Closing summary
Some calm has returned to the markets at the end of a tumultuous week, despite the political uncertainty in the UK, where the Conservative party has to pick a new leader who will become the country’s fifth prime minister in six years. Liz Truss quit as PM yesterday after just six weeks in office following her mini-budget debacle.
The pound has pared losses versus the dollar, and is now down 0.6% against both the dollar and the euro, at $1.1168 and €1.1404.
The FTSE 100 index has turned positive and is trading 17 points higher at 6,962, a gain of 0.25%. Germany’s Dax is nearly 1% lower, while the French and Italian markets have fallen 1.5% and 0.6% respectively.
They pared some losses after Wall Street turned positive.
Crude oil prices are pushing higher, with both Brent crude and US light crude up more than 1%, at $93.52 a barrel and $85.48 a barrel respectively.
UK government bond prices have fallen, pushing their yields (or interest rates) higher again, although they remain well below the 5% hit after the mini-budget. The 30-year yield has risen to 4.01% while the 20-year is yielding 4.2%.
Our main news today:
Jeremy Hunt, the UK chancellor, said he would do “whatever necessary” to bring down national debt as the latest official figures showed government borrowing jumped in September and debt interest payments hit a record high.
Retail sales in Great Britain fell more steeply than expected in September as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
The Office for National Statistics said retail sales dropped by 1.4% in September, against a forecast of a 0.5% fall by City economists, and marks the first month that volumes have fallen below pre-pandemic levels.
The number of homes sold in the UK in September fell by nearly 40% as transaction levels returned to normal following the big spike caused by the Covid stamp duty holiday, with experts suggesting the real “house sales horror story” is still to come.
The chaos affecting international air travel in the summer has been firmly stowed away, according to UK aviation firms, with a smooth getaway expected in the busiest weekend before Christmas.
The City watchdog could fine Barclays up to £50m for failing to disclose a deal struck with Qatar at the height of the financial crisis, reviving a controversial episode that failed to gain traction in UK courts.
The provisional fine – which Barclays is in the process of appealing against – relates to the £322m the bank paid to Qatar in 2008, allegedly in exchange for the gas-rich Gulf state investing £4bn, helping save the lender from a UK government bailout.
Other stories:
Updated
Wall Street opened slightly lower, but the Nasdaq didn’t fall as much as feared after disappointing results from Snap. It has slipped 0.4%, while the Dow Jones is now up 0.6% and the S&P 500 has gained 0.5%.
The UK’s new prime minister will decide whether to proceed with a fiscal plan scheduled for 31 October, a Downing Street spokeswoman said today.
We are working in preparation for the 31st. But obviously, the decision on proceeding with that, and with that timetable, would be for the new prime minister.
The public finances worsened more than expected last month, heaping more pressure on the new chancellor, Jeremy Hunt, ahead of the fiscal plan. He said he would do “whatever necessary” to get national debt down.
Futures point to lower Wall Street open after Snap warning
Stock market futures are pointing to a lower open on Wall Street in just over half an hour, after Snap’s forecast of flat revenues over the busy holiday quarter spooked the market.
The company behind the photo messaging app Snapchat lost more than a quarter of its market value after it posted its slowest quarterly revenue growth in five years because advertisers cut spending. Shares in other tech and social media companies such as Alphabet, Twitter, Facebook owner Meta and Pinterest also fell. They are all due to report quarterly results in the coming days.
The tech-heavy Nasdaq is expected to fall 1.2% at the open.
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Lunchtime summary
Time for a look at the markets.
The pound has lost 1.37% to $1.1080 amid heightened political uncertainty after Liz Truss quit as prime minister yesterday, while general dollar strength is another factor. Sterling is down 0.6% versus the euro at €1.1404.
The sell-off on European stock markets has gathered pace.
UK’s FTSE 100 down 79 points, or 1.1%, at 6,865
Germany’s Dax down 174 points, or 1.4% at 12,593
France’s CAC down 114 points, or 1.9, at 5,972
Italy’s FTSE MiB down 424 points, or 2%, at 21,277
Crude oil prices have ventured into positive territory, with Brent crude up 28 cents at $92.65 a barrel.
Finally, UK government bonds are selling off again, especially longer-dated ones, pushing up their yields – which means higher borrowing costs for the government. The 30-year bond yield has advanced 13 basis points to 4.03% while the 20-year bond is yielding 4.3%, up 15 bps. Two-year gilt yields have edged up to 3.8% while the 10-year is yielding 4.08%.
Official figures showed today that government borrowing rose to £20bn last month, the second-highest September figure on record. Jeremy Hunt, the chancellor, pledged that he will do “whatever necessary” to bring down the nation’s debt, which has reached 98% as a share of GDP, the highest level since the 1960s.
Retail sales in Britain fell more steeply than expected in September, by 1.4%, as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
Updated
Here’s a round-up of today’s other news.
Elon Musk told prospective investors that he plans to eliminate nearly 75% of Twitter’s staff as part of his deal to take over the social media company, the Washington Post reported on Thursday.
Job cuts are expected in the coming months no matter who owns the company, according to the report, which cited interviews and documents.
TikTok has denied it is used to “target” US citizens following a report that its Chinese parent planned to track the location of people via the video-sharing app.
A report by Forbes on Thursday claimed that, in at least two cases, a China-based team at ByteDance, the platform’s owner, planned to collect TikTok data about the location of a US citizen.
Average private rents in Britain have soared to record highs, with severe shortages of properties resulting in more tenants paying above the asking price and stretched budgets forcing more people to downsize to studio flats, data shows.
The average advertised rent in Greater London is 16.1% higher than a year ago, which is the highest rate of growth of any region on record, according to the property website Rightmove.
However, the site also revealed that some cities and towns have faced even bigger annual rises, piling yet more pressure on households already facing severe strain.
The DIY chain Wickes has said its energy costs could rise by £7.5m next year and warned of growing uncertainty regarding consumer confidence.
The home improvement retailer said that total sales grew by 2.6% in the third quarter, strengthening in September after wilting during the heatwaves in July and August.
Zara is to help its UK shoppers resell, repair or donate clothing bought from the Spanish fashion chain in an effort to reduce its environmental impact.
The Pre-owned service, which launches on 3 November and will be Zara’s first step into resale or repair, will enable shoppers to book repairs and donate unwanted items online or via a store, and post now-unwanted Zara purchases online for sale.
A charter airline hired to remove people seeking refuge in the UK to Rwanda has pulled out of the scheme after pressure from campaigners.
A plane operated by Privilege Style first attempted to fly asylum seekers to the east African country in June but was grounded by an 11th hour ruling by the European court of human rights.
From Trump to Kanye and Musk: why are the super-rich buying social media sites?
Almost 100m highly polluting cars could appear on Europe’s roads over the next decade after the European Commission moved to disown its own experts efficiency recommendations in a leaked proposal seen by the Guardian.
Updated
Here’s our full story on the sharp drop in British retail sales:
Retail sales in Great Britain fell more steeply than expected in September as soaring prices prompted consumers to rein in spending and many stores lost trading on the day of the Queen’s funeral.
The Office for National Statistics said retail sales dropped by 1.4% in September, against a forecast of a 0.5% fall by City economists, and marks the first month that volumes have fallen below pre-pandemic levels.
According to the latest figures, food store sales fell 1.8% as increasingly budget-conscious consumers cut spending amid concerns over price rises and the cost of living. The figures come as households across the country come under pressure from inflation hitting its highest level for 40 years on the back of soaring food prices.
“This is a disappointing but unsurprising latest instalment in the saga of the cost of living crisis,” said Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown. “Food sales were especially affected, as customers make do without extra trolley treats or more expensive dining habits.”
Spending on bigger ticket items continued to fall, with household goods stores, such as furniture retailers, recording a 1.5% decline in sales volumes in September. Other non-food stores, such as jewellery retailers, reported a 0.7% fall in sales in September, while there was a 0.6% drop in sales for department stores.
As the cost of living crisis worsens, here’s a handy guide to how to help food banks.
Give basics (and tin openers), food that doesn’t need cooking and add some snacks. Here’s what charities need to meet the demand for emergency food parcels, writes the Guardian’s feature writer Emine Saner.
Matthew Upton, director of policy at Citizens Advice, has tweeted:
While the next weeks news dives back into leadership debates, worth taking a refresh on the problems that are actually dominating ppls lives. Here's an overview of how cost of living problems have spiralled, particularly in recent months. Then if we dive into a few snapshots 🧵 pic.twitter.com/XgNqfB5hs0
— Matthew Upton (@matthewrupton) October 21, 2022
UK housing transactions drop 32% in September, even before mortgage chaos
There was a sizeable fall in UK housing transactions last month, in further evidence that the housing market is slowing.
UK residential transactions fell 32% to 112,370 in September year-on-year, according to HM Revenue & Customs (HMRC) figures. The number was unchanged from August.
HMRC cautioned that the recent sharp rises in mortgage rates, following Liz Truss and Kwasi Kwarteng’s disastrous mini-budget of unfunded tax cuts on 23 September, which was largely reversed on Monday, have not fed through to the figures yet.
Current monthly transactions remain at levels similar to late 2019, before the coronavirus pandemic.
Recent increases in mortgage rates are unlikely to have had any impact yet on these statistics, as the publication reports transactions that have completed at the end of the property purchasing process, which may be weeks or months after a mortgage offer is in place.
Updated
China's yuan falls to lowest since 2008 despite state bank support; sterling down 1%
China’s yuan has fallen to its weakest level against the dollar since the global financial crisis of 2008, despite efforts by major state-owned banks to stabilise the market.
The yuan finished the domestic trading session 0.46% lower on the day at 7.2494 per dollar, the weakest closing price since mid-January, 2008.
Sources told Reuters that state banks sold dollars in the onshore currency market to prevent the spot price from weakening past the 7.25 per dollar level.
The dollar has generally strengthened today as US Federal Reserve officials show no signs of changing their aggressive stance on interest rate hikes. Sterling has dropped more than 1% versus the dollar to $1.1117, and is 0.5% lower against the euro at €1.1414, amid heightened political uncertainty.
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Russ Mould, investment director at AJ Bell, says:
Given the unprecedented events involving British politics in recent weeks, investors are hoping for less volatility and more stability in both the government and on the markets.
UK markets on Friday were calm as the nation sat tight, in anticipation of the third Prime Minister of the year being appointed at some point over the next week.
Even though there is some sense of peace in the markets now, this could all change next week when we have a clearer idea of who is in the running for Number 10 and how each candidate might reshape the country’s policies to avoid economic shocks.
Turning to today’s corporate results, Mould says:
Heading up corporate news in the UK was Intercontinental Hotels. Its average rate per available room has shot up by 28% as demand returns to the travel sector. The thorn in its side is China where tough restrictions around Covid have disrupted trading once again, enough to spook investors and send the share price down 3%.
Sales growth has ground to a halt for DIY products seller Wickes. While the company seemingly takes a positive view, saying that sales have stabilised after weakness in previous quarters, the company still faces the fact that the DIY boom seen during the pandemic has lost momentum.
Government bond yields rise again; German 10-year hits 11-year high
Compared to the moves we’ve seen in markets in recent days and weeks, an eerie calm has descended. The FTSE 100 index is down 0.7% at 6,892. Government borrowing costs fell sharply this week after Jeremy Hunt reversed almost all the unfunded tax cuts in the mini-budget that caused Liz Truss’s downfall.
The yield, or interest rate, on the 30-year UK government bond (known as gilt) has fallen back from above 5% after the mini-budget. Following the worsening in the UK’s public finances, bonds have sold off this morning, and the 30-year yield has risen again, to 4.065%, up 15 basis points. The 20-year yield has added 9 bps to 4.2%, while the 10-year yield has climbed 8 bps to 3.9% and the two-year yield increased to 3.68%.
Yields rise when bond prices fall, and increasing yields show that investors want a larger return for holding the debt.
In Germany, the 10-year bond yield hit a new 11-year peak today, driven up by concerns over rising interest rates, with the European Central Bank expected to hike borrowing costs again sharply next week. The 10-year Bund, as German government bonds are known, rose as high as 2.49%, the highest level since August 2011.
Updated
Pound slides on political uncertainty
The slide in sterling has accelerated, a day after Liz Truss quit as prime minister in a tumultuous week that saw her sack her chancellor Kwasi Kwarteng and appoint Jeremy Hunt instead. Hunt lost no time and on Monday ripped up the pair’s mini-budget of unfunded tax cuts that sent the pound crashing and borrowing costs soaring.
The pound has dropped 0.76% to $1.1148 this morning, a one-week low.
The leadership race could see the return of Boris Johnson, who was forced to stand down as prime minister in July after a cabinet revolt, in what would be an extraordinary comeback. He and the former chancellor Rishi Sunak are leading in the Conservative party contest to become the fifth British premier in six years.
Sunak, a former Goldman Sachs analyst, is the bookies’ favourite, followed by Johnson. In third place is Penny Mordaunt, a former defence secretary who is popular with the wider Conservative party.
More on our politics live blog.
Updated
Here’s our full story on government borrowing:
Jeremy Hunt said he would do “whatever necessary” to bring down national debt as the latest official figures showed government borrowing jumped in September and debt interest payments hit a record high.
The chancellor said getting the public finances on a stable footing was essential, as government borrowing hit £20bn in September, £2.2bn more than last September, and £3bn more than economists expected.
Higher borrowing pushed debt interest payments to £7.7bn last month, according to the Office for National Statistics, £2.5bn more than in September 2021 and the highest September figure since monthly records began in April 1997.
Truss remains prime minister until a successor has been found. Here’s a video about the drama: Liz Truss, lettuce and a lectern: 25 hours of chaos in three minutes
And our analysis of how Truss’s mini-budget threw the country into chaos and led to her downfall, by our economics correspondent Richard Partington.
Liz Truss ignored economists’ stark warnings over mini-budget
Liz Truss ignored stark warnings from economists sympathetic to her growth strategy that the mini-budget that ultimately led to her downfall risked triggering a financial markets meltdown, the Guardian has learned.
Truss announced her resignation on Thursday after just 44 days in Downing Street, after a package of tax cuts and spending increases on 23 September rattled the markets, prompted a run on pension funds and sent the cost of mortgages spiralling.
But days before the start of her premiership, she was told by the economists Gerard Lyons and Julian Jessop that the markets were highly nervous and that she could face a crash if her policy changes were not handled with care.
Lyons and Jessop – who were supportive of Truss’s growth agenda – prepared a paper for a meeting at Chevening, the country residence of the foreign secretary, as Truss was, two days before she was announced as Boris Johnson’s successor on 5 September.
Also in attendance were Kwasi Kwarteng, who would be Truss’s chancellor, Matthew Sinclair, Truss’s economic policy adviser, and a third economist, Andrew Lilico.
The paper supported the idea that a new government needed to “hit the ground running” but repeatedly stressed the need to keep the financial markets onside.
Predicting the chaos that was to follow Kwarteng’s £45bn of unfunded tax cuts announced in his 23 September mini-budget, it said: “The markets are nervous about the UK and about policy options. If immediate economic policy announcements are handled badly then a market crash is possible.”
Almost 8m people struggle with bills – City watchdog
Almost 8 million people in Britain are struggling to pay their bills, 2.5 million people more than in 2020, according to the financial watchdog.
The Financial Conduct Authority has published a snapshot of the latest edition of its Financial Lives survey, which was carried out between February and June 2022. It shows 7.8 million people were finding it hard to keep up with their bills (that number is likely to have gone up further since then).
One in four UK adults are in financial difficulty or could quickly find themselves in difficulty if they suffered a financial shock, and 4.2 million people have missed bills or loan payments in at least three of the six months before the survey took place.
Ruth Gregory, senior UK economist at Capital Economics, neatly sums up the situation:
The weakness in retail sales and overshoot of the Office for Budget Responsibility’s March public borrowing forecast won’t make the next prime minister’s task any easier in navigating the economy through the cost of living crisis, cost of borrowing crisis and the cost of credibility crisis…
Expenditure of £79.3bn [in September] was far higher than the £73.6bn the OBR forecast, as the surge in RPI inflation contributed £4.7bn to the £7.7bn rise in debt interest payments…
This is before taking into account the government’s energy price support (perhaps costing in the region of £60bn) and the remaining mini-budget tax-cutting measures. Overall, we still think that the chancellor has a big challenge ahead to fill the remaining hole of about £34bn and restore credibility in policy-making in the eyes of the financial markets.
Government receipts in September were £7bn higher than September 2021, at £71.2bn, as tax receipts rose by £4.5bn to £52bn, but this was offset by higher spending.
The £20bn borrowing in September left the deficit in the fiscal year so far at £133.3bn compared with an Office for Budget Responsibility forecast of £127.8bn.
Martin Beck, chief economic advisor to the forecaster, the EY Item Club, says:
But only a small part of the fiscal policy support announced for 2022-23 has so far fed into borrowing. Notably, the cost of the Energy Price Guarantee (EPG) and the cap on businesses’ energy bills will not affect spending until this month. November will then see revenues reduced by the cut in national insurance contributions.
However, the decision to reverse almost all the other tax cuts of September’s mini-Budget and limit the EPG to six months means borrowing will come in significantly less in 2023-24 than was being predicted only a week or so ago. The prospect of tax rises and spending cuts in the forthcoming fiscal statement point in the same direction.
If energy prices are elevated next spring, there’s a chance the EPG will be extended. But a fall in future gas prices offers hope that an extension won’t be necessary. However, the effects of a likely recession on the public finances and the risk that energy prices could increase means that the fiscal deficit this year and next will probably come in tens of billions of pounds above the OBR’s March forecast of £99.1bn and £50.2bn respectively.
The Bank of England’s mammoth government bond holdings become a drain on UK public finances for the first time, costing taxpayers £156 million https://t.co/cuDAmvfqJO via @_Davidgoodman @PhilAldrick pic.twitter.com/1B5TEDie1M
— Zoe Schneeweiss (@ZSchneeweiss) October 21, 2022
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Jake Finney, economist at PwC, says:
The latest public sector finances data highlights the challenges faced by the incoming prime Minister and the chancellor. Public borrowing in September was around 13% higher than at the same time last year, in large part due to rising spending on interest payments and cost-of-living payments to households, such as the winter fuel payments.
Reductions to gilt rates following the U-turns announced earlier this week could potentially lower the government’s debt interest spending by up to £10bn a year. This would significantly reduce the size of the black hole in the public finances.
Looking forward, all eyes are on October 31, when chancellor Jeremy Hunt will present a new fiscal strategy for the country. Public sector debt as a share of GDP is now at 98%, its highest level since the early 1960s. To meet its current fiscal targets the government will need to announce around £30-40bn of spending cuts or tax rises. This is equivalent to around a fifth of the core NHS budget.
Carl Emmerson, deputy director of the respected Institute for Fiscal Studies, has crunched the public finance figures, and is suggesting that the fiscal statement should be delayed beyond 31 October, “to make good decisions”.
Today’s numbers show that borrowing in the first half of this year was £72bn, which is almost the same as the Office for Budget Responsibility’s forecast for this period in March. But this is little guide to how much borrowing will be over the whole of this financial year, as the huge cost of government support for household and business energy use only began in earnest this month. Fuelled by this in last week’s Green Budget [by the IFS] we forecast that borrowing this year could reach almost £200bn, which would be nearly £100bn more than the OBR forecast.
A key focus for the next prime minister and their chosen chancellor needs to be fiscal responsibility. We need a credible plan to ensure that government debt can be expected to fall over the medium-term.Given the timeline for determining the next prime minister, the degree of economic uncertainty, and the importance of getting this right, there is a strong case for taking a bit longer to make good decisions which have more chance of standing the test of time, rather than going ahead with a major fiscal event only a few days into the new PM’s tenure.
Updated
European stocks, oil prices fall
European stocks have slid at the open, while crude oil prices have also retreated amid worries about rising interest rates to combat high inflation, and the worsening economic outlook.
UK’s FTSE 100 down 41 points, or 0.6%, to 6,901
Germany’s Dax down 1%
France’s CAC down 1.1%
Italy’s FTSE MiB down 1%
Spain’s Ibex down 0.7%
Portugal’s PSI down 0.6%
Brent crude, the global oil benchmark, is trading 0.36% lower at $92.05 a barrel while US light crude has lost 0.4% to $84.15 a barrel.
Updated
Introduction: government borrowing rises, pound slides
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
We’ve woken up to news of a further rise in UK government borrowing, a sharp drop in retail sales in Great Britain, and a decline in the pound.
Sterling slid 0.5% to $1.1178 this morning, taking it close to a one-week low, and wiping out the brief rally to $1.1338 after Liz Truss resigned as prime minister on Thursday.
The UK’s public finances have worsened further, with the government borrowing £20bn in September as it spent more on debt interest payments, according to figures just released by the Office for National Statistics. It is the second highest September borrowing on record and worse than what City economists had expected - putting more pressure on Jeremy Hunt, the chancellor, ahead of the fiscal statement on 31 October.
Hinting at potential spending cuts and tax rises, Hunt said:
Strong public finances are the foundation of a strong economy. To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.
We will do whatever is necessary to get drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy.
The government borrowed £2.2bn more last month than in September 2021, making it the second-highest September borrowing since monthly records began in 1983.
Central government day-to-day spending was £79.3bn last month, up £5.8bn on a year earlier. This was mostly because of a £2.5bn increase in debt interest payments, while a £4.4bn increase in social benefit payments was partly offset by subsidy payments.
Debt interest payable rose to £7.7bn, the highest September figure since monthly records began in April 1997, because of the effect on soaring inflation on index-linked gilts.
Public sector net borrowing excluding public sector banks was £20.0 billion in September 2022.
— Office for National Statistics (ONS) (@ONS) October 21, 2022
This was £2.2 billion more than in September 2021 but £8.2 billion lower than in September 2020 at the height of #COVID19.
➡️ https://t.co/n7fZn0cNpL pic.twitter.com/l1ONIDphGS
At the same time, retail sales in Great Britain fell sharply last month, as the cost of living crisis is hitting people’s ability to spend on food and other items.
Volumes fell by 1.4% in September, a bigger-than-expected drop that took them 1.3% below pre-coronavirus levels in February 2020, according to the ONS. Food store sales fell 1.8%, online sales retreated 3% and petrol was down 1.3%.
It said that while retailers continue to mention the effect of rising prices and the cost of living on sales volumes, data for September are also affected by the bank holiday for the Queen Elizabeth II’s state funeral, when many shops closed.
Within non-food stores, sales of household goods such a furniture fell 1.5% while department stores recorded a 0.6% drop. Clothing shops eked out a 0.1% gain, mainly because of growth in shoe shops.
In the three months to September, retail sales were down 2% compared with the previous three months; this continues the downward trend seen since the summer of 2021.
Shot: UK September retail sales lower than all forecasts.
— Andy Bruce (@BruceReuters) October 21, 2022
Chaser: UK September budget deficit higher than all forecasts pic.twitter.com/H7pxxdvz9m
The Agenda
9am BST: EU European Council Meeting
3pm BST: Eurozone consumer confidence flash for October (forecast: -30)
Updated
