The latest services survey from the Institute for Supply Management points to the first contraction in the services sector since May 2020, with the PMI headline index falling to 48.8 from May’s 53.8. The 50 mark separates growth from contraction. The business activity index plunged to 49.6 from 61.2, a massive drop.

Over here, growth in the UK service sector slowed last month amid a “seize-up” in activity as companies put projects on hold in the run-up to the general election.

The latest snapshot from the data provider S&P Global showed growth in the UK’s dominant service sector – which includes transport, IT, finance, communications, property and business services – slowed in June to the lowest level in seven months.

The survey of about 650 businesses, which is closely monitored by the Bank of England, showed a continued expansion in business activity at the end of the second quarter, stretching an unbroken growth run to eight months.

However, businesses said some clients were opting to wait and see the results of Thursday’s vote before placing orders and commissioning new projects.

In the eurozone, private sector growth eased to a three-month low, with activity in the service industries also at a three-month low.

Global stock markets have been cheered by US Federal Reserve chair Jerome Powell’s remarks yesterday about the US “getting back on a disinflationary path” and optimism about interest rate cuts. Tonight, the minutes of the last Fed meeting could give further clues on the central bank’s thinking.

Following strong gains in Asia, the French, Italian and German stock markets all rose by around 1%, led by France with a 1.2% gain. The UK’s FTSE 100 was 0.6% ahead.

There is growing confidence that a majority for Marine Le Pen’s far-right National Rally can be avoided in the second election round on Sunday, with political wrangling under way.

Our other main stories today:

UK fruit and vegetable production has plummeted as farms have been hit by extreme weather.

The country suffered the wettest 18 months since records began across the 2023-24 growing year, leaving soil waterlogged and some farms totally underwater. The impact on harvests has been disastrous. Data from the Department for Environment, Food and Rural Affairs shows that year-on-year vegetable yields decreased by 4.9% to 2.2m tonnes in 2023, and the production volumes of fruit decreased by 12% to 585,000 tonnes.

Scientists say that climate breakdown caused by the burning of fossil fuels is likely to bring more extreme weather to the UK, including more frequent floods and droughts.

Farmers said they were not able to plant due to the wet weather, and this is borne out in the statistics. The growing area of vegetables was down, falling by 6.5% to 101,000 hectares. A dry early summer in 2023 also did not help, as those who could not irrigate found it hard to plant.

The EU is moving forward with plans to impose customs duty on cheap goods in a shift that could hit imports from online retailers and harm a hoped-for London listing by the fast-fashion seller Shein.

The potential change comes amid growing disquiet among retailers based in mainland Europe, the UK and the US about rising competition from Chinese-linked marketplaces Shein and Temu, which exploit a loophole that excludes low-value items from import duty.

In the EU, the threshold for the levy is €150 (£127) and in the UK it is £135, enabling retailers such as Shein to ship products directly from overseas to shoppers in those markets without paying any import duty. In the UK, items valued at £39 or less also do not attract import VAT.

Subsidised postage costs in China make it more cost-effective for businesses based there to send cheap goods by air.

There is a big decline in the latest services survey from the Institute for Supply Management, which is closely watched by markets.

It points to the first contraction in the services sector since May 2020, with the PMI headline index falling to 48.8 from May’s 53.8. The 50 mark separates growth from contraction.

The business activity index plunged to 49.6 from 61.2, a massive move.

The US service sector picked up momentum in June, with the biggest rise in new orders in a year. Companies responded by taking on more staff for the first time in three months, but even so backlogs of work built up.

Price pressures from both input costs and output prices eased in June, but remained above pre-pandemic averages, mainly because of higher labour costs.

The seasonally adjusted S&P Global US services PMI business activity index increased for the second month running in June, to 55.3 from 54.8 in May.

Activity in the sector has now risen in each of the past 17 months, with the latest expansion the most pronounced since April 2022.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said:

US service sector companies reported an encouragingly solid end to the second quarter, with output rising at the fastest rate for over two years. Both new order inflows and hiring have also accelerated, the latter buoyed by firms taking on more workers in response to rising backlogs of work.

With additional – albeit more muted – support coming from the manufacturing sector, the survey data point to GDP rising at an annualised 2.0% rate in the second quarter, with a 2.5% rate seen for June. Forward momentum is therefore gathering pace.

There is some nervousness creeping in regarding the post-election business environment, but for now at least confidence about the outlook for the coming year remains elevated by recent standards and supportive of businesses investing in expansion.

Some of this optimism relates to ongoing convictions that interest rates will start to fall before the end of the year. In this respect, a further cooling of price pressures in the survey – notably in the services sector – adds to signs that inflation should trend lower in the coming months to open the door further for rate cuts.

An investment trust run by Scottish asset manager Baillie Gifford has sold its £20m stake in Rio Tinto, accusing the mining giant of not doing enough to tackle environmental and social concerns.

Disclosure of the disposal by the FTSE 250-listed Monks Investment Trust, first reported by the Times, comes weeks after Baillie Gifford came under pressure from environmental activists in a row that led to it pulling out of sponsoring the Hay Edinburgh and other book festivals.

Baillie Gifford pulled out after calls by campaign group Fossil Free Books (FFB) for the company to divest from fossil fuels and companies linked to Israel. Nine festivals that were previously sponsored by Baillie Gifford are now seeking donations, we reported earlier this week.

Monks said on Tuesday that it would sell shares in companies that are not making enough progress on environmental, social and governance factors and named the mining group as a company it had ditched.

Karl Sternberg, chair of Monks, said “concerns regarding governance and the approach to environmental impact” had not been “adequately addressed” by the world’s second-largest mining group.

Monks first voiced concerns over Rio Tinto after it bulldozed a 46,000-year-old sacred Aboriginal site in Western Australia in 2020. The scandal triggered the departure of both Rio Tinto’s chief executive and chair.

US trade data and labour market figures are out.

The trade deficit widened slightly to $75.1bn in May from $74.5bn, as exports fell by 0.7% month on month, countering a 0.3% decline in imports.

Paul Ashworth, chief North America economist at Capital Economics, said:

Nevertheless, the decline in exports was more modest than the advance goods data had implied, so net external demand should now be a slightly smaller (albeit still sizeable) drag on second-quarter GDP growth. Factoring in the disappointing May construction spending data released yesterday too, we now estimate that GDP growth was 1.9% annualised – a little stronger than the first quarter, but well below the economy’s immigration-boosted potential growth rate.

The $3.1bn decline in goods exports was driven by a $2.1bn drop in industrial supplies, which was partly linked to the fall in energy prices. The $1.9bn decline in goods imports was more than explained by a $4.2bn fall in pharmaceutical drugs, which tend to be quite volatile on a month-to-month basis. For the second quarter as a whole, we estimate that exports declined by 0.8% annualised, with imports up by 8.3%.

The latest labour market data still look a little softer ahead of key June payrolls figures, due on Friday. ADP employment increased by a muted 150,000, and initial jobless claims edged up to 238,000, from 236,000.

Alongside the news that GDP growth remained lacklustre in the first half of this year, this new-found labour market softness is a little disconcerting.

Oil prices have climbed to a two-month high, ahead of the summer driving season, and amid renewed tensions in the Middle East.

Brent crude, the international benchmark, rose as high as $86.83 a barrel today, and is now trading at $86.41 a barrel, up 0.2% on the day. It has gained nearly $10 a barrel since the start of June. US light crude touched $83.36 a barrel and is now 0.2% higher at $82.97 a barrel, after pushing through $84 yesterday for the first time since April.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said:

Oil prices are ticking upwards again, following a drop in US crude stockpiles for the week ending 28 June. Demand for fuel to power trips over the US holiday season is expected to be high. But traders are also eyeing potential supply constraints. Geo-political escalation in the Middle East is still a threat, given the ongoing violence in Gaza.

The hurricane season forecast to be particularly fierce this year, given the devastation wreaked on the Caribbean this week and if severe storms hit the Gulf Coast, refining capacity could be significantly disrupted.

Also on the health front, Syncona’s portfolio company Beacon Therapeutics has today raised $170m (£134m) to develop gene therapies that save and restore the vision of patients with blinding retinal diseases.

Syncona, a London-based life science investor that is listed on the FTSE 250, committed £33.5m to the Series B financing, resulting in a £14.1m uplift in its valuation of Beacon. (Series B financing is the second round of funding for a business through investment.)

Syncona launched Beacon last year, after taking advantage of challenging biotech market conditions to acquire Applied Genetic Technologies Corporation off Nasdaq in 2022, and combining it with other pre-clinical programmes, including from the University of Oxford.

Beacon, headquartered in London with another base in Massachusetts, focuses on developing gene therapies for both rare and prevalent diseases of the eye that lead to blindness, including X-linked retinitis pigmentosa (XLRP) and dry age-related macular degeneration (dAMD).

Beacon’s lead asset in XLRP is currently in intermediate to late-stage clinical trials.

The approval of Eli Lilly’s Kisunla drug by the US health regulator means competition is heating up in the Alzheimer’s drug market, analysts say.

The Food and Drug Administration (FDA) yesterday approved the experimental Alzheimer’s drug donanemab, marketed as Kisunla, for the treatment of patients with mild cognitive impairment or mild Alzheimer’s disease (AD).

The anti-amyloid beta monoclonal antibody slowed the early stages of the fatal mind-robbing disease in studies.

It is the second disease-modifying therapy to reach the AD market in the US, after Eisai/Biogen’s Leqembi (Lecanemab) received full FDA approval last July.

Philippa Salter, managing neurology analyst at the data and analytics firm GlobalData, forecast that Leqembi and Kisunla could generate global (US, France, Germany, Italy, Spain, UK, Japan and China) sales of around $3.5bn and $2bn by 2030, respectively. She said:

Despite gaining approval nearly a year ago, uptake of Leqembi has been slow. While the approval of Kisunla will provide further confidence [in this type of treatments], which could help drive the uptake of both drugs, many of the challenges faced by Leqembi will also apply to Kisunla.

Both drugs require brain scans before treatment, a positron emission tomography (PET) scan to assess levels of amyloid in the brain, and a magnetic resonance imaging (MRI) scan, with further MRI scans recommended prior to further drug infusions. She said access to these scans is a “key limiting factor for the uptake of these drugs”.

Salter explained:

The MRIs help monitor for a known side effect of these drugs, the development of amyloid-related imaging abnormalities (ARIAs). The rates of ARIA were lower in Leqembi’s Phase III trials compared to Kisunla’s Phase III trials, giving Leqembi a key advantage in its safety profile.

However, an important competitive advantage for Kisunla is its once-monthly dosing schedule compared with Leqembi’s dosing of once every two weeks. Further, despite having a higher annual cost of therapy of $32,000 for Kisunla compared with $26,500 per year for Leqembi, Lilly states that in the long term, Kisunla will be cheaper and more convenient for patients since they won’t have to take the drug indefinitely, something that was included in the FDA label, which states that once amyloid plaques have been reduced to minimal levels on PET imaging, stopping treatment can be considered.

While there are clear advantages in not having to take a drug indefinitely, many questions have been raised about what happens once donanemab therapy is stopped. Further real-world evidence and clinical trial data will be key for physicians to feel confident in stopping treatment with Kisunla and therefore vital for the success of the drug.

Vodafone UK and Virgin Media O2 have announced they will extend and enhance their existing mobile network sharing agreement for the next decade.

Vodafone is seeking to acquire Three UK in a deal which is currently being probed by competition regulators, but many aspects of the new network sharing agreement are independent of the outcome of the Vodafone UK and Three UK merger.

The agreement will see a combined Vodafone UK and Three UK commit to invest £11bn in its network for the next decade – although this will be subject to regulatory approval of the deal – as well as Virgin Media’s £2bn annual investment in its network.

The two operators have agreed subject to completion of the merger, Virgin Media O2 will acquire spectrum from the newly enlarged Vodafone and Three UK group establishing three scaled mobile network operators each with better alignment of spectrum holding.

Ahmed Essam, chief executive of European markets at Vodafone, said:

With this agreement and our merger with Three, we will transform the mobile experience for over 50m customers in the UK for the long-term, providing significant network improvements including more choice, better quality and greater coverage across the country.

Lutz Schüler, chief executive of Virgin Media O2, said:

We are extending and bolstering elements of our existing network sharing arrangement,while also ensuring there is a robust, balanced and functional structure in place for the long-term should Vodafone and Three’s proposed merger gain consent.

Shares in Topps Tiles have fallen as much as 6% to the bottom of the FTSE Small Cap index after the British tile retailer said tough market conditions had lasted into the second half of its year.

The shares fell as low as 38p and later traded at 39.4p, down 4.2%.

Total sales were 6.9% lower year on year in its third quarter, while the UK tile market is down between 10% and 15%, and the company said it was taking market share.

Demand for repair, maintenance and improvement has remained weak, especially for bigger projects. Like-for-like sales were 9.7% lower in the third quarter, similar to the 9.2% decline seen in the first half, although sales levels stabilised somewhat through the quarter.

Topps said that slowing inflation, a pick-up in real wage growth, improving consumer confidence and increased activity in the housing market “provides some confidence in a cyclical recovery”. But it cautioned that this recovery is yet to feed through into its market, and it is working to improve its digital offer to trade customers and other measures.

Following strong gains in Asian stock markets on optimism about US interest rate cuts, European equities are also pushing higher, led in part by France.

There is growing confidence that a majority for Marine Le Pen’s far-right National Rally can be avoided in the second election round on Sunday, with political wrangling under way.

France’s CAC has gained around 1%, while the UK’s FTSE 100 is 0.6% higher ahead of tomorrow’s general election, Germany’s Dax is also up by 0.6% and Italy’s FTSE MiB has risen by 1.3%.

Joshua Mahony, chief market analyst at the trading platform Scope Markets, said:

With President Emmanuel Macron’s centrist group and a left-wing alliance withdrawing candidates to minimise the number of three-way contests that might split the anti far-right vote, we have seen French [bond] yields head lower and stocks on the rise. With a hung parliament providing the basis for Macron to continue calling the shots, the market perception of a Le Pen victory comes down to the ability to achieve a majority or not.

Tomorrow’s UK election looks unlikely to create too many shockwaves given the sheer size of the majority expected for the Labour party. While Reform have been busy chipping away at the Conservative vote, recent scandals will have likely stifled support with two candidates defecting due to perceived racism within the party.

For traders, the prospect of a stable Labour majority appears to be a positive, with sterling one of the best performing currencies over the past week.

Looking ahead, the US jobs market remains in focus. Yesterday’s JOLTS job openings data showed an unexpected rise counteracted by a downside revision to the May reading. Mahony said:

With traders expecting a decline in Friday’s non-farm payrolls release, today’s ADP figure looks to similarly head lower in a sign of weakness in the employment picture.

The weakness seen for the dollar yesterday came off the back of comments from Powell, with the data dependent nature of the Fed being seen as a positive given the weakness expected in the jobs data this week. Nonetheless, traders will be concerned over the inflationary impact of the recent rise in crude oil, with yesterday’s rise pushing WTI [West Texas Intermediate] through $84 for the first time since April.

Expansion in the UK services sector slowed further in June with some evidence of a “pre-election seize up” feeding into a wider slowdown across the private sector to a six-month low, according to surveys.

More momentum was lost in June, with the upturn at its weakest since last November as tomorrow’s general election prompted some clients to adopt a “wait-and-see” approach before placing orders and commissioning new projects.

New business intakes rose at a historically subdued pace, while the pace of job creation also eased. Meanwhile, firms’ cost pressures continued to cool, but remained elevated. The rate of output price inflation accelerated slightly from May’s recent low.

The seasonally adjusted S&P Global UK services PMI business activity index remained in expansionary territory during June, posting 52.1. While this was the eighth consecutive monthly increase in output across the service sector, the headline index fell again, from 52.9 in May.

Activity across the UK’s private sector slowed to a six-month low. The composite output index, which pulls together the manufacturing and services surveys, remained in expansion territory at the end of the second quarter, but the pace of growth in business activity slowed for a second month running to its weakest in 2024 so far. At 52.3, down from 53.0 in May, the index was at a six-month low.

Joe Hayes, principal economist at S&P Global Market Intelligence, said:

We are seeing some evidence of a pre-general election seize up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a “wait-and-see” approach by some, restraining sales.

Nevertheless, we’re on track for another quarter of GDP growth, according to composite PMI data for the three months to June, albeit one that will be less punchy than the first quarter’s 0.7%.

Turning to prices and firms’ costs, he said:

Prices still continue to show a high degree of stickiness across the UK service sector, although input cost inflation once again trended lower in June. The direction of travel here is encouraging for the Bank of England, but our survey’s gauge of prices charged actually rose on the month as some companies noted their pricing power was strong enough to raise their fees.

While costs, mostly from wages, have been the major driving force behind strong services inflation, the recovery of the UK economy from it’s late-2023 lull adds another dynamic for policymakers to consider should stronger economic conditions motivate more companies to raise their prices.

Keywords Studios, an Irish video game services company that has worked on Fortnite and Call of Duty, has accepted a bid from the Swedish private equity firm EQT that values the business a £2.1bn.

Investors will receive £24.50 a share in cash, the companies said in a statement today. This is below a May offer of £25.50 a share, but Keywords’ board unanimously recommended the bid, which EQT described as its final offer.

The London-listed shares rose 2.8% to £23.82 today.

Keywords was founded in Dublin in 1998 by Giorgio Guastalla and Teresa Luppino and listed on the London Stock Exchange’s junior AIM market in 2013. It provides game development, audio and art services to clients including the US video game makers Epic Games and Activision Blizzard.

The company has expanded rapidly since going public by snapping up a string of support studios, and titles it has worked on include Fortnite, Call of Duty, Baldur’s Gate 3, Diablo IV, Starfield and Hogwarts Legacy. It operates across 26 countries.

EQT returned with a lower bid, after Keywords said that a number of games and development projects had been delayed or cancelled, with the industry struggling to recover from last year’s Hollywood strikes. The company said it expects growth to pick up in the second half of the year.

EQT was founded in Sweden more than 30 years ago with investment from the Wallenberg family, industrialists who are part-owners of international companies with Swedish roots, including AstraZeneca, ABB and Ericsson.

In the eurozone, private sector growth eased to a three-month low, with activity in the service industries also at a three-month low, according to a closely-watched survey.

Demand for euro area goods and services declined for the first time since February.

The seasonally adjusted HCOB eurozone composite PMI output index, which pulls together the manufacturing and services readings, fell for the first time since October last year.

At 50.9 in June, the headline index posted above the 50 no-change mark for a fourth month in a row, signalling a sustained increase in euro area business activity. However, it was down from 52.2 in May, and signalled a rise in output that was the softest in three months.

Almost all of the eurozone nations with composite PMI data available recorded growth during June, but at a weaker rate than previously.

Spain was again the fastest-growing euro area economy, with output rising sharply. Moderate upturns were recorded in Germany and Ireland, while Italian growth eased to a four-month low. France was the outlier, as private sector business activity weakened for a second month running.

At the same time, City investors said a landslide victory for Keir Starmer in the general election tomorrow could hand Britain a stability premium in global markets, boosting the pound, shares and investment in the UK at a time of mounting political turmoil elsewhere.

In sharp contrast with Conservative party warnings over the dangers of a large Labour majority, analysts in the City of London said the prospect of a resounding mandate for Starmer’s party could secure Britain’s “safe haven” status among investors in an increasingly volatile world.

After failing to close the gap in opinion polls during the election campaign, Rishi Sunak made a last-ditch warning that a Starmer “supermajority” would “bankrupt people in every generation”.

However, City analysts said a Labour landslide could pave the way for global investment in Britain after years of political and economic uncertainty since the 2016 Brexit referendum under the Tories, which had clouded the prospects for international investors.

Highlighting mounting political instability on both sides of the Atlantic and the meltdown in financial markets triggered by Liz Truss’s mini-budget – when investors spoke of a “moron premium” for Britain – City experts said a clear outcome on Thursday could return Britain to a steadier footing.

Nuwan Goonetilleke, the head of shareholder assets at Phoenix Group, which manages more than £280bn in investments, said money was already pouring into London-listed assets in anticipation of a Labour victory.

The UK is really being seen not just as a safe haven, but the safest of havens – especially in Europe.

Several rich individuals in the UK are reportedly selling shares, property and other assets days before an expected landslide for the Labour party, which they fear would raise capital gains tax.

Financial planners representing wealthy people told the Financial Times that some clients, from corporate chief executives to entrepreneurs, were offloading investments.

Shadow chancellor Rachel Reeves has said her party has no plans to raise CGT, but she has refused to rule out increasing the levy during a Labour government’s full term.

Several wealth managers said “lots of clients” had been in contact with questions about a possible CGT increase. For higher or additional-rate taxpayers, the tax is levied at 20% on gains made from selling assets, while property is taxed at up to 24%.

GSK has bought the full rights to develop, make and sell mRNA vaccines for flu and Covid-19 from Germany’s CureVac.

The UK’s second-biggest drugmaker is paying €400m upfront and up to an additional €1.05bn to the biotech firm, which was founded in Tübingen in southwest Germany in 2000. The two companies have restructured their existing collaboration into a new licensing agreement.

Since 2020, GSK and CureVac have worked together to develop mRNA vaccines for infectious diseases. They currently have vaccine candidates for seasonal influenza and Covid-19 in intermediate clinical trials (phase II) and avian influenza in phase I clinical development. The jabs are based on CureVac’s mRNA technology.

Tony Wood, GSK’s chief scientific officer, said:

We are excited about our flu/Covid-19 programmes and the opportunity to develop best-in-class mRNA vaccines to change the standard of care. With this new agreement, we will apply GSK’s capabilities, partnerships and intellectual property to CureVac’s technology, to deliver these promising vaccines at pace.

Alexander Zehnder, CureVac’s chief executive, said:

The collaboration with GSK has been instrumental in developing promising, late clinical-stage vaccine candidates, leveraging our proprietary mRNA platform. This new licensing agreement puts us in a strong financial position and enables us to focus on efforts in building a strong R&D pipeline.

The UK restaurant chain Hawksmoor has been put up for sale in a deal that could value the restaurant at about £100m.

The popular chain of steak restaurants has hired investment bank Stephens to start looking for potential suitors for the business, which is currently looking to expand its overseas operation.

Hawksmoor, which was founded in 2006 by Will Beckett and Huw Gott in London, has now expanded to 13 locations, including three outside of the UK. Last week it opened its first restaurant in Chicago, while also owning restaurants in Dublin and New York.

Graphite Capital has owned a 51% stake in the chain since 2013 after it paid £35m to support a management buy out by both founders.

The investment process, which was first reported by the Financial Times, will see Beckett, who is the current chief executive, and Gott, who owns a minority stake, retain their stake after a deal is concluded.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Yesterday’s comments from US Federal Reserve chair Jerome Powell have spread optimism over interest rate cuts across markets. Japan’s Nikkei, Hong Kong’s Hang Seng and the Singapore and Taiwanese markets all rose more than 1%.

On Wall Street, the S&P 500 and the Nasdaq both closed at record highs.

Speaking at a European Central Bank forum in Sintra, Portgual, Powell noted the latest inflation readings from April and May “do suggest that we are getting back on a disinflationary path.”

However, he added: “We want to be more confident” before we decide on reducing policy. “We just want to understand that the levels that we’re seeing are a true reading on what is actually happening with underlying inflation.”

Minutes from the Fed’s June meeting are due later today and could offer clues on the central bank’s thinking on rates.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank said:

Federal Reserve (Fed) President Jerome Powell said that the Fed has made ‘quite a bit of progress’ on inflation and investors didn’t need more to jump back on the back of a bull. The S&P 500 closed at a record high again, while Nasdaq 100 hit the 20,000 mark for the first time in history.

Shares in Tesla jumped 10.2% after the US electric carmaker reported a smaller-than-expected 5% drop in vehicle deliveries in the second quarter. It said price cuts and incentives helped stimulate demand.

The Agenda

• 9am BST: Eurozone HCOB Services and Composite PMIs final for June

• 9.30am BST: UK S&P Global Services and Composite PMIs final for June

• 11.30am BST: ECB policymaker Philip Lane speaks at forum in Sintra

• 1.30pm BST: US Trade for May, initial jobless claims

• 2.45pm BST: US S&P Global Composite PMI final for June

• 3pm BST: US ISM Services PMI for June

• 3.15pm BST: ECB president Christine Lagarde closing remarks at forum

• 7pm BST: US Federal Open Market Committee minutes of last meeting