The ECB signals the end of its hiking cycle, drones reshape the Royal Navy, and Google’s antitrust fines keep growing.

Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at why the ECB’s hiking cycle may already be over, how the UK is scrapping destroyers in favour of drones, and what Google’s mounting antitrust losses mean for Big Tech.

But first, our number of the week…

34 points

That’s the net balance of UK lenders reporting a rise in loan defaults over the past three months, according to a Bank of England survey published this week. The reading is the highest level since 2009 and a sharp jump from 18 points in the first quarter.

Sidekick Takeaway: These numbers show that strain is growing among Britons with credit card and personal loan debt. With unemployment elevated and inflation still above 2%, the pressure on consumer finances is unlikely to ease quickly, weighing on the broader economy.

Only have a minute to read? Here’s the TL;DR:

• The ECB hiked rates in June in response to the Iran war, but President Lagarde used a speech this week to argue that Europe’s structural resilience means the bank may not need to go further. Markets are still pricing one more hike to 2.5%, but several forecasters now see June as the peak.
• The UK has scrapped plans for large warships and will instead build at least six Common Combat Vessels – hybrid ships designed as control hubs for drones. The decision, backed by £5 billion in autonomous systems investment, reflects lessons from Ukraine and Iran about the costs of asymmetric warfare.
• A Stockholm court ordered Google to pay nearly $2 billion to Klarna over abuse of its search dominance, while Google also lost an EU appeal over a €4.1 billion Android fine. These are just the first payouts from a €12 billion pipeline of European claims, adding to antitrust pressure already building in the US.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

One and Done: Why the ECB’s Hiking Cycle May Be Over

In June, the ECB hiked rates for the first time since 2023. The move was a direct response to the energy price shock triggered by the Iran war.

But at the bank’s annual retreat in Portugal this week, President Christine Lagarde indicated that the tightening cycle could already be over.

Lagarde’s speech wasn’t directly focused on the next rate decision. Instead, it was about Europe’s ability to absorb shocks.

Thanks to a decade of institutional reform, Lagarde believes that the eurozone has become structurally more resilient, reducing the need for forceful policy responses.

A stronger Europe?

Lagarde declined to offer formal forward guidance on the ECB’s next move. But her message was clear:

• Structural improvements have made the EU more resilient – including stronger banking supervision, anchored inflation expectations, and the clean energy transition decoupling electricity prices from gas.

• The ECB’s June move was widely seen as an ‘insurance hike’ to pre-empt price pressures. Markets are still pricing one more hike to 2.5%, but several forecasters now expect the June hike to be the last.

• Not all officials agree with Lagarde. The ECB’s chief economist recently warned that energy inflation is still working its way through the system, with higher prices potentially on the horizon.

Despite internal debate, the direction of travel is clear: due to Europe’s increased resilience, the bar for further hikes is high.

The ECB’s hiking cycle might be over before it even begins.

Sidekick Takeaway: In retrospect, the ECB’s June insurance hike may appear opportune. In contrast, the BoE has so far decided to keep rates steady – but officials are increasingly considering that a hike may be necessary after all.

Ship Shape: How Drones Are Reshaping the Royal Navy

For decades, the Royal Navy’s approach to naval power has mirrored that of Western allies: a focus on large, expensive warships.

But this week, that model was all but abandoned. According to the government’s Defence Investment Plan, the Ministry of Defence will instead focus on ‘Common Combat Vessels.’

These are not traditional warships. Instead, they’re control hubs designed to coordinate autonomous systems in the air, on the surface, and underwater.

The decision reflects a profound shift in strategy, and is backed by one of the largest defence investments in the UK’s military history.

Lessons from Ukraine and Iran rewrite strategy

The Ministry of Defence’s decision reflects what two active conflicts have already demonstrated:

• Modern warfare is increasingly dominated by small drones, not large vehicles. Ukraine has deployed roughly 200,000 drones a month, a pace mirrored in the Iran conflict.
• The preference for drones is driven by a fundamental cost asymmetry. Cheap, expendable systems have imposed devastating costs on conventional hardware.
• In addition to the new warships, the Defence Investment Plan also commits to developing autonomous jets for the RAF and AI-enabled ground vehicles for the Army.

In turn, these decisions will impact how defence investments ripple through the UK economy.

Investing in drones and autonomous systems could give British firms a head start at exactly the moment global demand for the technology is surging.

Sidekick Takeaway: The Defence Investment Plan was long on ambition, but short on ways to actually fund it. Incoming PM Andy Burnham is likely to face difficult defence spending trade-offs as part of his fiscal plans.

Search and Destroy: Antitrust Closes In on Google

The tech industry was built on network effects and winner-take-all models. But following new legal challenges, that era may be ending.

This week, a Stockholm court ordered Google to pay nearly $2 billion to Klarna. The court found that Google search favoured the company’s own shopping service.

Just days later, Google lost its appeal with an EU court over a €4.1 billion Android-related fine.

The fines themselves aren’t the problem – Alphabet, Google’s parent, is worth over $4 trillion.

However, these rulings show that Big Tech’s antitrust concerns are no longer theoretical.

The transatlantic squeeze

Google now faces sustained legal pressure on both sides of the Atlantic:

• The Klarna award is the first major payout from a pipeline of follow-on claims totalling more than €12 billion across seven European countries. These claims follow a 2017 EU decision showing that Google abused its search dominance.

• In 2024, a judge in the US also found that Google illegally monopolised search. While the case is being appealed, Google has already had to open up key data assets to rivals.

• Historically, analysts have argued that winner-take-all dynamics make tech firms like Google ‘natural monopolies.’ But these rulings show that regulators and courts no longer accept that argument.

In other words, the model that built Big Tech’s margins is under legal siege on both sides of the Atlantic – and the results could force a sector-wide rethink.

Sidekick Takeaway: None of these cases will bankrupt Google, but they represent a structural shift in how regulators and courts treat platform dominance. For mega-cap tech firms, antitrust risk is here to stay.

Notices

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