewed strikes and counterstrikes brought severe disruption to the Strait of Hormuz, pushing Brent Crude back above $88 per barrel by the end of the month. The disruption remains a significant risk to global inflation.
In the US, the Fed held rates at 3.50%-3.75% in a divided 9-3 vote. Three regional presidents dissented in favour of a hike. Chairman Kevin Warsh struck a cautious tone but resisted offering forward guidance, leaving markets uncertain about the path ahead.
Technology stocks came under significant pressure, with the Nasdaq-100 falling approximately 7% in July (its steepest monthly decline since March 2025) as investors questioned whether AI-related valuations are fully supported by underlying fundamentals.
Trump announced a new round of tariffs affecting 60 economies, citing multiple justifications including forced labour concerns. The levies, ranging from 10% to 12.5%, replaced expiring temporary tariffs and were widely viewed as a continuation of broader protectionist trade policy.
In Japan, the yen fell to a 40-year low against the US dollar. Japan’s 30-year government bond yield approached 4% by the end of July and moved above that level in early August. Japanese equities have delivered strong local-currency gains in 2026, but UK investors without currency hedging will have seen reduced returns from the weakening yen.
The content in this article was correct on 07/08/2026.
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