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The Bank of England has raised the base rate of interest by 0.75 percentage points to 3% – the single biggest increase in more than three decades – and said that the UK is already in recession.

The Bank warned that the UK could face a protracted contraction in the coming years, with high inflation and the unemployment rate climbing to 6.5% – the highest since the financial crisis.

The length of its forecasted recession – eight successive quarters in which gross domestic product shrinks – would make it the most protracted since comparable records began – albeit less deep than most previous downturns, including those in 2008/2009 and the 1980s.

The economy would still be well below its 2022 size at the end of 2025.

Enormous uncertainty hangs over these forecasts, however: on the one hand they are based on market expectations for interest rates that were unusually high, which makes the economic outlook seem gloomier than it might be in practice.

On the other hand, they do not incorporate any of the expected spending cuts and tax rises the Treasury is considering imposing at its autumn statement on 17 November, which would worsen the outlook.

Rates may rise further

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Andrew Bailey, the Bank governor, told a news conference: “From where we stand now, we think inflation will begin to fall back from the middle of next year, probably quite sharply.

“To make sure that happens, Bank rate may have to go up further in the coming months… but by less than currently priced in financial markets.

“That’s important, because it means the rates on new fixed-term mortgages should not need to rise as they have done.”

Markets reacted to the gloomy update through further pressure on the pound.

It had slumped against a surging dollar earlier in the day but later fell further to $1.11 – a decline of more than two cents.

The recession forecast by the Bank is partly a consequence of higher energy prices, after the chancellor’s decision to curtail the length of the energy price guarantee (which limits the amount households can be charged per unit), and partly a consequence of the rising cost of borrowing.

According to Bank calculations, higher rates will mean the average household has a £3,000 annual increase in their mortgage costs, more than outweighing any government help with energy bills.

Biggest hike ever voted for

The Bank’s decision to lift borrowing costs by three-quarters of a percentage point is the single biggest increase since 1989, save for a brief two percentage point increase in 1992 that lasted less than 24 hours.

It is the biggest increase ever voted for by the Bank’s Monetary Policy Committee (MPC).

Seven of the nine members voted for it. One member, Swati Dhingra, voted for a 0.5 percentage point increase and another, Silvana Tenreyro, voted for a 0.25 percentage point hike.

The minutes to the MPC’s meeting inserted a note of caution to money markets which, at the time of the Bank’s forecasting round, were expecting a peak of 5.25%, saying: “The majority of the Committee judged that should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank rate might be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.”

The upshot is that notwithstanding the big increase in interest rates, back to their highest level since late 2008, the Bank is implying that they may not rise quite as far as many had expected.

Reacting to the rise the Prime Minister Rishi Sunak said he recognised this will be a worrying and difficult time for people families and businesses across UK, and made clear that economic stability and confidence are at heart of agenda. His number one priority is bringing down inflation, he added.

When asked did he agree with the Bank’s assessment that a long recession may be on the way he said the best thing the government can do it to show it is bringing down debt. There are no easy options and difficult choices on taxes and spending will need to be made.

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Trump fires tariff threats at more nations as EU ‘ready for all scenarios’

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Trump fires tariff threats at more nations as EU 'ready for all scenarios'

Donald Trump has revealed a list of more nations set to face delayed ‘liberation day’ tariffs from 1 August.

He has threatened tariffs of 30% on Algeria, 25% on Brunei, 30% on Iraq, 30% on Libya, 25% on Moldova and 20% on the Philippines. Sri Lanka was later told it faced a 30% duty.

Letters setting out the planned rates – and warning against retaliation – are being sent to the leaders of each country.

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They were the latest to be informed of the president‘s plans after Japan and South Korea were among the first 14 nations to be told of the rates they must pay on their general exports to the US from 1 August.

The duties are on top of sectoral tariffs, covering areas such as steel and cars, already in place.

Mr Trump further warned, on Tuesday, that a 50% tariff rate on all copper imports to the US was looming.

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He has also threatened a 200% rate on pharmaceuticals and is also expected to take aim at all imports of semiconductors too.

The European Union, America’s largest trading partner in combined trade, services and investment, is expected to get a letter within the next 48 hours unless further progress is made in continuing talks.

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Who will be positively impacted by the UK-US trade deal?

The bloc, which Mr Trump has previously claimed was created to “screw” the US, has been in negotiations with US officials for weeks and working to agree a UK-style truce by the end of the month.

The EU has retaliatory tariffs ready to deploy from 14 July but it is widely expected to delay them until such time that any heightened US duties are imposed.

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Trump to visit UK ‘in weeks’

It remains hopeful of a deal in the coming days but European Commission president Ursula von der Leyen told the European Parliament: “We stick to our principles, we defend our interests, we continue to work in good faith, and we get ready for all scenarios.”

While the UK’s so-called deal with Mr Trump is now in force, it remains unclear whether steelmakers will have to pay a 50% tariff rate, deployed by the US against the rest of the world, as some final details on an exemption are yet to be worked out.

The rate is currently 25%.

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Nvidia wins race to become first $4trn listed company

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Nvidia wins race to become first trn listed company

Nvidia has become the first stock market-listed company to achieve a value of $4trn.

Its share price rose by more than 2% at the market open on Wall Street to reach the milestone moment.

It was achieved just over a year since Nvidia overcame the $3trn barrier and overtook Apple, in market cap terms, in the process.

The AI-focused chipmaker has been the darling of Wall Street for many years.

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The value of its shares has risen by 409,825% since its market debut in 1999.

Its status has been cemented thanks to the rush for AI technology – suffering several wobbles along the way – but nothing significant when you refer to the percentage rise of the past 26 years.

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The most recent pressures have come from the emergence of the low-cost chatbot DeepSeek and concerns for global AI demand as a result of Donald Trump’s trade war hitting growth.

Financial markets have been taking a more risk-on approach to the trade war since the delays to “liberation day” tariffs in April.

It’s explained by a market trend that’s become known as the TACO trade: Trump always chickens out.

Nvidia hits $4trn valuation
Image:
The milestone is reported by Sky’s US partner CNBC, seen on screens at the New York Stock Exchange. Pic: Reuters

It has helped US stock markets post new record highs in recent days.

The wave of optimism is down to the fact that the president is yet to follow through with the worst of his threatened tariffs on trading partners.

Corporations are also yet to report big hits to their earnings – a fact that is also propping up demand for shares.

If Mr Trump does go all-out in his trade war, as he has now threatened from 1 August, then that $4trn market value for Nvidia – and wider stock markets – could be short-lived, at least in the short term.

But market analysts believe Nvidia’s value has further to go.

Read more from Sky News:
Greater risk to UK economy from Trump tariffs, BoE warns
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Matt Britzman, senior equity analyst at Hargreaves Lansdown, said of its meteoric rise: “Once known for powering video games, NVIDIA has transformed into a foundational player in AI infrastructure.

“Its high-performance chips now drive everything from natural language processing to robotics, making them essential to training and deploying advanced AI models.

“Beyond hardware, its full-stack ecosystem – including software platforms and developer tools – helps companies scale AI quickly and efficiently. This end-to-end approach has positioned Nvidia as a cornerstone in a market where speed, scalability, and efficiency are critical.”

He added: “The key question is where it goes from here, and while it might seem strange for a company that’s just passed the $4trn mark, Nvidia still looks attractive.

“Growth is expected to slow, and it’s likely to lose some market share as competition and custom solutions ramp up. But trading at a relatively modest 32 times expected earnings, and over 50% top-line growth forecast this year, there’s still an attractive opportunity ahead.

“For investors, it remains a compelling way to gain exposure to the AI boom – not just as a participant, but as one of its architects.”

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Greater risk to UK economy following Trump’s tariffs, says Bank of England

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Greater risk to UK economy following Trump's tariffs, says Bank of England

The future of the UK economy is weaker and more uncertain due to President Trump’s tariffs and conflict in the Middle East, the Bank of England has said.

“The outlook for UK growth over the coming year is a little weaker and more uncertain,” the central bank said in its biannual health check of the UK’s financial system.

Economic and financial risks have increased since the last report was published in November, as global unpredictability continued after the announcement of country-specific tariffs on 2 April, the Bank’s Financial Stability Report said.

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These risks and uncertainty, as well as geopolitical tensions, like the wars in Ukraine and the Middle East, are “particularly relevant” to UK financial stability as an open economy with a large financial sector, it said.

Pressures on government borrowing costs are “still elevated” amid significant doubts over the global economic outlook.

Had a 90-day pause on tariffs not been announced, conditions could have worsened, the report added.

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The chance of prices rising overall has also grown as tensions between Iran and Israel and the US threaten to push up energy prices.

Possible higher inflation in turn raises the prospect of more expensive borrowing from higher interest rates to bring down those price rises. This compounds the pressure on state borrowing costs.

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Trump’s tariffs: What you need to know

Mortgages

Borrowing costs for about 40% of mortgage holders are set to become costlier over the next three years as households refix to more expensive deals, affecting 3.6 million households, the Bank said.

Many homes have not refixed their mortgage since interest rates began to rise in 2021, meaning the full impact of higher rates has yet to filter through.

Those looking to get on the property ladder got a boost as the Bank said lenders could issue more loans deemed to be risky, meaning people could be able to borrow more.

Financial institutions can now have 15% of their new mortgages deemed risky every year, up from the current 9.7%.

Riskier mortgages are those with a loan value above 4.5 times the borrower’s income.

Be ‘prepared for shocks’

Despite the global and domestic economy concerns, the outlook for UK household and business resilience remained “strong”, the Bank said.

Investors, however, were warned that there could be “sharp falls in risky asset prices”, which include shares and currencies.

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If there are any vulnerabilities in non-bank lenders, it “could amplify such moves, potentially affecting the availability and cost of credit in the UK”.

“It is important that in their risk management, market participants [people involved in investing] are prepared for such shocks.”

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The steep market reaction following the tariff announcements in April “highlights that the interconnectedness of global financial markets can mean stress from one market can move quickly to others,” the report said.

Overall, though, “household and corporate borrowers remain resilient”, the Bank concluded.

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