With this, we are closing the blog for today. Thank you for all your great comments, and have a good weekend. We will be back on Monday.
The eurozone consumer confidence figures from the European Commission are out. The flash estimate rose by 0.2 points to -8 in October from -8.2 the previous month, in line with market expectations.
In the wider European Union, consumer confidence edged down 0.1 point to -6.5.
To put this into context, consumer confidence in the eurozone averaged -12.30 between 1985 and 2016, reaching an all time high of 2.40 in May of 2000 and a record low of -34.30 in March of 2009.
Updated
Pound falls below $1.22
The pound continues to slide, and has fallen below $1.22. It is currently trading at $1.2192, down 0.5% on the day.
At her first EU summit, Theresa May has been given a stark warning from both Angela Merkel and François Hollande that Britain faces a “rough” and “hard” negotiation – as she pursues a tough approach to Brexit negotiations, including a clampdown on immigration.
Updated
According to Reuters, Burberry and US rival Coach are NOT in active merger talks, despite an earlier report from financial blog Betaville. Reuters cited two unnamed sources.
We’ve had some technical issues here, hence the long silence.
The Institute for Fiscal Studies has published its analysis of the UK public finance figures.
Thomas Pope, a research economist at the respected think tank, said:
At the half way point in the financial year, tax receipts have disappointed while central government spending has been slightly lower than official forecasts for the year imply. Overall, borrowing looks set to be higher than the OBR forecast in March, possibly by a reasonable margin. The trend so far suggests that, over the year as a whole, receipts could undershoot by £14bn.
The next few months might however contain some better news on receipts. The recent rise in income tax on dividend income is likely to have led to some owner-managers bringing forward their dividend payments. As a result we can expect strong growth in income tax receipts on dividend payments to arrive around the self-assessment deadline at the end of January. Therefore a better estimate for receipts this year is for an undershoot of £8bn, driven by with weak receipts from income tax and National Insurance on earnings, and from VAT on purchases.”
On 23 November, the new chancellor will present his response to a much changed economic outlook at the Autumn Statement. Borrowing looks likely to be larger this year than his predecessor expected in March, which will make the challenge he faces more difficult.
The full analysis is on the IFS website.
Updated
Lunchtime summary
Let’s have a look at the markets. The FTSE 100 index is trading 25 points higher at 7051.89, a 0.36% gain. It has been hovering around this level most of the day.
Germany’s Dax has slipped 0.03% to 10,699.45 while France’s CAC is down 0.16% to 4532.31.
On currency markets, growing expectations of a Fed rate hike in December mean that the dollar is on course for its third consecutive week of gains, measured against a basket of currencies. The dollar index is up 0.27% at 98.581.
Amid worries over a “hard Brexit,” sterling is sliding against the dollar, losing 0.6% to $1.2182, as Theresa May attends her first EU summit. Against the euro, the pound is flat.
The UK public finances worsened unexpectedly in September, with the government borrowing £10.6bn rather than £8.5bn as forecast by the City. There was a rare fall in corporation tax receipts. This knocked the public finances further off course and will present a headache for chancellor Philip Hammond, who is preparing for the autumn statement on 23 November.
Updated
Meanwhile, Brian Murphy, head of lending at the Mortgage Advice Bureau, says:
The data released this morning from HMRC suggests a healthy level of transactions for last month, given the context that the average property transaction will take 12 to 14 weeks to conclude, meaning that the data compiled for September completions is based on those who would have committed to their purchase in late June or early July, e.g. directly after the referendum result.
August completions reflect purchases which were started in May, which is typically a busy month as it’s the tail end of the Spring market, rather than June which generally sees the start of the summer holiday hiatus, and September 2015 was exceptionally busy due to pent up demand following the General Election.
Looking at the bigger picture... we would anticipate that by the end of the year, the total number of residential property transactions could stand at around 1.2m. This would certainly be in line with 2014 and 2015 levels, and a substantial increase on transaction volumes in 2011, 2012, 2013.
Here is some reaction to the fall in property transactions in September, reported earlier. Nick Davies, head of residential development at Stirling Ackroyd, says the slowdown in sales is due to a shortage of homes coming onto the market.
While the demand for homes continues to grow and interest rates are at a record low, the lack of properties available is reducing sales and driving up house prices. If government wants to support the property sector and help first-time buyers, they will need to increase the circulation of homes on the market.
In order to achieve this, they first need significantly step-up the construction of new homes - David Cameron’s Government built the fewest new homes of any administration since the 1920s. Theresa May must do better. More also needs to be done to encourage older people to consider downsizing, freeing up more homes for families and younger buyers. Reducing Stamp Duty rates would provide a greater incentive to move home, increasing the flow of properties onto the market and ensuring house prices remained stable.
Burberry shares jump on Coach merger report
Burberry shares have jumped more than 5% to £15.27 after financial blog Betaville (citing sources) reported that US rival Coach was working with investment bank Evercore on a potential merger with Burberry.
Updated
Property conference MIPIM UK, a three-day event (the UK offshoot of the annual Cannes conference) draws to a close today. It was attended by 3,000 investors, housing experts and developers. The conference focused on how the property market will be affected by the Brexit vote.
The organisers noted that Theresa May’s government has stressed the commitment to boosting housing and developing infrastructure.
Industry analysts say that despite uncertainty caused by the referendum, the weak pound is attracting international investors. Sir Howard Davies, chairman of Royal Bank of Scotland, echoed these comments when he opened the conference on Wednesday, saying sterling’s slide had made the UK more attractive to dollar investors.
But Davies also predicted slower economic growth post-Brexit, and noted that “the froth has gone off the London property market” as a number of banks are preparing to move operations elsewhere in the EU.
Guy Hands, the financier who founded buyout firm Terra Firma, was quite blunt in stating: “nobody has any real idea of what’s going to happen” the property market. But he pointed to Britain’s “chronic housing shortage,” estimated at about 1.2m homes.
He also challenged the notion that the eurozone could claim London’s financial crown, saying US banks were more likely to relocate to New York than Frankfurt or Paris.
Updated
The Unite union said it was “deeply concerned” about Bombardier’s Belfast workforce, which is involved in every Bombardier line of production.
Canadian plane and train maker Bombardier has announced another big round of redundancies, the second this year. The company said today that it would cut a further 7,500 jobs globally over the next couple of years, or 10% of its workforce. This includes 2,000 job losses in Canada.
Bombardier chief executive Alain Bellemare told Reuters:
We understand these are difficult decisions ... but in the end what we are going to be left with is a leaner, stronger organisation.
Updated
Returning to the dire government borrowing figures...
The most depressing UK economy chart - Means still lots more austerity to come pic.twitter.com/eQ4VKvXeG3
— Chris Giles (@ChrisGiles_) October 21, 2016
Commercial property deals are also down, to 9,670. This is a 3.9% fall from the August number and 3.8% below September 2015.
Property transactions down in September
The number of residential property transactions in the UK fell to 93,130 last month, according to seasonally adjusted figures from HMRC. The number is down by 4.3% compared with August, and 11.3% below last September’s figure.
Latest figures from HMRC show number of property transactions is falling. Likely spells a slowdown for house price growth in the near future pic.twitter.com/DIGdjL43Y0
— Rupert Seggins (@Rupert_Seggins) October 21, 2016
John Hawksworth, chief economist at PricewaterhouseCoopers, says the public borrowing figures were “a bit of a cold shower for the chancellor after the recent run of generally favourable post-referendum economic data”.
It is therefore looking increasingly difficult for the Chancellor to meet the OBR forecast from March that total public borrowing in 2016/17 will be £55.5 billion, which would require borrowing in the second half of the year to come in at just £10 billion. A more likely outcome based on the available data is that the budget deficit this year will come in at around £65-70 billion.
We would not, however, expect the Chancellor to take any immediate action in the Autumn Statement to correct this budget deficit overshoot, as this could be counterproductive and further weaken the economy. Instead we would expect some increase in planned public sector investment over the next few years, allied to a commitment to eliminate the current budget deficit (excluding net investment) before 2020 and to keep the ratio of public sector debt to GDP on a gradual downward path in the medium term.”
Howard Archer, chief European and UK economist at IHS Markit, says of the borrowing figures:
This highlights the fact that the Chancellor has limited room for fiscal stimulus in the Autumn Statement if he is to maintain credible adherence to fiscal discipline. Both the Prime Minister and Chancellor have stressed the need for fiscal responsibility.
The UK’s vote to leave the European Union clearly put the fiscal target for 2016/17 out of reach and the longer-term targets are now clearly off the table as the Theresa May government has acknowledged by abandoning the target of a budget surplus by 2019/20.
Disappointing Sep. public finances figs leave Chancellor well off track to meet OBR's March forecast and set weak tone for Autumn Statement. pic.twitter.com/YSjAnxw7gP
— Capital Economics (@CapEconUK) October 21, 2016
Paul Hollingsworth, UK economist at economic consultancy Capital Economics, expects government borrowing to overshoot the OBR’s forecast of £55.5bn for the fiscal year by around £17bn.
The latest outturn puts the public finances well off track to meet the OBR’s March forecast.
Even before the vote to leave the EU, the OBR’s fiscal forecasts were looking optimistic. But the weaker economic prospects over the next few years as a result means that these forecasts are likely to be revised substantially in the Autumn Statement next month.
Indeed, we think the OBR will present the Chancellor with forecasts for borrowing that are about £25bn higher in 2019/20 than the previous forecast. However, this shouldn’t trouble the Chancellor too much. In fact he has already suggested that he will allow an easing of the fiscal squeeze in the near term in order to provide the economy with some support.
Austerity is far from over, but the fact that the economy is now not set to face a significant ramping up of the pace of fiscal consolidation over the next few years is another reason to think that growth won’t slow too sharply.
The bigger September deficit means that borrowing for the first six months of the year is £45.5bn – down nearly 5% from the same period last year, but closer to the £55.5bn forecast by the Office for Budget Responsibility for the entire year.
Hammond has indicated that he will reduce the deficit more slowly than his predecessor George Osborne, to help the economy weather the shock of the Brexit vote in June.
The latest figures, and the likelihood of weaker tax revenues if the economy slows in the wake of the referendum, pile further pressure on the chancellor, as he prepares for his autumn statement on 23 November.
Updated
UK budget deficit widens to £10.6bn in September
The UK ran a budget deficit of £10.6bn in September, much bigger than expected. This is a major setback for Philip Hammond, the chancellor, ahead of his autumn statement next month.
Updated
The budget shortfall was 14.5% higher than in September last year, and wrongfooted City economists who had expected the public finances to improve (to an £8.5bn deficit). Receipts from corporation tax and property transactions both fell in September, compared with a year ago, while VAT receipts grew at a slower pace.
The Office for National Statistics said it was the first fall in corporation tax revenues seen in the month of September since 2009. It was unable to provide a reason. The growth in VAT receipts was the slowest for the month of September since 2012.
Updated
The euro remains under pressure, trading at its lowest level against the dollar since March, after Mario Draghi’s comments on quantitative easing yesterday.
As UBS Wealth Management’s Paul Donovan put it:
The first rule of Fight Club is you don’t talk about tapering. The second rule of Fight Club is you DO NOT talk about tapering. The ECB did not talk about tapering. The ECB did not talk about talking about tapering. The ECB will probably taper its quantitative policy.
Updated
Back to BAT’s proposed takeover of Reynolds, a $47bn deal.
Guy Ellison, head of UK equities at Investec Wealth & Investment, said:
The timing is a surprise, but the strategic rationale makes perfect sense, pivoting BAT further towards the high value US market, consolidating some strong brands and Reynold’s position in next generation tobacco.
Despite relatively modest synergies, the deal is still seen adding value for shareholders in the first full-year after completion. The ball is now in the court of Reynolds board and shareholders to consider the offer.
The ECB’s latest survey of economists’ long-term inflation expectations shows they remain near the central bank’s target – but GDP growth is expected to be weaker than previously thought.
Inflation is currently running at 0.4% but is expected to rise to 1.8% by 2021, in line with previous projections, the survey of 47 forecasters showed. Inflation has been below the ECB’s target of nearly 2% for years amid high unemployment, high debt levels, weak services and falling oil prices.
The economic growth outlook appears to have worsened, with economists now predicting 1.5% growth for 2018 and 1.6% for 2021, each 0.1% percentage points lower than three months ago.
However the growth outlook for this year has improved, with the survey predicting 1.6% expansion this year, above the previous forecast of 1.5% growth. It is still slightly below the ECB’s own forecast of 1.7%.
Long-term (5Y) inflation expectation from ECB's Survey of Professional Forecasters rose marginally, to 1.83%. pic.twitter.com/CccFQXaTNM
— Frederik Ducrozet (@fwred) October 21, 2016
Updated
The other big news is that Britain’s competition watchdog will investigate online betting firms and whether they are treating customers fairly. They could face fines and be forced to change their practices. Alexandra Topping writes:
The Competition and Markets Authority will investigate allegations that online bookmakers are using the small print of contracts to change the odds on winning bets so less money is paid out, to limit the amount successful gamblers can bet and to deny some users access to promotions.
The companies have been issued with notices requiring them to give evidence. If companies are found to be in breach of consumer law, the CMA can take enforcement measures against them.
Updated
Here’s our full story on BAT wanting to buy out US rival Reynolds, the main corporate story of the day.
Reynolds owns Pall Mall, the biggest US low-cost brand, Newport, the top-selling menthol cigarette, and Camel, a mid-market name that is the third-biggest seller in the US.
Turning to the UK’s public finance figures for September, out at 9.30am UK time, Investec analyst Chris Hare has sent us his thoughts.
The main measure of the government deficit, PSNB, came in at £10.5bn in August. This was a touch larger than we had expected, but still represents a year-on-year borrowing decline of £0.9bn.
Were borrowing to continue to improve at this pace for the remainder of the financial year we would be looking at an outturn of £64.7bn, close to £10bn above the OBR’s March Budget forecast of £55.5bn.
Over time, we expect a post-referendum slowdown in economic activity to weigh on tax receipts. So the fiscal year borrowing overshoot will probably be larger than described in the thought exercise above.
But in the near term, the post-Brexit vote economy seems to have held up rather well. So we are forecasting another (£0.4bn) year-on-year decline in borrowing, with a PSNB outturn of £8.9bn.
Updated
Portugal’s 10-year government bond yields are holding around 3.23%, near a six-week low of 3.16%, as analysts are expecting Lisbon to pass a crucial ratings review, according to Reuters.
Canadian credit ratings firm DBRS will review Portugal’s investment-grade debt rating after market close. A downgrade would mean that the country would not be able to participate in the ECB’s asset purchase programme.
But analysts were confident that DRBS will keep the rating unchanged, after the Portuguese government pledged budget deficit cuts for next year. However, the rating outlook could be lowered from stable to negative – and this would make a rating cut more likely at the next review in six months’ time.
Updated
European markets have defied spreadbetters’ predictions and opened higher, after yesterday’s pro-stimulus talk from ECB president Mario Draghi. Only the Italian market has turned negative.
- FTSE 100 in London up 0.09% at 7033.77
- Germany’s Dax up 0.07% at 10,708.46
- France’s CAC up 0.16% at 4547.24
- Spain’s Ibex up 0.2% at 9080.20
- Italy’s FTSE Mib down 0.16% at 17,113.36
Updated
The euro has fallen to its lowest level against sterling since the 7 October flash crash: it has dropped to 88.96p, down 0.2% on the day, as markets digest yesterday’s ECB comments, which pointed to more quantitative easing in December.
Berenberg note on Reynolds at 6am: "In the long term it is possible that BAT will look to buy out the 58% it does not already own". Indeed!
— Dominic Walsh (@walshdominic) October 21, 2016
BAT offers to buy Reynolds in $47bn deal
British American Tobacco has swooped on US tobacco firm Reynolds with a $47bn offer – a mega deal that would bring together Newport, Kent, Camel and Pall Mall cigarettes and create the world’s biggest listed tobacco company.
The UK group already has a 42% stake in Reynolds and wants to buy the remaining 57.8% for $47bn – $20bn in cash and $27bn in shares.
BAT shares rose 2.3% to £49.14 on the news.
BAT also said it had performed well in the first nine months of the year, driven by its focus on key brands Dunhill, Lucky Strike and Rothmans.
Updated
The Agenda
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s the day after the European Central Bank’s monthly meeting. Markets reacted positively to the press conference, with stocks finishing higher, but are expected to open slightly lower today.
What did we learn yesterday? ECB president Mario Draghi hinted that the central bank could announce more QE in December. He also indicated that an abrupt end to the €1.7tn asset purchase programme was “unlikely”. However, the governing council did not discuss extending QE or tapering at the meeting. The euro jumped initially before hitting a four-month low.
Portugal’s government bond yields are hovering near six-week lows, ahead of a key review by Canadian ratings firm DBRS, out after markets close. Lisbon is expected to survive the test. If it were to be downgraded it would fall out of the ECB’s QE programme.
Asian and US stocks were mostly lower overnight as the price of oil slid, with the dollar hitting a seven-month high against a basket of currencies. The dollar index touched 98.564, the highest level since March.
The Hong Kong stock market closed as typhoon Haima drew closer. Japan’s Nikkei fell 0.3%, the South Korean exchange lost 0.37%, Australian stocks shed 0.2%, Singapore fell 0.6% and the Shanghai market was 0.06% lower.
The main piece of data today is the UK public finances, which are expected to show a a slight improvement. Economists are predicting that public sector net borrowing came in at £8.2bn in September, from £10.5bn in August.
We will also get consumer confidence figures for the eurozone for October at 3pm UK time.
Updated
