Weekly Briefing: Frozen Tax Thresholds, US Markets, Property Prices Stumble & Manufacturing Shrinks

This week’s briefing offers a complex blend of economic signals: the UK’s housing market stumbles again, but there are whispers of a potential rebound as key drivers shift; US markets reach new highs, bolstered by optimism around trade and interest rates; and closer to home, theirs ongoing discussions around the freezing of income tax thresholds, with Labour's silence leaving room for uncertainty.

As we navigate this week’s developments, the landscape feels both cautiously optimistic and full of question marks. Keep reading for a deeper dive into the latest movements.

Income tax threshold freeze to potentially be held

Labour’s previous pledge not to extend the income tax threshold freeze beyond 2028 is now up in the air.

Rachel Reeves refused to recommit to that promise when challenged in Parliament, dodging the question and instead pointing to a growing black hole in public finances, now estimated at over £30bn.

This suggests Labour may continue the “stealth tax” that’s dragged millions into higher tax brackets since it was first introduced. Inflation-driven pay rises are pushing more people above thresholds that haven’t moved since 2021.

To put that in perspective: over 7 million people are now in the 40% tax band, up from 4.4 million just a few years ago. And it’s not just workers being hit. Nearly 9 million pensioners are expected to pay income tax in 2025–26, up from fewer than 7 million in 2021–22. For those earning just above £50,270, it means any extra earnings are taxed at the 40% rate, instead of the usual 20%.

Labour is also under pressure after reverting its welfare savings plan at the eleventh hour, scrapping a clampdown on Personal Independence Payments. The move left a £4.6bn funding gap just days before the Budget, throwing their broader fiscal plan into doubt.

Now, with rising fiscal pressure and limited room to move without raising tax rates directly, Reeves might be leaning toward extending the freeze.

House prices stumble again, but some signs point to a summer rebound

UK house prices unexpectedly fell by 0.8% in June, the steepest monthly drop since January 2023. Nationwide’s latest figures show the average property now sits at £271,619, with annual price growth falling to 2.1%, well below the 3.5% recorded in May.

A few things are driving the slowdown. First, stamp duty thresholds reverted to pre-2022 levels in April, hitting first-time buyers hardest. That’s cooled demand just as more properties are coming to market, with some agents reporting a flood of listings.

The job market remains resilient, real wages are improving, and mortgage rates are starting to fall. Some are now betting the Bank of England will cut interest rates again this summer, potentially boosting demand.

In May, mortgage approvals rose for the first time all year, and rates on new loans fell to their lowest since April 2023. So while prices have dipped, underlying activity may be picking up, with sellers adjusting expectations and deals still going through.

Not all regions are affected equally. Northern Ireland leads the pack with 9.7% annual growth, while London and East Anglia are barely scraping 1%. 

Some of the current volatility is seasonal, but the fundamentals suggest a market in transition. Price cuts are drawing in buyers again, and if rate cuts come through, the second half of the year could look very different from the last few months.

US markets hit records as trade Hopes and rate cut bets build

The S&P 500 and Nasdaq have just capped their best quarter in over a year, both hitting records despite a weak first half, shaped by trade tension and rate uncertainty.

What’s changed? Momentum shifted after hints of progress on trade with China, the UK, and even Canada, and growing hopes that the US Federal Reserve will ease interest rates. Investors seem to be back with tech stocks and growth names leading the charge.

There’s also end-of-quarter portfolio dressing going on. Fund managers tend to shuffle holdings late in the quarter to showcase top performers, which can give the market a final push, especially when sentiment is already improving.

But it’s not all plain sailing. Trump’s looming tariff deadline on July 9 keeps the pressure on, and his proposed $3.3 trillion tax-and-spend bill could stir fresh concerns. Senate Republicans are scrambling to push it through before the July 4 break.

Valuations are also getting stretched. The S&P’s forward P/E ratio is now over 22, well above the historical average of 15.8. That’s not necessarily a red flag yet, but it means the market is banking on soft inflation data and policy easing to justify the price.

As one fund manager said, the next few weeks could test just how strong those instincts really are. With payroll, manufacturing and earnings data due soon, the rally could either get fuelled further or face a reset.

Manufacturing is still shrinking, but showing some signs of life

The UK manufacturing sector is still in the red, but the picture’s not quite as bad as before. June’s PMI came in at 47.7,  better than May’s 46.4, and the highest it's been in five months. Still under 50, though, which is the point that separates growth from contraction.

Output, new orders, and employment all kept falling, but not as sharply. Businesses seem a bit more upbeat, with confidence now at a four-month high.

It’s the eighth month in a row of falling production, as firms hold back due to weak demand, worries about government policy, tariffs, and the broader geopolitical mess. That said, vendor lead times (how long it takes to get goods in) are still stretched but easing a bit.

Job cuts also carried on for the eighth straight month, and this time it wasn’t just smaller firms. Big manufacturers took the biggest hit, but losses were seen across all product types and company sizes.

Looking ahead, there's a bit of optimism creeping in. Almost half of manufacturers (46%) expect output to rise over the next year. That’s based on hopes of a demand recovery, new product launches, entry into new markets, and expansion plans. 

As Rob Dobson from S&P Global put it: “Conditions are stabilising, but it’s fragile. Optimism is there — but it’s cautious, with worries about global demand, supply chains, tariffs and policy direction still hanging over the sector.”

Final Note

Theirs plenty of moving parts this week. The income tax threshold freeze looks increasingly likely to stay in place and may well go beyond 2028, a subtle way to raise more tax without touching rates. It’s already pulled millions into higher bands, and the silence from Labour suggests that won’t change soon.

Meanwhile, house prices are softening again, but underneath the dip, there’s momentum building. Mortgage approvals are creeping up, rates may be easing, and sellers are adjusting. It’s still patchy across regions and property types, but a rebound this summer isn’t off the cards, especially if we get a rate cut.

And over in the US, markets are flying. Rate cut bets, trade optimism, and economic data have helped the S&P and Nasdaq hit record highs, but valuations are stretched, and with more economic data around the corner, the outlook could get choppy again.

Finally, manufacturing’s still struggling, but it’s no longer in freefall. Confidence is nudging up, job cuts are slowing for now, and the backlog’s easing. Fragile, yes, but pointing in the right direction.

All of this creates a mixed picture. While there are signs of optimism in some areas, uncertainty remains the key theme.