UK Business News Round-Up: Energy Fears Rattle Markets as Retail Spending Shows Resilience

14 July 2026

UK businesses are confronting another unsettled day as renewed conflict in the Middle East drives up energy prices, government borrowing costs and expectations of further interest-rate rises. However, stronger consumer spending, improving results from several retailers and proposals to unlock more lending provide some counterweight to the increasingly difficult economic backdrop.

The contrasting headlines illustrate the challenge facing British businesses. Demand has not collapsed, and some companies are successfully adapting their business models, but higher energy, employment, financing and property costs continue to restrict investment.

Oil prices unsettle markets and revive inflation concerns

Renewed fighting between the United States and Iran has dominated financial markets, raising fears of disruption to oil shipments through the Strait of Hormuz.

Brent crude rose to approximately $85 a barrel during morning trading after the United States carried out further strikes against Iran and announced new restrictions affecting Iranian shipping. Rising oil and gas prices have renewed concerns that inflation could remain elevated for longer than previously expected.

The FTSE 100 was down around 0.3% during the morning, while the more domestically focused FTSE 250 fell approximately 0.7%. Travel, leisure and financial companies were among the weakest performers, although the decline was partly offset by gains among oil producers and mining companies.

BP shares rose after the company said stronger oil trading and higher refining margins were expected to support its second-quarter performance. The development demonstrates the uneven effect of rising energy prices: oil producers may benefit from higher commodity prices, while transport, hospitality, manufacturing and consumer-facing businesses face increasing costs.

Government borrowing costs climb above 5%

The rise in oil prices also placed pressure on government bond markets. The yield on ten-year UK government debt moved above 5%, its highest level since May, as investors considered the risk that higher energy costs would feed into inflation and require tighter monetary policy.

Higher gilt yields matter beyond financial markets. They increase the cost of financing government debt, restrict the room available for public spending and influence the rates charged on mortgages and business borrowing.

The situation presents an immediate challenge for the incoming government. Investors are already assessing whether the next administration will increase public expenditure or borrowing, while businesses are looking for measures that support growth without undermining confidence in the public finances.

Sterling strengthens despite political and economic uncertainty

The pound nevertheless strengthened against the US dollar, rising by approximately 0.24% to $1.3378 during the morning. Sterling was also close to its strongest trade-weighted level for a year, partly because of weakness in the euro.

The pound has received some support from expectations that the Bank of England may need to raise interest rates again if energy costs place further upward pressure on inflation. Higher interest-rate expectations can support a currency by making sterling-denominated assets more attractive to investors.

However, a stronger pound is not necessarily evidence of an improving domestic economy. The movement also reflects changes in the dollar and euro, while Britain’s dependence on imported energy means a sustained increase in oil and gas prices would remain damaging to households and businesses.

Bank of England warns that instability is increasing

Bank of England Governor Andrew Bailey told MPs that the renewed Gulf hostilities had made the economic outlook more unstable. He said that although the effect of the conflict on UK inflation had so far been relatively limited, the apparent ceasefire had proved fragile.

Bailey also identified weak economic growth as one of Britain’s central long-term problems. The Bank remains cautious about reducing financial safeguards too aggressively, particularly while geopolitical, cyber-security and artificial intelligence-related risks are increasing.

For businesses, the immediate implication is continued uncertainty over borrowing costs. Interest rates may remain higher for longer, or rise further, if energy prices become embedded in wages, transport costs and consumer prices.

Business groups demand action on electricity prices

The Confederation of British Industry and Energy UK have called on the next prime minister to make reducing business electricity costs a priority from the first day of the new government.

Their joint report claims that UK electricity prices are 45% above the median across the G7. It also estimates that four in ten businesses are cutting investment because of high energy costs. Around 2.7 million companies receive little or no direct protection from increases in non-domestic electricity prices.

The organisations propose removing the cost of the Renewables Obligation and Feed-in Tariff schemes from business electricity bills, reforming the Climate Change Levy and introducing additional support for electrification and energy-efficiency investment.

They estimate that the complete package could reduce energy costs by as much as 20% for some businesses and generate an additional £130 billion of economic activity between 2027 and 2050. Those estimates depend upon the reforms being implemented effectively and the displaced costs being financed elsewhere.

Moving environmental levies into general taxation would not eliminate the cost, but it could spread it more broadly and reduce the immediate burden on electricity-intensive companies. The debate is therefore likely to become an important test of how the government balances industrial competitiveness, public finances and its environmental objectives.

World Cup and hot weather lift consumer spending

Consumer spending provided a more positive headline. UK retail sales increased by 1.9% year on year in June as the men’s World Cup and unusually warm weather encouraged spending on clothing, drinks, fans and other seasonal products.

Online non-food sales rose by 5.1%, while physical non-food store sales declined by approximately 1.1%. The figures suggest that consumers were still prepared to spend but increasingly chose to shop online rather than visit stores during the hottest weather.

Pubs also benefited significantly from England’s World Cup matches, with card spending rising sharply on matchdays. Essential spending recorded its strongest increase for more than a year, while travel spending stabilised following earlier disruption linked to the Middle East conflict.

The figures should nevertheless be interpreted cautiously. A major sporting tournament and exceptional weather can temporarily shift when and where consumers spend without producing a lasting increase in household purchasing power.

Retailers also continue to face higher wages, energy bills, business rates and supply-chain costs. Spending growth of 1.9% may therefore represent a decline in the volume of goods sold once price increases are considered.

Debenhams reports progress with marketplace strategy

Debenhams Group said its positive trading momentum had continued through June and July, supported by higher margins, fewer customer returns and further growth in gross merchandise value.

The company has been moving away from a traditional retail model towards an online marketplace through which third-party brands can sell products using the Debenhams platform. This reduces the amount of stock that the business must purchase and hold, potentially lowering inventory and markdown risk.

Debenhams said PrettyLittleThing had returned to growth and profitability, while its wider young-fashion division was improving. The company also expects net debt to fall materially through stronger trading and the disposal of remaining non-core property assets.

Management believes Debenhams could eventually become a multi-billion-pound marketplace generating more than £100 million of earnings before interest, tax, depreciation and amortisation. That ambition remains dependent upon sustaining customer growth while competing with established online marketplaces and low-cost international fashion platforms.

Watches of Switzerland profits jump

Watches of Switzerland reported a 76% increase in annual pre-tax profit to £133 million, compared with £76 million in the previous year. Revenue increased by 13% to £1.83 billion.

US sales grew by 24%, helping to offset more difficult conditions in Britain and Europe, where revenue increased by 5%. The company said the UK market was beginning to show encouraging signs of improvement.

The retailer is also expanding beyond luxury watches and further into jewellery. It has launched lab-grown diamond products through Goldsmiths and recently opened a jewellery showroom alongside its Mappin & Webb boutique in Manchester. Luxury jewellery sales increased by 17% during the year.

Its performance suggests that higher-income consumer markets remain comparatively resilient, although the company’s reliance on international demand means exchange rates, tourism and US consumer confidence remain important.

Nationwide says reforms could unlock £40 billion of lending

Nationwide Building Society has argued that proposed reforms to banking capital requirements could allow it to provide more than £40 billion of additional mortgage and business lending.

The building society believes changes to the leverage-ratio framework would allow regulators to recognise the relatively low-risk nature of its mortgage-heavy balance sheet while maintaining financial resilience.

Additional lending capacity would not automatically translate into £40 billion of new borrowing. Demand, affordability tests, credit quality and the wider interest-rate environment would all influence how much lending was ultimately completed.

Nevertheless, the announcement reflects the wider government and regulatory effort to encourage financial institutions to use surplus capital to support investment, housing and economic growth.

High street businesses call for business-rates overhaul

A coalition representing hospitality, retail and other property-based businesses has proposed a 2% tax on online sales to finance a substantial reduction in business rates.

The Real Rates Reform Alliance claims its proposal could reduce rates for physical businesses by 37%, while raising slightly more than the approximately £34 billion currently generated by the existing system.

The alliance said 55% of surveyed businesses regarded rates as a major or moderate expense, with the same proportion concerned about their effect on performance.

An online sales tax could help rebalance costs between digital and physical retailers, but it would also create practical difficulties. Businesses increasingly operate through both channels, while an additional online levy could be passed on to consumers or disproportionately affect smaller digital companies.

South East Water faces £30.5 million redress package

Ofwat has secured a £30.5 million shareholder-funded redress package from South East Water following investigations into repeated supply interruptions and customer-service failures.

The package will support infrastructure improvements, smart-metering programmes, water-storage facilities and community assistance. An independent monitor will oversee the company’s performance and turnaround plan.

The intervention adds to pressure on Britain’s water companies to improve resilience, governance and customer support. It also demonstrates the growing regulatory and financial consequences facing utilities when operational failures are combined with weak communication and inadequate emergency planning.

Brewers seek changes to alcohol-free labelling rules

The British Beer and Pub Association has called for the legal definition of alcohol-free beer to be raised from 0.05% alcohol by volume to 0.5%, bringing the UK closer to the rules used in several international markets.

The trade body expects more than 64 million pints of low- and no-alcohol beer to be sold during June, July and August, around eight million more than during the same period last year.

Brewers argue that the current threshold makes it more difficult to produce flavourful products and restricts investment in one of the industry’s fastest-growing categories. Public-health considerations will remain central to any change, but the rapid expansion of alcohol-free drinks provides pubs and manufacturers with an important new source of revenue.

A mixed picture for UK businesses

Today’s headlines present an economy moving in several directions at once.

Consumer spending has remained resilient, online retail continues to expand and businesses such as Debenhams and Watches of Switzerland are reporting meaningful improvements. Potential changes to banking capital rules could also increase the availability of finance.

However, the broader environment remains difficult. Energy prices are rising again, government borrowing costs have moved above 5%, businesses are restricting investment and interest-rate expectations are increasing.

The central question is whether temporary boosts from good weather, sporting events and individual corporate turnarounds can develop into sustainable growth. Without lower energy costs, stronger productivity and greater confidence in the economic outlook, many companies are likely to remain cautious about recruitment and investment.

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