Closing summary
The pound has been boosted by hopes that a Brexit deal could be struck after all, but upbeat commentary has yet to be supported with detail.
Sterling is up 0.3% against the dollar at $1.3179, and up 0.2% against the euro at €1.1445.
A stronger pound tends to work against the FTSE 100, where companies make a large proportion of earnings abroad. The leading UK index is down 0.5% at 7,202.
Losses have extended on equity markets on both sides of the Atlantic, as investors grow fearful of a cocktail of risks facing the global economy.
In the UK, the latest official figures showed the economy stalled in August, with zero growth. Things looked better in the three months to August, with GDP rising 0.7%,
There was some startling corporate news, as Patisserie Valerie said it had uncovered a potentially fraudulent accounting black hole and a £1m unpaid tax bill.
Meanwhile the Bank of England’s chief economist, Andy Haldane, said that after a lost decade for wage growth, a new dawn was breaking for pay.
That’s all for today. Thank you for all the comments, and please join us again tomorrow.
Wall Street opens lower
The opening bell has rung and US markets are lower:
- Dow Jones: -0.1% at 26,403
- S&P 500: -0.2% at 2,874
- Nasdaq: -0.5% at 7,701
US investors are reacting to higher treasury yields, which rose after producer prices data showed no let up in inflationary pressures and reinforced fears that rate hikes will come faster than previously thought.
Patisserie Valerie reveals unpaid tax bill of more than £1m
Patisserie Valerie has just published another trading update, after revealing this morning potentially fraudulent accounting irregularities.
The bakery chain says it has only today become aware of a winding up petition that was filed with the High Court of Justice on 14 September.
The petition relates to a £1.14m payment due to HM Revenue & Customs and a hearing date is listed for 31 October.
Patisserie Valerie says in the latest update:
The company and its advisors are in communication with HMRC with the objective of addressing the petition.
The company continues to engage with its professional advisers to understand better the financial position of the Group and will make further announcements in due course.
As revealed earlier, the company’s finance chief, Chris Marsh, has been suspended, as has trading in the shares on AIM.
Julian Jessop at the Institute of Economic Affairs says the latest GDP figures from the ONS suggest the UK economy is on course to grow by 0.6% in the third quarter (July to September).
That would be the fastest rate since the final quarter of 2016, when the economy grew by 0.7%.
ICYMI (I did), ONS data this morning suggest UK #GDP grew by 0.7% in the three months to August. Some special factors at play, but notable that economy is picking up again (#despiteBrexit). Best guess at Q3 growth now around 0.6% q/q. pic.twitter.com/8d0eGfer4o
— Julian Jessop (@julianHjessop) October 10, 2018
Italy's Tria moves to reassure markets
Italy’s finance minister, Giovanni Tria, has attempted to ease investor concerns over the government’s plans to increase spending.
We will try to do everything we can to regain the confidence of markets.
Addressing a parliamentary panel in Rome, Tria added that the current market pricing of Italian bonds did reflect the sustainability of Italy’s public debt.
The Italian government’s borrowing costs have jumped since it revealed it would run a deficit of 2.4% of GDP next year, tripling the previous government’s target.
Italian bond yields fell after Tria’s comments, with the yield on two year government bonds down 8 basis points at 1.64%. The yield on 10-year bonds fell 3 basis points to 3.5%, where lower yields reflect lower borrowing costs.
'New dawn' breaking for UK pay, Bank of England's Haldane says
Andy Haldane, chief economist at the Bank of England, has been speaking about pay this morning at a conference in London.
Reuters reports:
Evidence for a “new dawn” in British wage growth after years of sluggish pay rises has strengthened over the past year, though the pace of the pick-up is likely to be limited, the Bank of England’s chief economist Andy Haldane said on Wednesday.
Haldane linked the modest forecast pick-up in pay with financial market expectations for the central bank to raise interest rates by about a quarter of a percentage point a year over the next three years.
“I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly,” he said in a speech to Britain’s ACAS labour dispute arbitration service.
“A limited and gradual build in domestic cost pressures is one important factor underpinning the limited and gradual pace of further interest rates rises expected by financial markets and communicated by the Monetary Policy Committee,” he added.
The BoE increased interest rates for only the second time since the financial crisis in August, raising them to 0.75 percent from 0.5 percent.
However, Haldane said that in the longer term there risked being downward pressure on pay growth from reduced worker bargaining power, automation and less competition between businesses.
The Treasury has responded to the latest GDP figures, and says the national debt is falling, so the government can spend more on public services and keeping taxes as low as possible.
Does this mean the chancellor Philip Hammond is planning to unveil tax cuts and spending increases? We’ll find out when he delivers the budget on 29 October.
A Treasury spokesperson said:
We are building a stronger, fairer economy, and have made great progress repairing the public finances and helping more people into work.
Our debt is starting to fall, so we can spend less on debt repayments and invest more in public services, while keeping taxes as low as possible.
The economy continues to grow with retail, food and drink all performing well during the summer.
Lee Hopley, chief economist at the manufacturing trade body EEF, the manufacturers’ organisation, says the UK economy returned to “business as usual in August”:
The main take away from today’s bumper crop of releases on the economy is that the UK saw a spurt of activity in June and July not seen since the end of 2016. Beyond that it seems that it’s back to business as usual more or less in August.
The underlying services picture looks to be slow and steady, the construction sector has recovered its weather-related losses from earlier in the year and manufacturing weakness is persisting in the second half of this year so far.
Jonathan Reynolds, Labour MP and shadow Treasury minister, says the ONS figures show the UK economy is underperforming:
This month’s GDP figures confirm that the economy continues to underperform under the Tories, with growth below its historical trend and real wages still below their 2010 levels.
Only Labour has a plan to transform our economy and boost real pay, with a £10 hour minimum wage and investment for the whole country.
John Hawksworth, chief economist at PwC, says Brexit uncertainty is likely to be a drag on growth in 2018.
Overall, the pattern of UK growth this year has been heavily affected by the weather, with the unusually long and cold winter dampening growth in the first quarter while the relatively warm spring and summer boosted growth in the second and third quarters of the year.
But aside from these seasonal variations, the underlying trend is for moderate UK growth at a rate of around 1.5% per annum. This is somewhat below its longer term trend rate of around 2% and reflects the continued drag on business investment in particular from Brexit-related uncertainty. This seems likely to continue into the fourth quarter of 2018, when we expect some moderation of UK growth to around 0.3-0.4%.
UK growth in 2017 was 1.7% - the slowest rate since 2012 when the economy grew by 1.4%.
UK economy flatlines in August but grows 0.7% on quarterly basis
The UK failed to grow in August according to the latest monthly estimates from the Office for National Statistics.
Zero growth followed a 0.4% rise in GDP in July, which was revised up from a previous estimate of 0.3%.
Growth in June was also revised up, to 0.2% from 0.1%.
The 0% forecast for August disappointed forecasts from economists polled by Reuters, who were predicting a 0.1% increase.
The picture looked better on a rolling three month basis, with growth in the three months to August unchanged at 0.7% (after growth in three months to July was revised up from 0.6%). Retail, food and drink were hot spots during the heatwave.
Here is the assessment from Rob Kent-Smith, head of GDP from the ONS:
The economy continued to rebound strongly after a weak spring with retail, food and drink production and housebuilding all performing particularly well during the hot summer months. However, long term growth continues to lag behind its historical trend.
A large drop in imports of non-monetary gold alongside a jump in oil exports helped narrow our trade deficit with the world.
IMF: UK public finances among weakest in world
Britain is near the bottom of the international rankings for the strength of its public finances according to the IMF, ahead of only Portugal.
The figures show the UK government has £5tn in liabilities, but less than £3tn in assets, leaving it with a negative net worth of more than £2tn.
The weak position reflects the large-scale privatisations of the 1980s and 1990s, leaving the government with few assets. Meanwhile it has large debts and major future pension liabilities to finance.
On the flip side, Norway came out on top with a war chest built on its publicly held oil wealth:
Markets fall across Europe
It’s a sea of red across European markets this morning, as investors struggle to find reasons to cheer.
Here are the latest scores:
- FTSE 100: -0.2% at 7,227
- Germany’s DAX: -0.3% at 11,939
- France’s CAC: -0.6% at 5,290
- Italy’s FTSE MIB: -0.5% at 19,966
- Spain’s IBEX: -0.7% at 9,196
- Europe’s STOXX 600: -0.2% at 372
Patisserie Valerie reveals accounting irregularities, suspends finance chief
Patisserie Valerie has some unsavoury news this morning. The bakery chain has uncovered irregularities in its accounts that are “potentially fraudulent”.
The firm has suspended Chris Marsh, its finance director, and its shares on AIM have been suspended from trading.
In a statement to the stock exchange, chairman Luke Johnson said:
We are all deeply concerned about this news and the potential impact on the business. We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible.
The company said its cash position was “significantly impacted” by the discovery and it may lead to a material change in its overall financial position.
Investors cautious ahead of UK growth figures
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Global investors are on edge, as they wait to see how a number of major situations play out.
In Europe, the political situation in Italy continues to weigh on sentiment, as the new populist coalition heads into a row with the EU over its plans to increase spending, adding to its already massive debt pile of some 130% of GDP.
In the US, the economy appears healthy but the prospect of more rate hikes is reigniting fears over emerging market economies, while uncertainty over the US/China trade war rumbles on.
Jasper Lawler from London Capital Group explains:
Uncertainty is prevailing in the financial markets, we are seeing more investors opting to wait and see how risks surrounding rising US treasury yields, global growth and China play out.
Near term risks to global financial stability have increased rapidly over the past few months. The markets have been relatively complacent, but we are starting to see an acknowledgement of these risks which is keeping traders on the side-lines.
The Dow Jones in the US closed down 56 points or 0.2% last night, and the FTSE 100 has opened down 11 points or 0.2% at 7,227.
In the UK, growth figures for the month of August will give the latest indication of how well the economy is coping with Brexit uncertainty. They’ll be out at 9.30am.
Stick with us for the day’s rolling news.
