The Data Turned, the Yields Did Not

1. Diesel did the work

Consumer prices rose 2.6% in the year to June, down from 2.8% in May and the softest reading since March 2025. The largest single push down came from motor fuels, diesel in particular, with transport inflation slowing to 5.7% from 6.8%. On the month prices rose 0.1%, against 0.3% in the same month a year ago.

Underneath the headline, much less movement. Core inflation held at 2.6% and services inflation gave up only a tenth, to 3.6%, which is the figure the committee actually watches. The Bank's own survey of firms pointed the same way, though. Businesses now expect CPI of 3.4% a year out, down from 3.7% a month earlier, and the share planning price increases fell nine points since April to 55%.

The awkward part is where the disinflation came from. Fuel-led falls are borrowed rather than earned, and Brent touched $100 during the week. June's print describes a world with cheap diesel in it. July may not.

The read: the direction is right and the composition is fragile. Services at 3.6% is nobody's idea of victory, but firms' own expectations coming down is the first genuinely encouraging signal the Bank has had this year.

2. A rebound almost nobody forecast

Then the activity data arrived. The flash composite PMI jumped to 52.1 in July from 49.3, ending two months of contraction and beating a consensus of 49.7 by a distance few forecasters will want revisited. Services carried it, at 51.8 against 48.8 in June and expectations of 49.4. Manufacturing output reached a 22-month high, though S&P Global was careful to note that some of that is precautionary stockpiling rather than fresh orders.

Retail sales told the same story with better detail. Volumes rose 1.0% in June, where the consensus looked for a 0.3% fall. Sales of footballs were up almost 200% on the year, replica shirts 139% and flags 104%, with England and Scotland both in the World Cup group stage, while a heatwave kept shoppers off the high street and online (the internet share of sales hit 29.4%, its highest since April 2021). Consumer confidence climbed six points to -17, a six-month best, promptly christened the Burnham bounce.

Sunshine, a tournament and a new prime minister. A fine quarter for the retail trade, and a poor basis for a forecast.

The read: one warm month is not a turning point, but it does take away the recession framing the committee could otherwise have leaned on. An economy growing again is an economy that can carry 3.75% a while longer.

3. The bond market sends the invoice

Andy Burnham was appointed on 20 July, the seventh prime minister in a decade, and made John Healey his Chancellor, a choice Westminster had not queued up for. The gilt market formed a view within a day. Burnham said he would use whatever flexibility the fiscal rules allow to fund investment, with allies briefing a figure of up to £16bn more for infrastructure, and yields went up.

The ten-year passed 5% on Monday and stayed above it all week, the longest such run since July 2008, easing back to roughly 5.05% by Friday as oil retreated. The 30-year reached about 5.78%, a two-month high. Britain pays more to borrow than any other G7 government, and that price does not stop at the Treasury: several lenders have already lifted fixed mortgage rates by as much as 0.35 points, because swap rates follow gilts.

What makes it sting is that the fiscal numbers themselves were good. June borrowing came in at £16.0bn, a third lower than a year earlier and £0.3bn under the OBR's forecast, helped along by cheaper inflation-linked debt interest. Markets are not pricing June. They are pricing a chancellor three weeks into the job who has not yet said how the flexibility gets funded.

The read: the interesting question on Thursday is not the rate. It is whether softer inflation pulls the two hawkish dissenters back into line, and what the Bank's new forecasts make of an economy that is growing faster and borrowing dearer than it was in May.

The week ahead

• MPC decision and Monetary Policy Report, July 30: Bank Rate held at 3.75% in June on a 7 to 2 vote. The split and the new forecasts will say more than the headline.
• Money and Credit, June: mortgage approvals and consumer credit, the first look at whether gilt yields above 5% are reaching households yet.
• Healey's first fiscal signals: the market wants a funding plan attached to the flexibility. Every day without one is priced in the long end.