The highest August public sector borrowing figure since the pandemic today dealt a fresh blow to Rachel Reeves.
The £18 billion recorded by the Office for National Statistics came in £3.5 billion higher than a year ago and compared with City expectations nearer £13 billion.
The public finances have deteriorated despite resilience in the UK economy, with retail sales figures today showing a 0.5% rise in volumes during August.
FTSE 100 Live Friday
- Public borrowing above forecast
- Retail sales volumes grow
- Consumer confidence weaken
Market update: Pound weakens, Next recovers in steady FTSE 100
10:04 , Graeme EvansThe UK’s deteriorating public finances cast a cloud over financial markets today as the pound weakened and 10-year gilt yields rose to a two-week high.
Above-forecast public sector borrowing of £18 billion was the worst August figure since the pandemic and left the year-to-date figure £11.4 billion above OBR expectations at £83.8 billion.
Capital Economics said: “We think this will contribute to the Chancellor having to raise around £28 billion in the Budget on 26 November, mostly through higher taxes.”
In a stronger session for the US dollar, the decline of the pound exceeded other major currencies following a reverse of about 0.5% to $1.349. The 10-year gilt yield stood at 4.7%.
The developments came during a tepid finish to the week for the FTSE 100 index, which stood 6.73 points higher 9234.84.
Endeavour Mining put back yesterday’s losses with a rise of 78p to 2770p, while Anglo American and Antofagasta added 1%.
Rolls-Royce lifted 17p to 1146.5p after Goldman Sachs predicted further upside for the engines giant with a price target of 1290p.
Next shares recovered from their results-day fall of 3.5%. adding 130p to 11,705p as sentiment benefited from retail sales figures showing volume growth of 0.5%.
Today’s ONS release for August reflected the benefit of good weather, although with tax rises looming the cheer was offset by a weaker GfK consumer confidence index.
B&Q owner Kingfisher rose 1.9p to 250.9p as the next best retail stock, but Marks & Spencer fell 5.5p to 354.35p and Tesco dropped 1.7p to 431.6p.
Taylor Wimpey fell 1.2p to 98.1p in its final session before relegation from the FTSE 100 index in the quarterly reshuffle. Burberry, which is taking the housebuilder’s place, rose 2.7p to 1142.7p.
In the FTSE 250, Spire Healthcare jumped 13% or 28.5p to 245p after disclosing talks with parties over its strategic options, including a potential sale of the business.
Spire confirms talks on strategic options, shares surge
09:18 , Graeme EvansSpire Healthcare shares have risen 9% after it said it was holding talks with parties over its strategic options, including a potential sale of the business.
The FTSE 250-listed company runs 38 hospitals and over 50 clinics, medical centres and consulting rooms across England, Wales and Scotland.
It said: “This process is highly preliminary and no decision has been made regarding whether any such option will be pursued at this stage.
“There can be no certainty either that any offer will be made for the company nor as to the terms of any offer, if made.
“The company is not in receipt of any approaches and is not in discussions with any parties in respect of a potential sale of the company at the time of this announcement.
Spire said recently that it believed its progress with strategic and efficiency initiatives, together with its freehold property and a well invested asset base, are not yet reflected by the market in full.
The shares rose 20p to 236.5p.
Backing for Rolls-Royce lifts shares, pound weakens
08:31 , Graeme EvansThe FTSE 100 index is 4.76 points higher at 9232.87, with Next up 120p to 11,695p following yesterday’s results-day decline of 3.5%.
Rolls-Royce lifted 14p to 1143.5p after Goldman Sachs predicted further upside for the engines giant’s shares by disclosing a price target of 1290p.
Endeavour Mining put back yesterday’s losses with an improvement of 3% or 86p to 2778p, while silver miner Fresnillo added 68p to 2232p.
On the fallers board, London Stock Exchange lost 3% or 258p to 8378p and JD Sports Fashion dipped 1.8p to 90.2p.
Meanwhile, the pound weakened 0.3% against the dollar to $1.351 as traders reacted to this morning’s worse-than-expected public sector borrowing figures.
Borrowing £11.4bn above OBR forecast
07:47 , Graeme EvansA borrowing figure of £83.8 billion in the first five months of the financial year is £11.4 billion higher than the OBR forecast at the Spring Statement in March.
Public sector net debt is estimated to be 96.4% of GDP, a rise of 0.5 percentage points on a year earlier and remaining at levels last seen in the early 1960s.
Capital Economics said the public finances continued to deteriorate despite the UK economy not being extremely weak.
The consultancy said: “We think this will contribute to the Chancellor having to raise around £28 billion in the Budget on 26 November, mostly through higher taxes.”
Consumer confidence falls as tax rises loom
07:36 , Graeme EvansConsumer confidence weakened this month after figures published by GfK today showed a two-point decline in its headline reading to minus 19.
Both personal finance sub-measures – past and future – fell and GfK’s major purchases index dropped three points to minus 16.
There was also an eight-point fall in saving intentions, while sentiment on the outlook for the economy fell to minus 32. This figure was minus 11 in June 2024.
GfK consumer insights director Neil Bellamy said: “The August 7th decrease in interest rates does not appear to have provided any obvious boost to the financial mood of consumers or drawn attention away from day-to-day cost issues.”
He added: “With tax rises expected in the November budget, the risk is that confidence inevitably falls.”
Retail sales higher, public sector borrowing above forecast
07:03 , Graeme EvansRetail sales volumes grew by 0.5% in August, the Office for National Statistics reported today.
The performance was in line with City expectations, following revised growth of 0.5% the previous month. Clothing stores grew sales in August, which some retailers attributed to the good weather.
Meanwhile, figures on the public finances showed the government borrowed a bigger-than-forecast £18 billion in August. This was higher £3.5 billion higher than the same month a year ago and compared with City forecasts of £13 billion.
Borrowing in the financial year to August was £83.8 billion, some £16.2 billion more than in the same five-month period of 2024 and the second-highest April to August borrowing since monthly records began in 1993, after that of 2020.
ONS chief economist Grant Fitzner said: “Last month’s borrowing was the highest August total since the pandemic.
“Although overall tax and National Insurance receipts were noticeably up on last year, these increases were outstripped by higher spending on public services, benefits and debt interest.
“Total borrowing for the financial year to date was also the highest since 2020.”
FTSE 100 steady, Wall Street benchmarks set more records
06:59 , Graeme EvansThe strong run by Wall Street markets continued last night after the Dow Jones Industrial Average closed 0.3% higher.
The S&P 500 index lifted 0.5% and the Nasdaq Composite added 0.9% as the benchmarks posted new records.
The latest gains were driven by a positive response to Wednesday's Federal Reserve announcement, when the central bank signalled two more rate cuts this year.
The FTSE 100 index, which closed 0.2% or 19.74 points higher at 9,228.11 yesterday, is forecast to open today’s session broadly flat.
The pound is at $1.3549 while the price of Brent Crude is at $67.37 a barrel.
