The FTSE 100 (^FTSE) and European stocks were mixed on Tuesday as the UK borrowed £16.6bn last month to cover the difference between public sector spending and income.
The figure was £2.1bn more than in September 2023 and the third highest September borrowing since monthly records began in January 1993.
It was also £1.5bn higher than the £15.1bn borrowing forecast by the Office for Budget Responsibility (OBR) for September, leaving chancellor Rachel Reeves in a difficult fiscal position ahead of the autumn budget.
So far this financial year, the UK has borrowed £79.6bn, which is £1.2bn more than at the same point in the last financial year. Meanwhile, the public borrowing figure for August was revised down from £13.7bn to £13bn.
Public sector net debt excluding public sector banks reached around 98.5% of the UK’s annual gross domestic product (GDP).
Traders are also waiting to hear from Andrew Bailey, governor of the Bank of England, later on Monday, and other policymakers about the potential path for interest rates.
London’s benchmark index was 0.7% lower in afternoon trade
Germany's DAX (^GDAXI) fell 0.3% and the CAC (^FCHI) in Paris headed 0.4% into the red
Wall Street is set to open lower as S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the red
The pound was 0.2% up against the US dollar (GBPUSD=X) at 1.3010
Oil prices climb after Hezbollah bomb attack while gold prices rise ahead of US election
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LaToya Harding
Halfords warns UK consumers are avoiding big ticket items
Slough, Berkshire, UK. 14th August, 2024. A Halfords Store on the A4 Bath Road in Slough. Credit: Maureen McLean/Alamy (Maureen McLean)
Halfords has warned that UK consumers are avoiding big ticket purchases, after reporting no sales growth in the last six months.
Like-for like sales dipped 0.1% in the half-year to 27 September, following “the UK’s wettest spring since 1986”.
It was also due to there being significantly stronger demand during 2023, particularly for its garages which saw a big jump in vehicle-servicing sales.
It also said its short-term outlook remains “uncertain”, despite pockets of improving consumer sentiment.
Graham Stapleton, chief executive officer of Halfords, said:
“While consumers remain cautious in their discretionary spending compounded by uncertainty around the contents of the upcoming Autumn Budget, we have continued to focus on controlling the controllables and I am pleased with our performance in the first half of FY25."
LaToya Harding
Mulberry dismisses £111m takeover from Frasers
Luxury handbag maker Mulberry has decided to rebuff the higher £111m proposed takeover from Frasers in favour of focusing on boosting its business performance.
It said this also takes into account the view of its largest shareholder, Challice – a group controlled by Singaporean entrepreneur Christina Ong and husband Ong Beng Seng – which has already rejected the approach, saying it does not plan to sell to Frasers.
Mulberry said: “After careful consideration with its advisers… the board is unanimously of the view that the possible offer is untenable and that the company should focus its attention on driving the commercial performance of the business.”
Sports Direct owner Frasers, which owns a 37% stake in Mulberry, tabled the fresh approach on 11 October.
It offered to pay 150p per share for the rest of the business it did not already own in order to take control.
It came after a previous 130p per share move, which valued Mulberry at £83 million, was rebuffed earlier this month.
LaToya Harding
Oil prices climb after Hezbollah bomb attack
Crude oil prices edged higher on Tuesday amid renewed diplomatic efforts by the US to broker a ceasefire in the Middle East and concerns over slowing demand growth in China, the world’s largest oil importer.
Brent crude futures advanced 0.9% to $74.94 a barrel, while US West Texas Intermediate (WTI) (CL=F) crude gained more than 1% to $71.29 per barrel during early European trading.
The rise comes as US secretary of state Antony Blinken arrived in Israel, launching a Middle East tour aimed at reviving talks to end the Gaza conflict and preventing further escalation in Lebanon.
"Crude oil prices have been fluctuating in response to mixed news from the Middle East, as the situation alternates between escalation and de-escalation," said Satoru Yoshida, a commodity analyst at Rakuten Securities.
Yoshida noted that the market could see upward momentum if China’s economic recovery shows clearer signs of progress, potentially bolstered by Beijing's stimulus measures and an improvement in the US economy following potential interest rate cuts.
However, persistent uncertainties around the global economic outlook are likely to cap gains, he cautioned.
LaToya Harding
Water bills set to rise more than expected
Water bills are set to go up by more than expected over the next five years, the BBC has reported.
It comes as regulator Ofwat is in the process of deciding how much customer bills will be allowed to rise in order to fund higher costs and more investment.
In July, Ofwat provisionally agreed to allow bills to rise by an average of £19 per year between 2025 and 2030, totalling a £94 increase, or a 21% rise, over that period.
It is unclear by how much more bills will rise instead, but the watchdog will make its final decision at the end of the year.
LaToya Harding
Traders await Andrew Bailey speech
File photo dated 03/10/24 of Andrew Bailey, Governor of the Bank of England, speaks during the Bank of England Monetary Policy Report press conference at the Bank of England, London. Mr Bailey has said interest rate cuts could become (Alberto Pezzali, PA Images)
Investors are waiting to hear from Andrew Bailey and other Bank of England policymakers about the potential path for interest rates.
The Bank of England governor will give a speech in New York later, while fellow policymaker Megan Greene will be on a panel at the Atlantic Council.
Their speeches come after UK inflation dropped further than expected to 1.7% in September, paving the way for more interest rate cuts from Threadneedle Street
LaToya Harding
Inheritance tax raises £4.3bn in 6 months
Figures published by HM Revenue and Customs (HMRC) this morning, show inheritance tax receipts hit £4.3bn in the 6 months from April to September 2024.
This is £400m higher than the same period in the previous tax year and continues the upward trajectory over the last two decades.
Last full tax year inheritance tax raised £7.499bn and currently just one in 20 estates are liable. But that may be about to change dramatically if the budget rumours are to be believed.
No one knows what changes will be announced, but most agree there will be some attempt to milk more revenue from estates.
Nicholas Hyett, Investment Manager at Wealth Club said:
"The great thing about inheritance tax from the government’s point of view is that it’s complicated, with a whole host of rules that could be tweaked to boost the tax take. Tweaks could include changes to Business Relief, including on AIM shares, making pensions subject to inheritance tax and extending the time period needed to make gifts inheritance tax free.
"Whilst this may only affect a minority of people, it will infuriate those it does and could still do serious economic damage.
"Business Relief helps family owned businesses pass between generations as well as encouraging investors to invest in young, fast-growing businesses – whether that’s on AIM or through starts ups qualifying for EIS. Removing the relief would decimate smaller, family-owned businesses, while also making backing smaller companies less attractive.
"Removing the IHT free status of pensions will also be damaging. It is in any government’s interest that people can support themselves in retirement. Constantly changing the rules puts people off saving in a pension, whether they are rich or poor.
"All government’s need to balance short and long term priorities. Throwing the kitchen sink at IHT may be good politics in the short term, but it risks doing long run damage.”
LaToya Harding
HSBC breaks up bank
The exterior signage of an HSBC bank branch, featuring the HSBC logo and the word 'UK'. The sign is prominently displayed above an entrance, with a ne (man_and_life)
HSBC has announced an overhaul of its bank, separating its UK division from its business in Asia amid growing geopolitical tensions between China and the West.
The lender said on Tuesday that it will be “simplifying” its geographical governance structure, splitting its business into eastern and western markets.
Eastern markets will contain the Asia-Pacific region and the Middle East while western markets will contain its UK and continental European and Americas businesses.
It comes as Georges Elhedery, HSBC's chief executive, is under pressure to navigate these tensions, as well as cutting costs and increasing profits.
The bank also announced the appointment of Pam Kaur, its first female finance chief in the company's 159-year history. She has worked at the bank for more than a decade and is currently its chief risk and compliance officer.
LaToya Harding
Reeves scrambling to plug black hole
Darren Jones, chief secretary to the Treasury, said: “We have inherited a £22bn black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers.
“Strikes cost at least £3bn last year, so it was the right thing to do to end those damaging disputes.”
Alex Kerr, UK economist at Capital Economics, said: "This demonstrates the constraints on the chancellor’s ability to increase day-to-day spending in the budget next week without raising taxes.
“Indeed, we expect her to increase current (i.e. excluding investment) spending by a net £25bn a year and to fund that by raising taxes by £25bn.
“However, if the chancellor changes the measure of debt her fiscal rule targets, she may be able to borrow to increase public investment by up to £53bn. For what it’s worth, we think she will raise borrowing and public investment by £18bn in 2029/30.”
LaToya Harding
More on UK borrowing data
Public sector debt was estimated to be at 98.5% of GDP, four percentage points higher than the same period last year.
The interest the Treasury has to pay on government debt rose from £4.6bn a year ago to £5.6bn last month, according to the ONS.
Lindsay James, investment strategist at Quilter Investors, said:
“The UK’s finances are stretched close to breaking point, as public sector net debt excluding public sector banks estimated at 98.5% of GDP at the end of September 2024.
"This is an uptick of 4% compared to the same time last year. The last time such levels were seen was in the 1960s, when the Labour chancellor of the day was ultimately forced into a policy of tax increases and spending reductions.
"Although Rachel Reeves has promised that the UK will not see a return to austerity, a series of tax increases in one form or another are all but guaranteed at next week’s budget. The chancellor has warned the UK public that there is a very large fiscal ‘black hole’ to be filled and has repeatedly indicated that difficult decisions will be necessary."
Reeves will deliver her autumn statement speech on 30 October.
LaToya Harding
UK borrows £16.6bn in September
File photo dated 23/09/24 of Chancellor of the Exchequer Rachel Reeves at the Labour Party Conference at the ACC Liverpool. Rachel Reeves will seek to make around £3 billion of cuts to welfare over the next four years by restricting access to sickness benefits, it is understood. Issue date: Friday October 18, 2024. (Stefan Rousseau, PA Images)
UK government borrowing reached £16.6bn in September, marking the third-highest level for the month since records began, according to the Office for National Statistics (ONS).
The figure was £2.1bn higher than the same month last year, leaving chancellor Rachel Reeves in a difficult fiscal position ahead of the autumn budget. Meanwhile, the public borrowing figure for August was revised down from £13.7bn to £13bn.
While the borrowing figure came in below the £17.5bn forecast by many economists, concerns remain over the wider fiscal picture. Since the start of the financial year, total borrowing stands at £79.6bn —£1.2bn more than the same period in 2023 and £6.7bn higher than projections from the Office for Budget Responsibility (OBR), the UK’s independent fiscal watchdog.
The ONS also noted a decline in central government benefit payments for the first time since early 2022. This drop was attributed in part to Labour's recent policy decision to means-test the winter fuel allowance.
ONS deputy director for public sector finances Jessica Barnaby said:
“Borrowing this month was about £2bn up on last year, making this the third-highest September figure on record.
"While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.”
Public sector net borrowing excluding public sector banks was £16.6 billion in September 2024, £2.1 billion more than that time last year and the third highest September borrowing on record, behind 2020 and 2021.
Across the financial year to September 2024, borrowing was £79.6 billion, £1.2 billion more than in the same six-month period a year earlier and the third highest year-to-September borrowing on record. pic.twitter.com/aSrxelZhfq
Stocks in Asia were mixed overnight with the Nikkei (^N225) falling 1.4% on the day in Japan, while the Hang Seng (^HSI) was treading water in Hong Kong.
The Shanghai Composite (000001.SS) was 0.5% up by the end of the session following a cut to interest rates that took effect on Monday.
Indices outside of China, including in Australia and Korea, declined in cautious trading ahead of earnings reports both in the region and overseas, after Wall Street’s long, record-breaking rally ran out of steam.
Across the pond on Wall Street, the benchmark S&P 500 (^GSPC) declined 0.2% to 5,853.98. The Dow Jones (^DJI) finished 0.8% lower at 42,931.60, while the tech-heavy Nasdaq Composite index (^IXIC) advanced 0.3% to reach 18,540.01.
In the bond market, the yield on 10-year US Treasury notes rose to 4.206% from 4.086% late on Sunday.
LaToya Harding
Coming up...
Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what's moving markets, and all that's happening across the global economy.
Here's a quick look at what's on the agenda for today:
