Week Ahead (21 July)

Tuesday, 22 July – UK Chancellor Rachel Reeves to appear before the House of Lords Economic Affairs Committee amid weak GDP figures and stubborn inflation

This week, UK Chancellor Rachel Reeves is expected to come under intense scrutiny as she appears before the House of Lords Economic Affairs Committee, following disappointing GDP data and persistently high inflation figures.

The UK economy contracted unexpectedly by 0.1% in May, marking the second consecutive month of negative growth, undershooting expectations. The Office for National Statistics (ONS) attributed the downturn primarily to weakness in manufacturing output and notably poor retail sales figures. Although the economy grew robustly by 0.7% in the first quarter, temporarily outperforming other G7 countries, that growth was largely driven by short-term factors, including firms accelerating exports ahead of anticipated US tariffs and homebuyers finalising purchases before a stamp duty deadline.

Reeves described the May GDP figures as "disappointing," reiterating her determination to "kickstart economic growth" and stressing her priority of "getting more money into people's pockets." However, persistent inflation pressures have complicated this objective. On Wednesday, it was revealed that consumer price inflation accelerated to 3.6% in June, up from 3.4% in May, undermining market hopes for an interest rate cut by the Bank of England in August. 

Against this backdrop, tax increases might be unavoidable in her upcoming autumn budget following a significant U-turn on planned welfare spending cuts and she has recently refused to rule out tax hikes.

Wednesday, 23 July – General Court to rule on UBS appeal against €172 million fine in EU Forex cartel case

This week, the General Court, the EU’s lower court, will deliver its judgement on UBS Group and Others v Commission (T-84/22) in which UBS is appealing the European Commission’s decision from December 2021 to impose a €172 million fine for participating in the Foreign Exchange (Forex) spot trading cartel.

The case originated when the Commission concluded that between 2007 and 2013, traders representing several banks, including UBS, Barclays, HSBC, RBS, and Credit Suisse, exchanged commercially sensitive information and coordinated their strategies in the spot trading of major currencies ("G10 currencies"). The Commission found that traders involved in the cartel used private chatrooms to coordinate positions and manipulate benchmarks, distorting competition in the Forex market. UBS, alongside Barclays, HSBC, and RBS, settled under the Commission’s fast-track settlement procedure, accepting their participation and receiving reduced fines, whereas Credit Suisse opted for the ordinary procedure and is contesting a separate fine (€83 million) in parallel proceedings.

UBS’s appeal before the General Court, however, challenges procedural aspects of the Commission’s hybrid settlement approach, as well as the basis for calculating the penalty. Specifically, UBS contests the methodology used by the Commission to determine the size of the fine, alleging breaches of the principles of proportionality and equal treatment, and claiming procedural rights were compromised by the hybrid settlement model, where some banks settle while others contest the charges.

The upcoming ruling could set important precedents for how the Commission conducts future hybrid cartel cases, particularly regarding procedural fairness, the methodology for fine calculations, and the limits of settlement procedures.

Thursday, 24 July – EU-China summit to take place in Beijing; unlikely to yield a breakthrough in EVs and rare earth talks

Commission President Ursula von der Leyen and Council President Antonio Costa travel to Beijing this week for the long-awaited EU–China summit on 24 July. Expectations in Brussels are low, with both sides entering the talks amid worsening trade tensions, rising strategic mistrust, and an increasingly constrained negotiating space due to the ongoing tariff dispute with the US. Although key outstanding bilateral issues such as Chinese electric vehicle (EV) exports and access to rare earths remain on the table, few anticipate a comprehensive resolution, and the risk of further sector-specific escalation remains high.

For the Commission, the primary objective will be to stabilise the relationship and test the ground for narrowly framed compromises, particularly on EV pricing and critical raw material licensing, while avoiding any move that could jeopardise transatlantic unity. This is because the meeting comes just days before the 1 August deadline for a potential EU–US trade deal, with Brussels wary that any major concession to Beijing could be interpreted in Washington as undermining transatlantic alignment.

Von der Leyen is expected to push for three outcomes: first, a shift from punitive EV tariffs (up to 35.3%) to a minimum import price system, contingent on credible Chinese guarantees; second, clarity and relief on Beijing’s  recent restrictions on rare earth exports, which Brussels sees as a test case for economic coercion; and third, a tougher EU line on China’s retaliatory tactics targeting politically sensitive sectors, including French cognac and Spanish pork. These moves are intended to reinforce the EU’s image as a regulatory power capable of defending its interests while still leaving the door open for calibrated cooperation.

However, divisions within the EU and within the Commission itself will complicate that approach. France, Italy, and several CEE countries favour a harder line on China, while Germany and the Netherlands remain cautious, given their exposure to the Chinese market. Internally, Trade Commissioner Maros Sefcovic has shown openness to a negotiated de-escalation deal on EVs and agri-food retaliation, while trade defence officials remain firmly opposed to what could be seen as rewarding coercion. Von der Leyen has shifted closer to the latter camp, recently describing Beijing’s tactics as “blackmail” and stressing the need for strategic consistency in EU economic security policy.

Overall, expectations for a joint communiqué remain low. The planned second-day summit event in Hefei was unilaterally cancelled by Beijing, and it has yet to be confirmed whether President Xi will attend. The only potential area of modest convergence is likely to be climate, although last week’s talks between Commission green chief Teresa Ribera and Chinese officials produced no new deliverables. Ribera announced that China had committed to submitting an updated national climate target covering all greenhouse gases, but this merely restated a pledge already made by Xi Jinping at the UN in April.

In short, Brussels’ main focus in the coming days will be to reach a breakthrough with Washington ahead of the 1 August US tariff deadline, and any meaningful EU–China compromise will likely be delayed until after the transatlantic talks conclude.

Thursday, 24 July – President Macron to meet with Chancellor Merz in Berlin; focus on defence and transatlantic relations

French President and German Chancellor for high-level bilateral talks expected to focus heavily on defence cooperation. Notably, the meeting comes amid growing Franco-German tensions over the future of the  Future Combat Air Systems (FCAS),

the flagship European defence initiative to develop a next-generation air combat system by 2040.

Earlier this month, it emerged that the French defence firm Dassault is demanding 80% control over the programme’s Next Generation Fighter subproject. Paris reportedly backs this demand, prompting pushback from both German political and industrial actors. Germany favours a focus on deterring conventional threats, especially from Russia, and wants to prioritise faster delivery of conventional systems. France, by contrast, sees FCAS as a tool for projecting strategic autonomy and emphasises nuclear deterrence.

Chancellor Merz acknowledged the dispute during a press appearance early in July, referring to “disagreements over the composition of the consortium” but also expressed confidence in reaching a constructive solution. FCAS will also feature in separate talks between the two countries' defence ministers, scheduled for the same day.

Beyond FCAS, Macron and Merz are expected to discuss broader EU defence priorities following the European Commission’s €131 billion budget proposal for defence and space under the next Multiannual Financial Framework. The meeting will also touch on transatlantic coordination and continued military support for Ukraine, with both leaders aiming to reaffirm the Franco-German defence partnership after years of stagnation under former Chancellor Olaf Scholz.

Thursday, 24 July – ECB to hold monetary policy meeting, expected to hold rates steady amid EU-US tariff uncertainty

Also on Thursday, the European Central Bank’s Governing Council (GC) will hold its monetary policy meeting widely expected to hold its benchmark interest rate unchanged at 2.15%, maintaining a cautious "wait-and-see" stance as policymakers assess the economic impact of escalating EU–US trade tensions. At first glance,  with eurozone inflation stabilising at the ECB’s 2% target in June, the immediate case for further easing has weakened. However, looming threats from renewed US tariffs on EU exports are complicating the ECB’s outlook and could shift policy decisions later this summer.

Headline inflation figures have normalised following earlier rate cuts although core inflation remains elevated at 2.3%. Services inflation, a key indicator of underlying domestic price pressures, increased to 3.3% from 3.2%, reinforcing concerns among ECB hawks that domestic inflation remains stubbornly high. Despite this, markets continue to price in at least one more modest ECB rate cut by year-end, anticipating a reduction to around 1.75%, followed by a pause through most of 2026.

Yet, ECB’s policymakers face growing uncertainty from the US trade front. President Trump’s threat of 30% tariffs on EU goods represents a sharp escalation from previous baseline assumptions of a 10–20% tariff scenario, complicating ECB calculations. Although market consensus currently suggests Trump’s 30% tariff may not materialise fully, the heightened risk scenario is forcing ECB policymakers to reconsider potential economic impacts in real-time. Late last week, US negotiators told the EU’s Trade Commissioner Maros Sefcovic that President Trump is likely to ask for further concessions from the EU, including a baseline tariff of 15%, covering most European goods.

The ECB’s June macroeconomic forecasts had projected a modest recovery, assuming US tariffs at around 10%, with eurozone growth at 0.9% in 2025 and inflation stabilising at target. A more pessimistic scenario with tariffs of 20% would already have significantly reduced growth and inflation forecasts. Consequently, markets are now betting that if the threatened 30% tariffs are imposed from 1 August, the ECB would respond by cutting rates further at its next policy meeting in September.

However, for now, ECB executive board member Isabel Schnabel, speaking earlier this month, firmly pushed back against expectations of imminent further easing, noting that the bar for additional cuts is “very high”. Schnabel highlighted continued strong core inflation and resilient economic indicators, suggesting that despite external uncertainties from tariffs and global trade volatility, the ECB’s current monetary stance remains in ‘’pause mode’’.

This week's rate decision is thus expected to confirm the ECB’s wait-and-see stance, leaving its key interest rate unchanged. The real test will come in early August: should tariffs rise to the threatened 30% level, September’s ECB meeting will almost certainly see renewed easing and potentially a much more dovish stance into the autumn.