European markets end higher
Markets have shrugged off a host of uncertainties - the political outlook for Germany, the budget in the UK, the latest Brexit developments, US tax reforms - to end the day in positive territory.
The mood was helped by positive US earnings and housing data, which pushed Wall Street to new highs. The final scores showed:
- The FTSE 100 finished up 21.88 points or 0.3% at 7411.34
- Germany’s Dax rose 0.83% to 13,167.54
- France’s Cac closed 0.48% higher at 5366.15
- Italy’s FTSE MIB climbed 0.62% to 22,326.44
- But Spain’s Ibex bucked the trend, down 0.32% at 9993.4
- In Greece, the Athens market added 1.61% to 721.67
On Wall Street, the Dow Jones Industrial Average is currently up 175 points or 0.74%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
US markets are hitting new highs, helped by positive earnings reports and better than expected housing figures. Joshua Mahony, market analyst at IG, said:
Global stocks are on the rise today, with US indices proving the big outperformer on the day amid further improvements to the corporate earnings picture. With gold and the yen rising in the afternoon, there is an interesting risk-off shift coming in play despite the record highs being set across US indices.
This afternoon saw the US economic picture improve once more, with existing home sales beating market expectations in October. The 2% rise in US existing home sales comes as the US gets back on its feet in the wake of Hurricanes Harvey and Irma. US markets have been punching higher in early trade, as they continue to benefit from an earnings season that appears to be the gift that keeps on giving, as home-improvement firm Lowe’s seeing a 6.5% year-on-year jump in sales in the wake of recent hurricane destruction.
As for the UK, he said:
The recent lack of direction in sterling has been a reflection of the largely sideways trade for the FTSE. However, with a growing feeling that the Tory Brexiteers are increasingly open to improving the divorce settlement offer, the likeliness of a December trade talk kick-off seems to be rising. With the UK budget due out tomorrow, the focus on the UK is likely to remain in place, with a heavily housing based speech from Phillip Hammond expected.
Meanwhile some positive developments relating to Greece. Helena Smith writes:
The European Commission has given the Greek government the green light today to distribute €1.4bn worth of social welfare benefits to citizens worst affected by the gruelling austerity measures Athens has been forced to take in return for bailout assistance.
Addressing the European parliament’s economic and monetary affairs committee, European Commission vice president Valdis Dombrovskis said as Greece had overperformed fiscally, achieving a primary surplus of 1.75 %, its leftist-led government could honour its pledge to hand out a “social dividend” to those hardest hit by the country’s long economic crisis.
The endorsement by Dombrovskis, a one time harsh critic of Greece’s inability to meet fiscal targets, is a 180 degree volte face from the reaction prime minister Alexis Tsipras received when he announced pre-Christmas ‘gift’ handouts last December.
In a televised address that took many by surprise last week, Tsipras said the government had decided to more than double the amount it would distribute in the form of a one-off “social dividend” this year. Among those entitled to the handout are low-income pensioners and unemployed.
With auditors representing international creditors poised to return to Athens, Dombrovskis sounded an upbeat note adding : “The economy is rebounding.” It was more than feasible, he said, to conclude an ongoing compliance review - the third since the country received a third bailout from eurozone partners and the IMF - by the end of the year or early 2018.
In more optimistic news, the Bank of Greece announced that more than 23.5 million tourists visited Greece between January and September this year - up from 21.4% over the same period last year. Revenues came in at around €13bn - a godsend for Greeks.
Updated
Back with the UK, and here’s our report on Airbus warning MPs about the possible effects of Brexit:
Airbus has told MPs that Britain risks losing the “crown jewels” of its aviation industry to China as a result of Brexit, putting up to 7,000 wing-manufacturing jobs in Wales at risk.
The head of the company’s UK operations warned the business select committee that the threat of new customs bureaucracy and reduced employee mobility could deter long-term investment and accelerate a shift to Asia.
Though there are no current plans to move, Katherine Bennett said, adding that she was “fighting to ensure that wing design – the crown jewels of aerospace – remains in this country”.
“I need to let you know, committee, that other countries would dearly love to design and build wings,” she told MPs. “Some of them already do; we do build wings in China now, and believe you me they are knocking at the door as a result of the situation we are in in this country.
The full story is here:
US home sales rise more than expected
And more positive US economic news.
Existing home sales rose by more than expected in October, up 2% to a seasonally adjusted annual rate of 5.48m units, helped by a recovery from the disruption caused by recent hurricanes. September’s figure was revised down from 5.39m to 5.37m. Analysts had been expecting a figure of 5.42 for October.
The National Association of Realtors, which compiles the figures, said supply shortages were pushing prices higher and making it difficult for first time buyers. The association’s chief economist Lawrence Yun said:
Job growth in most of the country continues to carry on at a robust level and is starting to slowly push up wages, which is in turn giving households added assurance that now is a good time to buy a home.
While the housing market gained a little more momentum last month, sales are still below year ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated.
The residual effects on sales from Hurricanes Harvey and Irma are still seen in parts of Texas and Florida. However, sales should completely bounce back to their pre-storm levels by the end of the year, as demand for buying in these areas was very strong before the storms.
Wall Street opens higher
US markets have made a bright start, with technology stocks moving higher and pushing the Nasdaq Composite to new highs.
The Dow Jones Industrial Average is currently up 140 points while the S&P 500 opened 0.33% higher and the Nasdaq up 0.46%. Higher oil prices and some relatively positive reports from retailers Urban Outfitters and Dollar Tree.
But trading volumes were thin ahead of the forthcoming Thanksgiving break.
Here’s a quick summary of the Bank of England hearing at the Treasury Select Committee, from Oxford Economics:
Little in at today's UK Treasury Committee hearing to suggest the Bank of England will raise UK int rates again soon. With current high inflation cited as a rationale for the recent hike, a sharp inflation fall in 2018 shd keep rates on hold medium-term: https://t.co/gdsp5z6zi2 pic.twitter.com/MGBHW5h6Ur
— Oxford Economics (@OxfordEconomics) November 21, 2017
Over in the US, and another positive pointer for the country’s economy.
The Chicago Fed National Activity index - an average of several indicators of economic activity - rose from 0.36 in September to 0.65 in October, better than the 0.2 figure expected by analysts. The September number was also revised upwards from the initial reading of 0.17.
Chicago Fed "Index Points to a Pickup in Economic Growth in October" https://t.co/BVUUSCFigz pic.twitter.com/JRQBeeuhCs
— Bill McBride (@calculatedrisk) November 21, 2017
Markets seem unshaken by the various disappointments around. Connor Campbell, financial analyst at Spreadex, said:
Despite the unresolved political situation in Germany, a brewing Tory backlash over the Cabinet’s movement on the EU divorce bill, and an unexpected widening of the deficit ahead of tomorrow’s Autumn Budget, things were pretty damn quiet this Tuesday.
Investors seemed wary of getting too involved with the forex markets. The pound is flat against the dollar and up 0.1% against the euro, while the euro itself effectively unchanged against the greenback, sporadically dipping 0.1%.
This forex flatness has allowed the European indices room to breathe. The DAX is up half a percent, ignoring the issues with the German government (or lack thereof) to hit a fresh 8 day high; the CAC, meanwhile, has risen 0.4%, with the IBEX also climbing 0.2%. Somewhat predictably the FTSE couldn’t muster the same level of energy as its peers, struggling to break 7400 with a meagre 0.1% rise.
Looking to the afternoon and the Dow Jones seems set to claw back more of its recent losses, with a 0.2% increase leaving it 20 points away from 23500. There’s not much worthwhile data to contend with – the existing home sales are expected to rise from 5.39 million to 5.42 million – meaning the focus will likely remain on any pre-Thanksgiving movement in the Republicans’ tax plans.
Here’s our story on the UK budget deficit:
Britain’s deficit unexpectedly widened in October, handing Philip Hammond disappointing news on the eve of the budget.
Public sector net borrowing last month, excluding the nationalised banks, grew by £500m to £8bn compared with October a year ago, according to the Office for National Statistics (ONS).
City economists expected the deficit, which is the gap between government spending and tax receipts, to improve by £500m to stand at £7bn.
The figures are likely to frustrate the chancellor as he puts the final touches to his budget speech – due to be delivered at about 12.30pm on Wednesday – as they point to a weaker picture than thought for the public finances.
Hammond is coming under increasing pressure, including from senior Conservative figures, to increase spending amid widespread dissatisfaction with austerity.
The full report is here:
Updated
Lunchtime summary
Time for a quick recap:
Budget Eve has got off to a bad start for Philip Hammond, with new figures showing that Britain’s deficit rose last month. The UK borrowed £8bn in October, up from £7.5bn a year ago and almost a billion pounds more than the City expected.
The higher borrowing was triggered by a rise in the cost of repaying the UK’s existing debts; the rise in inflation has pushed up the yield on index-linked government bonds.
City experts say the figures highlights the dilemma facing Hammond. Tomorrow’s budget may show a rise in borrowing in future years, due to weak productivity.
However, borrowing this financial year is still down almost 10%, rather better than forecast in March.
Paul Johnson, head of the Institute for Fiscal Studies, reckons the bad news will come in the budget forecasts:
Today's borrowing numbers are not bad news (as some are suggesting). Borrowing this year still on course to come in well below March forecasts. We can expect the bad news tomorrow in reduced productivity and growth forecasts hitting public finances in longer term.
— Paul Johnson (@PJTheEconomist) November 21, 2017
We’ve also seen that the weaker pound is helping British factories. New orders have accelerated at the fastest rate since 1988, with manufacturers seeing a rise in exports.
Anna Leach, CBI Head of Economic Intelligence, said:
“UK manufacturers are once more performing strongly as global growth and the lower level of sterling continue to support demand. Output growth has picked up again, and export order books match the highest in more than 20 years.
“Nonetheless, uncertainty continues to hold back investment and cost pressures remain strong. Manufacturers will be hoping the Budget brings some relief from the business rates burden in particular.”
Airbus, the aeroplane manufacturer, has warned that Brexit could force its wing design business overseas. Other countries are ‘knocking on the door’, its UK boss says.
Updated
City disappointed by UK deficit figures
The news that Britain’s deficit rose to £8bn last month has disappointed some City traders.
Carlo Alberto De Casa, chief analyst at ActivTrades, says the chancellor would have hoped for a drop in borrowing (as economists had indeed expected).
This isn’t the news Hammond will have been hoping for the day before the budget, as the deficit has increased to £8.0bn from £7.5bn a year earlier.
Despite rises in income and VAT receipts and expectations the deficit would narrow closer to £7.bn, inflation and the effect it has had on debt costs has caused the deficit to widen and suggests Carney was right to start focusing on keeping inflation under control with his historical interest rate rise.
William Anderson Jones, head of UK corporate dealing at RationalFX, says sterling hasn’t been hit, though:
Higher borrowing costs due to inflation drove the deficit up, although the effect on the pound has been limited.
The deficit figures come as analysts await Chancellor Phillip Hammond’s budget tomorrow. Today’s data highlights the challenge Hammond faces, as many analysts expect a call for more spending as the UK’s economic growth weakens. Investors will be watching the pound closely to see how it reacts tomorrow to the budget.”
John Hawksworth, PwC chief economist, says Hammond will be pleased that borrowing has dropped during this financial year. But....
The more critical issue for the Budget is how public borrowing will evolve in future years. Lower than expected productivity growth is likely to weigh more heavily in the OBR’s new forecasts tomorrow than the borrowing undershoot this year.
“We do expect the Chancellor to retain a reasonable amount of headroom in meeting his medium-term fiscal target, but he is likely to want to retain most of this as a contingency to deal with any future adverse Brexit-related shocks. While we do expect some giveaways in the Budget on housing, health and some areas of public sector pay, we also expect these to be largely offset by clawbacks in other tax and spending areas.”
Fiona Cincotta, senior market analyst at City Index, agrees that the next few years will be tough.
Hammond is still on target to beat a target of £58.3 billion for the 2017/18 financial year. Not bad considering the circumstances.
This means that this year Hammond actually still has some room for manoeuvre, however looking ahead to the coming years, his challenge looks set to intensify. The ONS is expected to forecast lower levels of growth for the UK in the coming years. For the Chancellor, this means lower tax receipts and therefore less money coming in.
Matt Whittaker of the Resolution Foundation also reckons the chancellor’s headroom is shrinking...
That good news is likely to provide some offset to tomorrow's productivity downgrade. But the Chancellor's headroom is still likely to shrinkhttps://t.co/Kxw4j14JpB pic.twitter.com/KMmpo1myHA
— Matt Whittaker (@MattWhittakerRF) November 21, 2017
Over at parliament, the head of Airbus UK has warned MPs that other countries are keen to lure some of its British manufacturing business.
Katherine Bennett told the Business, energy and industrial strategy committee that Airbus’s wing design business - its “crown jewels” – has won covetous looks from overseas.
She also warned that Airbus staff who are EU citizens are very concerned about the future, and whether they’ll be able to work in the UK after Brexit.
Airbus employs some 6,000 people at its North Wales plant at Broughton, Flintshire.
Airbus UK Vice President warns that wing designer are "crown jewels" of the industry. Currently theirs are designed and made in UK but other countries are "knocking on the door" as result of #Brexit
— David Wood (@davidbevanwood) November 21, 2017
Airbus UK boss Katherine Bennett: "Other countries would dearly love to build wings and believe you me they're knocking at the door as a result of the situation we're in".
— Marcus Leroux (@marcusleroux) November 21, 2017
Updated
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Despite the recent surge in orders, UK factory bosses expect growth to slow over the next quarter.
A failure to invest in new equipment may be to blame.....
Manufacturers expect growth in output to slow—despite surging orders—according to the CBI. This signals that capacity constraints are biting, because manufacturers have lacked the confidence to invest due to Brexit risk. pic.twitter.com/3xtj5eyQZR
— Samuel Tombs (@samueltombs) November 21, 2017
UK factories enjoy best month for new orders since 1988
Newsflash: UK factories have just reported the biggest jump in new orders since 1988, as the weak pound boosts exports.
That’s according to the CBI’s monthly survey of British manufacturing. It found that output rose in the last quarter, with more orders coming in from abroad.
Some 28% of manufacturers reported total order books to be above normal, and 11% said they were below normal. That gave a net balance of +17% -- the highest figure since August 1988.
UK CBI Nov trends total orders 17 vs 3 expected https://t.co/OzAMoOAHus pic.twitter.com/AifJ99fTg3
— Grant Larssen (@ZeroDT) November 21, 2017
The CBI says that orders for food & drink and chemicals rose particularly sharply.
Export order books strengthened “notably” for chemicals, electronics and transport goods.
Both total and export order books improved over the last three months, with total orders now among the strongest since August 1988. #CBI_ITS https://t.co/1k4iI8q8tN pic.twitter.com/P8FlF2cJRS
— CBI Economics (@CBI_Economics) November 21, 2017
McDonnell: Tories failed to eliminate the deficit
Here’s John McDonnell MP, Labour’s Shadow Chancellor, on today’s public finances:
“These figures are a reminder of the continued failure of both Philip Hammond and Theresa May over these past seven years. The deficit has still not been eliminated as they promised it would be by 2015, and the national debt continues to grow. The rise in the Government’s deficit over October shows once again that seven years of Tory spending cuts have caused pain and misery for millions with little to show for it.
“It further highlights why it is so vital that we see a change of course in the Budget tomorrow, halting the growing emergency in our public services and ending their failed austerity policies.
“The next Labour government will set out a serious plan for the public finances with strategic investment underpinned by our Fiscal Credibility Rule, to help build a high-wage, high-skill economy for the many not the few.”
October’s borrowing figures are another sign that the Brexit vote is hurting the UK economy, says Labour MP Chris Leslie.
He’s alarmed that rising inflation drove up the cost of servicing the national debt (as explained here).
Leslie says it might prompt a rethink about Britain’s exit from the EU:
“Rather than delivering a huge windfall for public services and our economy, it is clear that Brexit is in fact damaging the public finances.
“Soaring inflation resulting from the fall in the value of the pound is resulting in rising debt costs. Our NHS and public services are being starved of vital funding. And the Brexit ‘war chest’ set aside by the Chancellor in March has now been virtually wiped out.
“The Chancellor is running out of headroom. Nobody voted to be worse off, or for a weaker economy, and as these new facts emerge people are entitled to keep an open mind about whether this is the right course for our country.”
Howard Archer, chief economic adviser at the EY Item Club, says the “weakened” October public finances have denied Philip Hammond a boost ahead of Wednesday’s budget.
#Hammond denied a boost going into Wednesday's #budget as #public #finances see y/y deterioration in Oct. PSNBex up to £8.0 bn from £7.5 bn in Oct 2016
— Howard Archer (@HowardArcherUK) November 21, 2017
But...he also expects borrowing for the full financial year to be below forecasts.
Despite widening to £8.0 bn in Oct from £7.5 bn a year earlier, #UK #budget deficit (PSNBex) still down 9.6% y/y over Apr-Oct at £38.5 bn. If continued pattern for whole of 2017/18 would come in at £41.4 bn vs £58.3 bn seen in March budget
— Howard Archer (@HowardArcherUK) November 21, 2017
Digging into the public finances, we can see that income tax receipts rose by 6.9% year-on-year in October, and VAT receipts rose by 2.3%.
But corporation tax dropped by almost 1% compared with October 2016, and revenue from fuel duty dropped by 2.1%.
Bloomberg describe Britain’s October’s public finances as “disappointing”, ahead of Wednesday’s budget.
However, they still expect borrowing for 2017-18 as a whole to be lower than forecast.
Britain’s fiscal deficit unexpectedly widened as inflation saw debt costs rise to the highest for any October in 4 years https://t.co/QEFDXpkJGC pic.twitter.com/aCnl71SlLC
— Bloomberg (@business) November 21, 2017
The ONS reports that UK government income, and spending, are both higher than a year ago.
In the current financial year-to-date, central government received £394.3bn in income, including £292.7bn in taxes. This was around 4% more than in the same period in the previous financial year.
Over the same period, central government spent £420.4bn; around 3% more than in the same period in the previous financial year. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remaining being spent on capital investment and interest on government’s outstanding debt.
Ross Campbell, public sector director at accountancy group ICAEW, says Philip Hammond doesn’t have much wriggle room for tomorrow’s budget.
Looking at the annual trend, we are still running a large deficit which means our national debt continues to grow.
UK public sector borrowing rose to £8bn in October (est. £7bn), up £500m since the same period last year, linked to recent higher inflation and increased debt costs.
— Cumberland Place (@CPFMLondon) November 21, 2017
Economist Sam Tombs of Pantheon Economics reckons Britain will borrow less than forecast this financial year, despite the unexpected rise in October’s deficit.
Borrowing £0.5B higher in October than a year ago mainly due to a £1.2B jump in interest payments (blame high inflation). But borrowing is still on track to substantially undershoot March Budget forecasts: pic.twitter.com/kFh5oXEJ0J
— Samuel Tombs (@samueltombs) November 21, 2017
As this chart showed, the UK has been expected to borrow £58.3bn this financial year, up from £51.7 in 2016-17.
However, the UK has only borrowed £38.5bn since April, some £4bn less than a year ago.
Updated
Deficit driven up by higher borrowing costs
Britain’s deficit jumped last month because the cost of repaying existing government debt jumped in October.
That’s because some government bonds are linked to inflation, to protect bond-holders from a surge in the cost of living.
The retail prices index has hit 4% in October -- as the slump in the pound since the Brexit vote has driven import costs higher.
And this is now hitting the public finances, meaning the government has to borrow more (and thus repay more in the future....)
As the ONS puts it:
In October 2017, the debt interest paid by central government was £6.0 billion, while this represents the highest October interest payment on record it remains less than the highest recorded monthly payment of £7.2 billion in April 2017.
This increase in debt interest payment is largely due to the movements in the level of the Retail Prices Index (RPI).
Channel 4’s Helia Ebrahimi has tweeted the details:
Public sector net borrowing was higher than expected in October: £8bn vs £7.1bn consensus driven by higher interest payments of £1.2bn
— Helia Ebrahimi (@heliaebrahimi) November 21, 2017
Updated
The big picture from today’s public finances is that the UK national debt continues to grow.
The Office for National Statistics says:
Public sector net debt (excluding public sector banks) was £1,790.4 billion at the end of October 2017, equivalent to 87.2% of gross domestic product (GDP), an increase of £147.8 billion (or 4.5 percentage points as a ratio of GDP) on October 2016.
This is the first time since June that Britain’s monthly deficit has risen year-on-year.
This chart shows borrowing this financial year (dark blue) compared to 2016-17 (light blue).
So, October’s £8bn deficit has eroded the improvement in the public finances since the spring.
Reuters: Deficit underscores Hammond's budget headache
The jump in Britain’s deficit to £8bn last month highlights the ‘headache’ facing chancellor Philip Hammond ahead of Wednesday’s budget, say Reuters.
Here’s their first take:
Britain’s budget gap unexpectedly widened last month, underscoring finance minister Philip Hammond’s challenge as he juggles calls for more spending in his budget on Wednesday with the prospect of weaker economic growth ahead.
The deficit, excluding state-run banks, stood at £8.0bn, up 6.9% compared with October 2016, the Office for National Statistics said on Tuesday.
Rising debt costs, linked to Britain’s higher inflation since the Brexit vote, were a driver of the shortfall.
The budget shortfall was bigger than a median forecast of £7.0bn in a Reuters poll of economists.
UK deficit jumped to £8bn in October
Breaking! Britain’s deficit was bigger than expected last month.
The UK borrowed just over £8bn to balance the books in October, up from £7.56bn in October 2016 (that excludes the impact of Britain’s state-owned banks)
That’s more than the £7bn which City economists had expected.
Ooops! UK Public sector net borrowing (excluding public sector banks) increased by £0.5 billion to £8.0 billion in October 2017, compared with October 2016.
— Shaun Richards (@notayesmansecon) November 21, 2017
But despite this rise in borrowing, Britain’s has borrowed less this financial year than a year ago.
Public sector net borrowing since the start of this year has now reached £38.5bn, down 9.6% year-on-year.
More to follow!
Updated
Stand by your desks! UK Public Finance data is up in 5 minutes... #GBP
— Shaun Richards (@notayesmansecon) November 21, 2017
In the City, shares in budget airline easyJet have soared to the top of the FTSE 100 leaderboard, after it reported a surge in bookings.
EasyJet may be profiting from the collapse of rival Monarch, and Ryanair’s recent pilot shortage.
But...catering giant Compass has slumped by up to 5% despite posting an 18% rise in operating profits. The City may be disappointed by an drop in revenue at its offshore business, which cleans and caters at remote oil and gas extraction and mining sites.
EU Movers:
— RANsquawk (@RANsquawk) November 21, 2017
easyJet +2.7%
Babcock +2.3%
ITV +1.9%
SSE +1.8%
Enel +1.2%
Compass Group -5%
Johnson Matthey -1.9%
Kingfisher -1.5%
Global investors seem to have shaken off the German election crisis.
Asian stocks hit a 10-year high overnight, with traders citing optimism over the strength of the global economy.
European markets have opened calmly this morning too, with the UK, French and German indices broadly flat. The word in the City this morning is that Germany’s economy is strong enough to shrug off the uncertainty of a second election (if it comes to that).
But are things too quiet? Nick Leeson, the man who brought Barings Bank down in the 1990s, suspects there may be trouble ahead....
Where have all the Rogue Traders gone? Markets at highs, lots of self congratulation, complacency rife. More than likely one out there somewhere!
— Nick Leeson (@TheNickLeeson) November 21, 2017
Even if October’s public finances do beat expectations this morning, Britain’s long-term borrowing needs are still worryingly high.
Economists at JP Morgan say Philip Hammond will be batting on a ‘sticky wicket’ tomorrow, as the independent Office for Budget Responsibility (Britain’s fiscal watchdog) may revise down its growth forecasts. That will have a nasty impact on how much tax revenue the government might take in over the coming years.
They write:
Next week’s budget will be significant for both economic and political reasons. The OBR is set to downgrade its view of potential growth significantly, forcing the Chancellor to pencil in either more borrowing or more austerity—a particular challenge given the domestic political backdrop.
The government lacks an overall majority and is under pressure to increase its financial offer ahead of the mid-December EU summit. The Chancellor is also under pressure to use fiscal policy to offer support to key parts of the electorate amid an ongoing real income squeeze, addressing these concerns while ensuring his budget has enough support in Parliament to pass.
JP Morgan thus expect Hammond to absorb any growth downgrades by planning to borrow more over the next few years.
This chart shows how the UK monthly deficit has fluctuated over the last two years:
The agenda: UK public finances in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s public finances will be in the spotlight today as we learn how much the UK borrowed to balance the books last month.
Economists predict that the monthly deficit will hit £7bn, down from around £7.6bn in October 2016.
A month ago, September’s deficit came in at just £5.9bn, the lowest in a decade, thanks to a bumper crop of tax takings.
Any drop in the October deficit would be welcome news for chancellor Philip Hammond as he puts the finishing touches to tomorrow’s budget.
Hammond faces a tricky task, given Britain’s productivity problems, and the looming impact of Britain’s exit from the EU. But so far this financial year, the UK has actually borrowed around £6bn less than expected.
Finn McLaughlin of Capital Economics expects another decent month’s borrowing figures:
We expect the public sector net borrowing requirement measure of borrowing to continue to undershoot the OBR’s forecast, providing some good news ahead of the Chancellor’s Autumn Budget on Wednesday. Indeed, we have pencilled in borrowing of £7.0bn in October, just below last year’s outturn of £7.5bn, leaving cumulative borrowing 7% lower than last year.
However, this will probably be overshadowed by downward revisions to the OBR’s forecasts for economic growth and therefore the medium-term outlook for the public finances.
Kallum Pickering of Berenberg bank thinks Hammond should use any windfall this wisely...
Although Brexit uncertainty hangs over the UK’s long-term outlook, the economy continues to hold up well. Healthy tax receipts so far this year will likely lower projected borrowing modestly in the near term. The Chancellor ought to use this boost to finances to make a stronger commitment to budgetary discipline.
Unfortunately, the political barriers between Hammond and this sensible route forward are probably too large.
Also coming up today....
MPs on the Treasury committee will grill four Bank of England policymakers over the latest inflation report, and their decision to raise interest rates. Deputy governor Sir Jon Cunliffe (who opposed the rate hike) will be accompanied by three external members - Ian McCafferty, Gertjan Vlieghe and Michael Saunders.
European investors will be watching German politics closely, after coalition talks floundered on Sunday night. Angela Merkel has hinted that she’d rather go through another general election than lead a minority government.
After yesterday’s wobbles, the markets look calm this morning as traders await developments from Berlin.
European market opening call @LCGTrading $FTSE +5 points at 7394$DAX +8 points at 13066$CAC +5 points at 5345$IBEX -2 points at 10023
— Ipek Ozkardeskaya (@IpekOzkardeskay) November 21, 2017
In the City, DIY chain Kingfisher, engineering firm Babcock, food producer Compass and budget airline easyJet are reporting results.
The agenda
- 9.30am GMT: UK public finances for October
- 10am GMT: Bank of England policymakers Sir Jon Cunliffe, Ian McCafferty, Gertjan Vlieghe and Michael Saunders appear before the Treasury Committee to discuss the Bank’s inflation report
- 11am GMT: CBI industrial trends report for October.
Updated
