Market Report July 2026

Another record-breaking heatwave across Europe lifted cooling demand while simultaneously constraining power supply through weaker wind generation under persistent high-pressure conditions and reduced nuclear output due to river temperature restrictions to assist in nuclear reactor cooling. This drove prompt power prices sharply higher and boosted gas demand for power generation.

The ongoing disruption to LNG exports from Qatar, combined with the third heatwave across Europe, has seen gas inventories increasing by just 3.5 percentage points over the past few weeks to 52.8%, leaving storage levels 10.8 percentage points below the same point last year. Although short-term fundamentals are expected to improve as temperatures ease back towards seasonal norms across much of Europe as we move through July, the situation in the Middle East remains a key upside risk and further damage to Middle East export facilities would be particularly bad for the markets, especially given Europe’s relatively low gas storage levels.

The new incoming UK Prime Minister is already set to be under huge pressure to cut business energy costs after the CBI and Energy UK stated that urgent reforms are needed as the UK faces the highest energy bills of the G7 (by nearly 45%), but any subsidies will need to be clawed back from businesses in other areas. The report calls for Renewables Obligation and Feed-in Tariff costs to be removed from every business electricity bill alongside the electricity element of the Climate Change Levy which would provide some welcome relief with forecasted falls of between 7-20% of energy costs should they be removed.

IN OTHER NEWS:

British firms face £800m EU carbon tax bill – UK businesses could face an £800 million EU carbon tax bill by 2030 unless the government secures an exemption as part of a wider emissions trading agreement, a new report has warned.

Several oil and LNG tankers have turned back from the Strait of Hormuz – after a Qatari LNG tanker and a Saudi crude tanker were damaged in reported Iranian missile attacks.

The UK’s private sector remained in contraction in June – with the Composite PMI slipping to 49.4 as weaker services activity weighed on output. The data reinforce expectations of further BoE rate cuts later this year.

A summit to finalise the linking of the UK and EU Emissions Trading Systems has been postponed – following the UK prime minister’s resignation. The UK government said it would seek to hold the summit at the earliest opportunity, with EU Council president Antonio Costa confirming the delay was necessary after Starmer’s resignation.

UK ESG reporting rules (Environmental, Social, and Governance criteria) are tightening in 2026 – Significant changes to UK ESG regulation are coming, raising the bar on sustainability disclosure across environmental, social, and governance reporting. For large organisations, this means deeper, more standardised reporting obligations and real consequences for those that aren’t ready. Regulatory penalties are one risk, reputational damage with investors and stakeholders is another.

Sizewell B secures 20-year extension – Labour has approved the continued running of the 1.2GW power plant until 2055

Extreme heat puts pressure on electricity system with margin warning issued – The notice asks power stations, interconnector operators and other market participants to identify any extra capacity they can make available. Suppliers have also been asked to report any additional demand reduction that could help ease pressure on the system.

The debate around network investment is intensifying – National Grid’s request for additional transmission spending remains a major industry topic as policymakers attempt to accelerate electrification, connect renewable projects, and reduce connection backlogs.

UK industrial production came in below expectations in May – underlining the continued fragility of the sector. High energy costs and ongoing geopolitical uncertainty continue to weigh on manufacturing activity, reinforcing expectations of weak economic growth.