London stock market celebrates best first half to a year since 2021 as dollar slumped

The governor of the Bank of England has predicted that UK interest rates will continue to fall, gradually.

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Andrew Bailey has told CNBC in an interview this morning that the UK’s labour market “is softening”, pointing to signs that pay increases are starting to come down.

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I think the path of interest rates will be gradually downwards, I’ve not changed my mind on that.

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The key question, Bailey added, is whether that softening helps to bring inflation down to the Bank’s 2% target (thus giving it the confidence to lower borrowing costs).

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Bailey adds that the recent drop in energy prices, following the Israel-Iran ceasefire last month, is a helpful backdrop to the Bank’s next interest rate decision in early August.

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The City money markets currently indicate that there’s a 75% chance the Bank cuts interest rates, from 4.25% to 4%, next month.

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Nationwide’s house price report suggests the UK housing market remains in “a bumpy patch”, reports Matt Swannell, chief economic advisor to the EY ITEM Club.

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“House prices fell by 0.8% in June, more than undoing the 0.4% pick up recorded in May. Of course, in any individual month house prices can be quite volatile and this has been exaggerated by April’s change in stamp duty thresholds. Nonetheless, house prices are still higher than they were 12 months ago. However, over the last few months house prices have chopped sideways, so the annual growth rate has slowed to 2.1% in June from 3.5% in May.

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“The change in stamp duty thresholds distorted the market over the first half of the year. In the run up to the April deadline, the market strengthened as transactions were rushed through. But that momentum proved temporary, and transactions fell substantially into April. Since then, the housing market has been in a soft patch, but we think this will prove temporary, with the rise in May’s mortgage approvals for new home purchases, which lead housing transactions, already indicating it’s starting to fade.

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“The housing market should see a modest pickup in the second half of the year as further interest rate cuts and a relatively low unemployment rate support demand. However, with house prices remaining high, affordability challenges and ongoing economic uncertainty will likely hold back some buyers.”

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Mark Harris, chief executive of mortgage broker SPF Private Clients, isn’t alarmed by the 0.8% drop in UK house prices last month, saying:

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“Moderating house price growth is good news for the wider health of the housing market, making home ownership more realistic for first-time buyers, many of whom are already relying on the Bank of Mum and Dad.

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Lenders have been reducing mortgage rates and enhancing loan-to-incomes, increasing the size of loan that some borrowers can access. However, while the borrowing environment may be easing, higher inflation and the wider economic picture remains a concern, which could mean the pace and size of further base rate reductions is more gradual than markets thought only a short while ago.”

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North London estate agent Jeremy Leaf warns sellers they need to price their properties “realistically”:

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“In our offices, the amount of stock presently overhanging the market has not only resulted in lower prices as seen in these figures, but has meant more protracted transactions.

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“Looking forward, only realistically-priced properties which stand out from the crowd will continue to attract attention as worries about the economy and inevitable tax rises on the horizon play their part.”

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In the energy sector, a £24bn investment programme to improve Great Britain’s power networks has been signed off, with customers warned bills will rise to help pay for it.

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Regulator Ofgem has given a “provisional green light” for network operators to invest £15bn in the country’s gas transmission and distribution networks, to ensure they keep operating safely.

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A further £8.9bn is lined up to fund the biggest expansion of the electricity grid since the 1960s, with 80 major projects planned including new power lines, substations and other technologies.

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Ofgem CEO Jonathan Brearley says:

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“Britain’s reliance on imported gas has left us at the mercy of volatile international gas prices which during the energy crisis would have caused bills to rise as high as £4000 for an average household without government support. Even today the price cap can move up or down by hundreds of pounds with little we can do about it.

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“This record investment will deliver a homegrown energy system that is better for Britain and better for customers. It will ensure the system has greater resilience against shocks from volatile gas prices we don’t control.

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Consumers pay for the investment through network charges, which currently make up almost a quarter of an average household energy bill.

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Ofgem has calculated that this investment is estimated to increase network charges on bills by £104 by 2031. However, it says the projects will lead to £80 of savings for consumers by 2031, meaning they should actually add £24 to average bills by 2031.

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The announcement comes as Ofgem’s latest quarterly price cap kicks in, meaning the cost of energy for millions of customers should fall 7% from today until the end of September.

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Nationwide’s UK house price data also shows that prices rose fastest in Northern Ireland in the last quarter, with annual price growth of 9.7%.

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Annual prices rose by 4.5% in Scotland, and by 2.6% in Wales, and were up 2.5% in England over the quarter.

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Nationwide’s chief economist Robert Gardner reports that the north-south divide in house price performance narrowed during the quarter, explaining:

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Average prices in Northern England (comprising North, North West, Yorkshire & The Humber, East Midlands and West Midlands) were up 3.1% year on year, whilst those in Southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) were up 2.2%.

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The North was the top performing region in England, with prices up 5.5%. Meanwhile, East Anglia was the weakest performer with annual growth of 1.1%.

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Newsflash: The average UK house price fell last month, adding to signs of a slowdown in the property market.

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Lender Nationwide reports that house prices fell by 0.8% in June, following a 0.4% rise in May.

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That pulled the average annual rate of house price inflation down to 2.1%, from 3.5%, and means the average property now costs £271,619.

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Robert Gardner, Nationwide’s chief economist, said:

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The softening in price growth may reflect weaker demand following the increase in stamp duty at the start of April. Nevertheless, we still expect activity to pick up as the summer progresses, despite ongoing economic uncertainties in the global economy, since underlying conditions for potential homebuyers in the UK remain supportive.

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“The unemployment rate remains low, earnings are rising at a healthy pace in real terms (i.e. after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little if Bank Rate is lowered further in the coming quarters as we and most other analysts expect.

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2025 has been a rough year for the dollar though.

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It has sled 10.8% in the first six months of the year, its worst first-half performance since 1973 against a basket of rival currencies.

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Stephen Innes, managing partner at SPI Asset Management, says the dollar is experiencing a ‘structural unwind’ as Donald Trump alarmed investors with his trade wars, and attacks on the Federal Reserve.

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Trump’s tariff timebombs, fiscal bazookas, and the creeping perception of Fed capture have all coalesced into one ugly truth: the dollar is no longer the safe-haven default, at least not for now.

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This wasn’t supposed to happen. The consensus playbook had the dollar strengthening as Trump’s protectionist blitz torched everyone else’s economies. But instead of Europe or Asia cracking first, it’s the U.S. that’s lost the narrative. Growth risks have migrated stateside, and rate-cut expectations have exploded, dragging yields lower and scaring off global capital.

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

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It’s a new month, and also the second half of the year. And the London stock market can look back on its strongest first six months of any year since 2021.

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The FTSE 100 share index has gained 7.2% so far this year, its best January-June performance in four years, and its third-best first half to a year in the last decade.

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Stocks in London have recovered from their trade war shock in early April, helped by Donald Trump’s 90-day pause to new tariffs which ends next week. Britain’s trade deal with the US, which kicked in yesterday, has also helped the mood.

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Danni Hewson, AJ Bell head of financial analysis, says:

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“Considering the massive market wobble which followed Donald Trump’s ‘Liberation Day’ speech the fact that the FTSE 100 has turned in its best half-time performance since 2021 is something worth shouting about.

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“Big share price falls grabbed headlines at the start of April as many UK investors watched the value of their pensions fall, but despite the geopolitical uncertainty and tariff turmoil London markets have thrived in the second quarter.

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The FTSE 100 was lifted by strong gains among defence companies; BAE Systems has gained over 60%, while Babcock has more than doubled, as rising geopolitical threats lift their order books.

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The smaller FTSE 250 index had a strong second quarter to the year, gaining over 11% in April-June, Reuters reports.

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Other global markets also recovered from their trade war slump, with the US S&P 500 index ending June at a record high.

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The agenda

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7am BST: Nationwide’s UK house price index for June

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8am BST: Bank of England governor Andrew Bailey to give an interview to CNBC

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9am BST: Eurozone manufacturing PMI report for June

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9.30am BST: UK manfuacturing PMI report for June

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10am BST: eurozone inflation estimate for June

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2.30pm BST: Andrew Bailey, ECB president Christine Lagarde, Fed chair Jerome Powell, Bank of Japan’s Kazuo Ueda and Bank of Korea governor Chang Yong Rhee speak at the ECB Forum on Central Banking in Sintra

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3pm BST: JOLTS report on US job creation

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Bank of England governor: softening jobs market means rate cuts likely