Trump celebrates tax bill passing, Reeves must boost headroom to £30bn, says ex-Bank of England deputy – as it happened

Global trade tensions intensified as US President Trump readies new tariffs, prompting concessions from partners like Indonesia, while China imposed up to 35% duties on EU brandy, escalating an ongoing dispute and contributing to European market caution. This comes as Tesla reported a 13.5% year-over-year decline in Q2 deliveries amid global sales headwinds, and the UK Treasury faces limited fiscal headroom, potentially necessitating frequent tax adjustments.

Analysis

Global trade frictions are escalating, creating significant market uncertainty. The US is set to announce new unilateral tariffs next month as a 90-day pause expires, with potential rates ranging up to 70%, prompting trading partners like Indonesia to offer concessions, including a commitment by its state carrier to purchase more Boeing aircraft. Concurrently, China-EU trade relations are deteriorating, evidenced by Beijing's imposition of new five-year tariffs ranging from 27.7% to 34.9% on EU brandy, a move the EU deems 'unfair'. However, notable exemptions for major producers like LVMH, Pernod Ricard, and Remy Cointreau mitigate the direct impact on these specific firms. In the corporate sphere, Tesla (TSLA) faces significant headwinds, reporting a 13.5% year-over-year decline in Q2 global deliveries to 384,122 vehicles, despite a 14% monthly sales increase in the UK. This underperformance, occurring as UK battery electric car sales grew 34.6% in H1, points to company-specific issues like competition from Chinese rivals such as BYD. In the UK, economic data presents a mixed but cautious picture. The S&P Global UK Construction PMI rose to a six-month high of 48.8 but remains in contractionary territory, with a sharp decline in new orders signaling future weakness. This is reflected in the market as housebuilder MJ Gleeson lowered its profit forecast, causing its shares to fall 5.4% and dragging down peers. Furthermore, UK fiscal policy is under scrutiny, with a former Bank of England official and S&P Global highlighting the government's limited budgetary maneuverability due to a narrow £10 billion fiscal headroom, which increases the risk of 'neurotic' tax adjustments.

Key Decisions for Investors

• Given the imminent US tariff announcements and escalating China-EU trade disputes, investors should review portfolio exposure to companies heavily reliant on global supply chains, particularly in the automotive and industrial sectors.
• Despite new Chinese tariffs on EU brandy, the specific exemptions for LVMH, Pernod Ricard, and Remy Cointreau suggest their competitive positions are insulated, warranting a differentiated view on these names versus the broader European consumer goods sector.
• Tesla's 13.5% year-over-year decline in Q2 global deliveries, which contrasts with robust overall EV market growth, signals significant company-specific challenges; investors should critically assess its valuation in light of intensifying competition.
• The sustained contraction in the UK construction sector, underscored by falling new orders and a profit warning from MJ Gleeson, suggests a cautious or underweight position on UK housebuilders may be prudent until leading indicators improve.
• The UK's constrained fiscal position increases sovereign risk and the likelihood of future tax policy volatility, which could create headwinds for UK domestic-focused equities and gilts.