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Morning Update

Gigafactory confirmed, UK by-elections, slowing eurozone inflation, and what's happening today.

Tata Confirms Gigafactory

Industrial giant Tata has confirmed that they will be building a gigafactory battery plant in the UK. Full details have yet to be released on the plant, but what is being reported is that the plant could provide as much as 40% of the battery production capacity that the UK is forecast to require by 2030 and is likely to cost around £4bn. Eyebrows have been raised that the government is set to contribute up to £500m to the plant, but we’d argue that represents pretty good value, as it will see about 4,000 direct jobs created and support thousands more in the UK automotive supply chain  – many of those jobs having been under a cloud of uncertainty in recent years. A comparison is Germany’s deal with Intel to build a semiconductor facility, which their government will be chipping in ten billion euros towards, that will create 3,00 direct jobs and probably five times that amount in the supply chain. Automotive industry body, the SMMT< have said that this is a “shot in the arm for the UK automotive industry, out economy and British manufacturing jobs”. Nicely done Rishi.



The timing of the announcement couldn’t have been better, either, with three by-elections set to be contested today. One of the three Tory seats up for grabs are Uxbridge and Ruislip, Boris’ former seat, which is expected to go to Labour, but there’s chance that it won’t because of a bit of upset around Sadiq Khan’s expansion of London’s ULEZ zone, which is the single issue that Tories are focusing on in their campaign. Selby and Ainsty in North Yorkshire should be a shoo in for Labour as the current MP quit because they didn’t get a peerage – and that behaviour will probably be met with punishment by the constituents. Somerton and Froome in Somerset is likely to be taken by the Lib Dems, where the MP is suspended for use of cocaine and allegations of sexual misconduct (the former he has accepted, the latter denied). The recent good news of the Tata deal and inflation inching lower might not be enough to turn the tide on any of these predicted outcomes, but even losing two out of three would probably something that would be quietly celebrated by the PM and his inner circle.

Eurozone Headline Inflation Eases, Though Core Remains Stubbornly High

Yesterday morning, Eurozone inflation showed signs of decelerating to its lowest level since January 2022, though core inflation came above preliminary estimates remaining close to all-time highs. With energy prices continuing to subside, headline inflation fell 60bps from May’s figure of 6.1%, marking the second consecutive fall and a considerable deceleration from October’s all time high of 10.6%. This comes as Dutch central bank chief Klaas Knot maintained that inflation looks to have “plateaued” while the ECB’s vice president indicated how underlying inflation could be peaking.

While falling headline inflation was a welcome sign for policy makers, businesses and households, core inflation continued to rise, hitting 5.5% – an uptick of 20bps. This came 0.2 percentage points above preliminary estimates and remains close to the all-time high figure of 5.7%. Adding to the inflationary print was the rising cost of services which ticked up from 5% in May (annualised) to 5.4% in June. This gave markets greater credence that the ECB would continue tightening their monetary policy, with money markets implying a 95% chance of a 25bps hike next Thursday (27 July).

Today in Focus

Following yesterday’s inflation prints from the UK and Europe, today is a little light on the primary data front, though at 13:30 all eyes will be on the US for Initial Jobless Claims. This will be followed by Eurozone consumer confidence where the consensus is expecting a slight increase


from -16.1pts to -16pts. This comes ahead of the UK’s GfK consumer confidence published just after midnight and UK retail sales published at 0700 tomorrow morning. 

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Fed Issue Forward Guidance as Policy Makers Hold Rates

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Conservatives Reveal Manifesto Ahead of Labour’s Launch Today

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All Eyes on ECB

Thought for Thursday, focus is on the ECB for today's announcement, vote of no-confidence for Wales's first minister, and cuts for BoC benchmark interest rates.

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Get in touch today to see how FX strategy can drive commercial impact for your business.
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