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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK's record borrowing; BoE jobless warning; PayPal move lifts Bitcoin – as it happened

An aerial view of Whitehall, in London, including The Treasury.
An aerial view of Whitehall, in London, including The Treasury. Photograph: Steve Parsons/PA

Closing summary

Time for a quick recap

Britain is on track to smash previous borrowing records, after running a record deficit of over £36bn in September. The UK has now borrowed £208.5bn since April, nearly four times as much as in the last financial year.

September’s borrowing total wasn’t far short of the annual deficit in 2018. Every month since April has smashed previous records, due to the cost of the health crisis, the furlough scheme, and weak tax revenues.

UK inflation has also risen, to 0.5%, partly due to the end of the government’s Eat Out to Help Out scheme. Second-hand car prices also jumped, as people try go avoid public transport during the pandemic.

Bank of England deputy governor Sir Dave Ramsden has warned that the UK risks significant ‘labour market scarring’ due to the pandemic. Young people are most at risk from a surge in unemployment, which could be even higher than the Bank forecast.

Ramsden also argued that now is not the right time to cut UK interest rates below zero.

The UK’s live music industry has warned that 170,000 jobs could be lost by Christmas, unless the government provides more help.

The pound has surged to a six-week high, on reports that the UK and EU will resume Brexit trade talks. Sterling is up two cents against the US dollar, at $1.316.

The pound’s strength hit multinational stocks in London, though, pushing the FTSE 100 to its lowest closing level in five months.

Bitcoin has jumped too, now up over 6% at $12,720 for the first time in over a year. The move comes as PayPal embraces crypto, saying it will allow US customers to hold some cryptocurrencies in their virtual wallets - and also use certain digital currencies to trade with the 26 million merchants on the PayPal network.

Reuters reckons PayPal’s move could be a game-changer, saying:

It has 346 million active accounts worldwide, and processed 222 billion dollars in payments just in the second quarter.

Cryptocurrency transactions on PayPal will be settled in regular currencies, such as the U.S. dollar, meaning merchants won’t get paid in virtual coins.

That’s all for today! GW

FTSE 100 closes at five-month low

Ouch. That late selloff has pushed the FTSE 100 index of blue-chip companies to its lowest closing level in five months.

The Footsie has ended the day down 112 points or 1.9% at 5,776, its lowest close since 14th May. It’s also its worst one-day fall in a month, and means the index is down 23% this year.

The FTSE 100 in 2020
The FTSE 100 in 2020 Photograph: Refinitiv

Stocks were hit by ongoing worries about Covid-19, with airline group IAG falling almost 6%. Compass, whose catering business has been hurt by pandemic restrictions and lockdowns, lost 4.7%.

Shares in major multinationals also fell, though, hurt by the surge in the pound. Mobile phone operator Vodafone fell 3.4%, while oil giant BP shed 3%.

David Madden of CMC Markets sums up the day:

Optimism is circulating with respect to the possibility of the UK and the EU achieving a trade deal, hence the upward move in sterling. Stocks like Diageo, AstraZeneca, Unilever and GlaxoSmithKline and British American Tobacco are weighing on the British index because of the rally in the pound.

The companies all earn a relatively high portion of their total revenue from overseas, so sterling’s positive run has pushed them into the red. The major European indices are showing losses too as traders on this side of the Atlantic are worried about the tougher restrictions brought on by the pandemic.

The fact that US lawmakers have yet to strike a deal over the proposed Covid-19 relief package is playing a role in the bearish move too.

Stocks are falling sharply in late European trading, with the FTSE 100 briefly touching its lowest level in five months.

Stimulus hopes may be fading again, with Wall Street turning south too....

Nigel Green, chief executive of deVere Group, agrees that Paypal’s move into digital currencies is very significant.

Green says:

“The decision by one of the biggest payment companies in the world to allow customers to buy, sell and hold Bitcoin is yet another example that exposes Bitcoin deniers and cryptocurrency cynics as being on the wrong side of history.

Let’s be clear: This is a major step forward towards the mass adoption of digital currencies.

The blistering speed of the digitalisation of economies and every aspect of our lives, including financial lives, shows that there will be a growing demand for digital, global, borderless money – characteristics that are inherent to the likes of Bitcoin.”

Bloomberg reports that its Galaxy Crypto Index, which tracks some of the largest digital coins, rose by as much as 5.1% after PayPal announced it would soon let US customers use cryptocurrencies.

It says:

Bitcoin increased as much as 4.9% to $12,488 Wednesday, surpassing the previous high for the year of $12,473 set in August. Gains among so-called alt coins were even larger, with Litecoin jumping more than 11% and Bitcoin Cash surging 8%.

Here’s a video clip promoting PayPal’s embrace of cryptocurrencies:

The move comes in two parts:

1) US customers will be able to buy, hold and sell select cryptocurrencies, initially featuring Bitcoin, Ethereum, Bitcoin Cash and Litecoin, directly within the PayPal digital wallet.

The service will be available to PayPal accountholders in the US in the coming weeks. The company plans to expand the features to Venmo and select international markets in the first half of 2021.

2) From early 2021, PayPal customers will be able to use their cryptocurrency holdings to pay for things at PayPal’s 26 million merchants around the globe.

Those merchants won’t receive bitcoins, though, as Paypal will convert them into fiat currency, with “certainty of value and no incremental fees”.

Pound pushes higher

Sterling is extending its gains, on the back of a Bloomberg report that the Brexit talks will soon resume.

Here’s the details:

Trade talks between the U.K. and European Union are on the verge of resuming after positive contact between the two sides, three people familiar with the discussions said.

A decision could come in the next 24 hours, with negotiators ready to sit down immediately with the goal of finding a deal by mid-November, according to the people, who spoke on condition of anonymity because the talks are private.

The pound rose as much as 1.4% to $1.3135, its highest in over a month, and U.K. gilts fell, with 10-year yields rising six basis points.

Bitcoin hits 2020 high after PayPal's crypto move

Newsflash: Bitcoin has hit its highest level of the year, after Web payment platform PayPal said it would allow its US customers to buy, sell and hold bitcoin and other virtual coins.

Reuters has the details:

PayPal customers will also be able to use cryptocurrencies to shop at the 26 million merchants on its network starting in early 2021, the company said in a statement.

PayPal hopes the service will encourage global use of virtual coins and prepare its network for new digital currencies that may be developed by central banks and corporations, President and Chief Executive Dan Schulman said in an interview.

“We are working with central banks and thinking of all forms of digital currencies and how PayPal can play a role,” he said.

U.S. account holders will be able to buy, sell and hold cryptocurrencies in their PayPal wallets over the coming weeks, the company said. It plans to expand to Venmo and some countries in the first half of 2021.

This has propelled Bitcoin up by over 4% to $12,500 - its highest level since July 2019.

The price of Bitcoin during 2020
The price of Bitcoin during 2020 Photograph: Refinitiv

PayPal’s move has been hailed by cryptocurrency enthusiasts as a landmark moment, with virtual currencies becoming more accepted by established financial players.

Bloomberg explains:

The news sparked an exuberant response from crypto fans who pointed to a string of recent announcements that suggest wider acceptance by old-school financial mainstays.

Two public companies -- Square Inc. and MicroStrategy Inc. -- said recently that they invested in Bitcoin. And Fidelity Investments announced in August that it’s launching its first Bitcoin fund, adding its establishment name and star power to the often-maligned asset class.

Updated

The New York stock market has made a very muted start to trading.

The Dow Jones industrial average has dipped by 36 points to 28,271, as investors continue to fret about whether a US stimulus package will be agreed (the two sides are still talking).

Netflix is among the fallers, dropping almost 5% after missing earnings forecasts for the last quarter and reporting a sharp slowdown in new subscribers.

170,000 jobs in UK's live music sector 'will be lost by Christmas'

The closed box office of the SSE Arena at Wembley Park in London,back in May.
The closed box office of the SSE Arena at Wembley Park in London, back in May. Photograph: Catherine Ivill/Getty Images

Britain’s music industry has given a stark illustration of the labour market ‘scarring’ which Sir Dave Ramsden fears -- warning that 170,000 jobs could be lost before the end of the year.

My colleague Mark Sweney explains:

The UK’s live music sector is facing the loss of 170,000 jobs – almost two-thirds of its workforce – as the beleaguered industry approaches a “cliff edge” after the winding up of the government’s furlough scheme at the end of the month.

The sector, which has, in effect, been shut down since March, is estimated to be hit by an 80% decline in revenues this year, according to a report.

The research, conducted on behalf of Live, the umbrella group representing the live music industry, estimates that 64% of the sector’s 262,000 workers will be out of a job by Christmas.

The hardest hit will be the 210,000 self-employed and freelance workers who have full-time equivalent roles, with 144,000 expected to lose their jobs. Of the 52,200 permanently employed staff, half are predicted to lose their jobs when the furlough scheme ends.

Two pedestrians in downtown Montreal yesterday
Two pedestrians in downtown Montreal yesterday Photograph: Canadian Press/REX/Shutterstock

Meanwhile in Canada, inflation has picked up after its summer lull, as in the UK.

Canada’s annual inflation rate in September was 0.5%, up from a 0.1% increase in August, Statistics Canada reports. Rising transportation, recreation, education and housing costs pushed the CPI up.

But cheaper fuel kept a lid on inflation, with gasoline prices down 10.7% year-on-year.

The pound has hit a six week high, following Sir Dave Ramsden’s reluctance to try negative interest rates.

Sterling has risen to $1.3094, its highest level since 8th September, after the Bank of England deputy governor said now was not the time to cut Bank Rate below zero.

The pound is also benefiting from Brexit optimism (after EU negotiator Michel Barnier said a deal was possible), and a general dollar weakness today.

The pound vs the US dollar in 2020
The pound vs the US dollar in 2020 Photograph: Refinitiv

Ramsden: Now is not the time for negative interest rates

No Bank of England speech is complete without a reference to negative interest rates -- the latest weapon in the BoE’s armory.

Sir Dave Ramsden doesn’t sound eager to pull the trigger, though.

In today’s speech, he explains the BoE is assessing whether it would be effective to cut rates below zero, and is consulting with commercial banks about any ‘operational challenges’.

But, he insists, this isn’t the moment to take such an unprecedented step.

While there might be an appropriate time to use negative rates, that time is not right now, when the economy and the financial system are already grappling with the effects of an unprecedented crisis, as well as the myriad uncertainties the crisis has created.

Ramsden also points out that cutting interest rates below zero (from 0.1% today) could hurt the banking sector. If deposit rates don’t fall, but loan rates too, then profitability will be squeezed - meaning some banks might lend less. Not ideal, if you’re trying to escape a recession.

Updated

BoE deputy governor: UK risks labour market scarring

Just in: Bank of England deputy governor Sir Dave Ramsden has warned that unemployment could rise more sharply than forecast, and that wage growth could also falter as the pandemic continues.

In a speech just released, Ramsden warns that younger workers, and those at the start of their careers, could be particularly impacted by Covid-19.

The Bank’s latest official forecast is for unemployment to peak at 7.5% at the end of the year and only decline gradually, but Ramsden fears the outlook could be worse.

As flagged in the MPC’s September minutes, there is a real risk of a more persistent period of higher unemployment, and the recent strength of income growth might not be sustained.

I remain particularly concerned that we could also see structural headwinds to recovery in the labour market, with particular impacts on younger workers and those joining the workforce.

The negative impact on the supply side of the economy, or degree of scarring, could potentially be greater than the 1.5% we have assumed to date based on very preliminary work, a risk the MPC has previously highlighted.

These comments largely echo what Monetary Policy Committee member Gertjan Vlieghe said yesterday, indicating that the Bank is moving towards more stimulus measures next month.

Bank of England’s economic forecasts, August 2020
And here are Bank of England’s economic forecasts from August - we get a new set next month. Photograph: Bank of England

The UK Treasury has trumpeted the jump in housing transactions in September (see earlier post) as proof that the stamp duty holiday is working.

But hasn’t the temporary freeze in stamp duty under £500,000 simply dragged sales forwards, and pumped up prices?

Dan Leather, real estate partner at legal firm Gowling WLG, reckons other factors are in play - including people looking to move due to the lockdown.

“This spike is undoubtedly supplemented by the stamp duty holiday, but is also symbolic of a more enduring lift in the market as the effects of lockdown come to bear on people’s long-term planning and increased demands on their living space. We already know that the house builders and developers are working really hard on design and delivery, to identify and serve the adjusted demands of the purchaser.

This continues to transition and evolve at pace. This sure makes the new build housing product more attractive than ever before, serving as a further incentive to move and generating activities throughout the new and used housing market.’’

Nicky Stevenson, managing director at national estate agent group Fine & Country, agrees that some buyers are looking to move into larger homes, (perhaps further from the office?), after months of home working:

“Here is official confirmation that the market did indeed get up to a canter over the summer months. The annual rate of growth soared as buyers frustrated by lockdown and lack of space crammed into the market in search of larger properties. That alone explains this sudden rally, as the stamp duty holiday was only introduced in July. A lag will mean any extra demand it created will not be seen in the Land Registry figures before the end of the year.

“The question is how long this surge can last, with speculation already swirling that the market is set for a fall. Such predictions are probably premature.

“Though strong growth like this will be temporary and we will soon be entering the traditionally quieter winter period, there are reasons to suspect that this is no ordinary autumn.

“Consumer confidence among large swathes of the population is still very high. We already know that during lockdown a record 29% of disposable income was tucked away and saved as people were unable to get out and enjoy themselves. Rightmove also reported a 70% annual jump in the number of sales agreed during September and it says that, for the first time on record, agents have more properties marked as sold than available for sale.

“This is incredible. These aren’t metrics usually associated with a stalling market, though the rate of growth will inevitably slow before picking up again in the New Year.”

Back to the public finances... and economics editor Larry Elliott points out that the UK is on track to borrow a billion pounds ever day this year.

The financial markets, though, are unperturbed by the record-breaking deficit...

During the financial crisis of 2008-09, public borrowing soared to more than £150bn – or just under 11% of national output at the time. Paul Dales at Capital Economics says the final total for 2020-21 could be £390bn, almost 20% of GDP. As things stand, that looks a reasonable estimate.

In that context, Whitehall may struggle to explain why it has taken such a tough line in its negotiations with Greater Manchester over a tier 3 support package, with the two sides wrangling about £5m. When borrowing is on course to exceed £1bn a day, £5m is a drop in the ocean.

The one piece of good news for the government is that the financial markets don’t seem to care one bit about the deficit. The yield – or interest rate – on 10-year UK gilts is about 0.2%, below the current inflation rate of 0.5%.

A nagging concern for the Treasury is that the markets will have a change of heart and make it more expensive for the government to fund its deficit. For now, though, there is no sign of that happening.

Credit rating agency Moody’s has warned that no-deal Brexit would be even more damaging to UK car producers than Covid-19.

A new Moody’s report shows that the automotive industry would suffer the biggest hit from a disorderly Brexit, along with aerospace, chemicals and the ports.

Permanent tariffs, trade barriers, and currency depreciation would all hurt over the long term -- although carmakers face a more immediate threat of reduced demand due to the pandemic.

Tobias Wagner, vice president at Moody’s Investors Service, explains:

“In the event of a no-deal Brexit, domestic demand is unlikely to offset the profit pressures UK automakers will face as tariffs, trade barriers and currency depreciation come into play.

The UK economic environment is already uncertain, and a no-deal Brexit would only exacerbate this further, creating more challenges for carmakers.

No-deal Brexit impact on UK businesses
No-deal Brexit impact on UK businesses Photograph: Moody's

Today’s UK public finances are an excellent opportunity to publish this long thread written by economist Tony Yates over the weekend, on the wider issue of Covid-19 borrowing and government debt:

The UK housing sector picked up pace in August, as the government’s stamp duty holiday encouraged people to consider moving house.

The number of UK residential property transactions rose to 101,920 in September, as demand for property rose.

That’s a 20% increase on August, and higher than September 2019, new figures from HMRC show.

HMC says:

Provisional residential transactions estimates in September 2020 have noticeably increased compared to August 2020, likely due to the continued release of pent-up demand within the property market since March 2020 and early impacts from the temporarily increased nil rate band of SDLT (stamp duty land tax).

UK residential housing transactions

Separately, the ONS has reported that UK house prices rise by 2.5% over the year to August 2020, up from 2.1% in July 2020.

Average house prices increased over the year in England to £256,000 (2.8%), Wales to £173,000 (2.7%), Scotland to £155,000 (0.6%) and Northern Ireland to £141,000 (3.0%), ti says.

The report also shows that London house prices have hit a new alltime high, with the average property in the capital costing £489,159:

UK house prices by region

Brexit optimism lifts pound

The pound has shrugged off Britain’s record borrowing, and is getting a boost from the latest Brexit headlines.

Hopes that the UK and EU could reach a trade deal have pushed sterling back over $1.30 against the US dollar, for the first time in nearly a week.

It comes after the EU’s chief negotiator Michel Barnier told the European Parliament that “an agreement is within reach if both sides are willing to work constructively.”

Politico has the details:

Brexit talks stalled last week, when the U.K. put formal negotiations on hold after the European Council. U.K. officials said that without a signal from the EU that it is also ready to make concessions, formal talks can’t resume.

Barnier stressed that the EU is ready to compromise in order to reach a deal.

“We will seek the necessary compromises on both sides in order to reach an agreement and we will do so right up until the last day until it’s possible to do so. Our doors will remain open until the very end.”

Here’s the damage this morning:

European stock markets, 21 October 2020

It’s turning into another bad morning in the City.

The FTSE 100 index of blue-chip stocks has fallen by 90 points, or 1.5%, to 5798 points - not far from the five-month lows hit in September.

But today’s borrowing and inflation figures aren’t to blame. Instead, investors across Europe seem spooked by fears that rising Covid-19 infections will scupper the recovery.

There’s also some disappointment that US politicians still haven’t agreed a stimulus package.

The EU-wide Stoxx 600 index has lost 1.2%, with losses in Germany (-1.3%), France (-1.4%) and Italy (-1.1%).

Top fallers in London include miner Fresnillo, down 4% after cutting its gold production forecasts due to the pandemic, along with catering firm Compass (-3%) and office developer British Land (-2.3%).

There’s also some disappointment that US politicians still haven’t agreed a stimulus package, following last night’s deadline set by Nancy Pelosi:

Saxo Bank’s John Hardy explains:

The latest is that the House Democratic Speaker Pelosi’s deadline for a deal yesterday came and went with no decision, but the two sides continued to talk.

Treasury Secretary Mnuchin made comments suggesting a deal is close on a deal closer to $1.9 trillion, while the chief question may be whether there is sufficient support for a deal among Senate Republicans to pass the deal, with Senator Mitt Romney arguing against a deal of the current size.

Some argue that those Republicans up for election on November 3rd may be under more pressure to sign in favour of stimulus.

Those fretting about Britain’s record surge in borrowing should remember the International Monetary Fund’s view -- austerity is not an inevitable consequence of Covid-19.

The IMF warned last week that governments should not withdraw their current economic support packages, as this would derail the recovery and be counterproductive.

But what about all the debt we’re piling up? Remember, the UK now owes over £2trn, or 103.5% of its annual GDP, the highest in sixty years (when Britain was paying down/inflating away the war debt).

The key issue, for the IMF, is that government debt servicing costs will probably remain well below growth rates. So if interest rates stay low, and economies return to expansion, the debt problem should start to melt away.

As Vitor Gaspar, the IMF’s head of fiscal policy, told the Financial Times:

“The [public debt] ratio in our projections stabilises and even declines slightly towards the end of our projections which shows that Covid-19 is a one-off jump up in debt and with low interest rates, the debt dynamics stabilise.”

Here’s our news story on this morning’s economic data:

Speaking of pensions... one centre-right thinktank has today urged the government to rip up the triple-lock.

The Centre for Policy Studies (CPS) argues that the UK could save £2bn a year if it ditched the commitment to raise pensions by at least 2.5%. It favours a double lock, in which pensions would rise each year by whichever was the higher of earnings or inflation.

The CPD also proposes cutting the aid budget and limiting child benefit, arguing that this would protect public services while paying off the Covid-19 borrowing bill.

[As I flagged in the intro, there’s currently no problem financing the UK deficit. But, debt taken out this year will eventually be repaid or rolled over].

More here:

Updated

September’s 0.5% inflation reading will have wide-ranging implications - as it is used to set increases on business rates and state benefits.

The Press Association have a handy explanation:

The September figure is used to decide the annual increase in business rates. While retail, leisure and hospitality firms have been given a one-year business rates holiday, this is set to end on March 31 just before the new rate kicks in on April 1.

September’s CPI is also used in the calculation for state pensions, although the triple-lock rule means the payout will be the highest figure out of CPI, earnings growth for the year to July, or 2.5%.

State benefits are likewise decided by the September inflation figure, meaning payments will rise 0.5% next April, which is far less than this year’s 1.7% increase.

UK inflation: the key charts

UK inflation, to September 2020
UK inflation by sector, September 2020

How second-hand cars pushed inflation up last month

September’s inflation report also shows the impact of Covid-19 on the economy.

A jump in the cost of second-hand cars helped to push the consumer prices index up to 0.5%, from just 0.2% in August. That appears to be due to commuters choosing to drive to work rather than take the bus or train, due to fears of catching the virus.

The ONS explains:

The contribution from the purchase of vehicles was solely because of second-hand cars, where prices have risen by 2.1% between August and September 2020, compared with a 1.4% fall between the same two months a year ago.

This is widely reported to be because of increased demand for used cars as people seek alternatives to public transport.

Air fares also fell by less than usual in September (because they didn’t rise as much in August!).

The cost of eating out also rose by more than usual, due to the end of the half-price meal deal

As the ONS puts it:

An upward contribution (of 0.30 percentage points) came from catering services, where prices rose by 4.1% between August and September 2020, compared with a rise of 0.2% between the same two months in 2019.

The rise this year reflects the end of the Chancellor’s Eat Out to Help Out scheme, which affected the prices of food and non-alcoholic drinks in participating restaurants, pubs and cafés on Mondays to Wednesdays during August.

But, the prices of many items - including furniture, household equipment, games, toys, food and non-alcoholic drinks - fell last month, reflecting weak demand in the economy.

UK borrowing makes Manchester's £5m demands 'a rounding error'

The news that Britain is smashing monthly borrowing records, without any problems in the markets, must be galling for those Northern leaders demanding more economic support.

The UK effectively borrowed more than a billion pounds every day last month, which dwarfs the £65m support package which Andy Burnham, the mayor of Greater Manchester, was seeking.... let alone the £5m difference which sunk yesterday’s negotiations.

As Michael Hewson, analyst at CMC Markets, puts it:

When dealing with sums like this, it does rather beggar belief that the UK government and leaders in Manchester are quibbling over as small a sum as £5m.

It’s like discussing a rounding error, and UK gilt markets don’t seem that concerned, given the eye watering sums being spent elsewhere around the world.

Sunak: Situation would be worse without our actions

The chancellor, Rishi Sunak, has responded to today’s borrowing figures:

“Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods.

“Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances.”

Capital Economics: UK can afford to provide more help

Paul Dales of Capital Economics predicts that the UK deficit could hit an unprecedented £390bn by the end of the financial year -- but that’s no reason not to provide more economic help:

Public sector net borrowing (exc. Banking groups) of £36.1bn (consensus £33.6bn) was the third highest since records began in 1993. Even so, borrowing in the fiscal year to date is 20.6% below the OBR’s July projection.

But the stuttering recovery and further fiscal support are likely to mean that the pace of borrowing is higher than the OBR expected in the second half of the fiscal year. As a result, the budget deficit may eventually reach £390bn this year (19.6% of GDP), some £18bn more than the OBR’s £372bn projection. But with 10-year gilt yields currently just 0.19%, the markets don’t seem to care one bit.

Overall, low inflation and low gilt yields give the Bank of England and the Chancellor the green light to do more to support the economy.

UK public finances: snap reaction

Channel 4’s Helia Ebrahimi points out that Britain has now racked up six months of record-breaking borrowing in a row.

But....borrowing has actually been lower than the Office for Budget Responsibility (the UK fiscal watchdog) had forecast, points out the Institute For Fiscal Studies.

Economist Julian Jessop also points out that the national debt is undershooting the official projections, so the UK isn’t out of firepower:

Another astonishing fact - since April, the UK has borrowed almost four times as much as the previous financial year.

The ONS says:

The coronavirus (COVID-19) pandemic has had an impact on public sector borrowing that is unprecedented in peacetime.

Provisional estimates indicate that the £208.5 billion borrowed in the first half of the current financial year (April to September 2020) was nearly four times the £54.5 billion borrowed in the whole of the last full financial year (April 2019 to March 2020).

UK borrowing: the key charts

With deft understatement, the ONS points out that the £36bn borrowing in September was ‘substantially’ higher than a year ago (about six times higher!)

UK public finances by mont

Indeed, it’s nearly as much as the UK borrowed in the whole of the 2018-19 financial year:

UK public finances by years

And the big picture.... the UK debt pile is now the largest since 1960, when measured as a share of GDP:

UK debt/GDP ratio through history

UK inflation rises to 0.5% as Eat Out deals end

We’re also just learned that Britain’s inflation rate picked up last month.

The consumer prices index rose to 0.5% in September 2020, up from 0.2% in August.

The ONS reports that rising transport and restaurant prices pushed the cost of living up, as the government’s half-price meal deal ended.

It explains:

  • Transport costs, and restaurant and café prices, following the end of the Eat Out to Help Out scheme, made the largest upward contributions (of 0.23 and 0.21 percentage points, respectively) to the change in the CPIH 12-month inflation rate between August and September 2020.

  • This was partially offset by smaller downward contributions from furniture, household equipment and maintenance; games, toys and hobbies; and food and non-alcoholic beverages.

Rising inflation will be a blow to struggling households, especially those facing a drop in income due to the Covid-19 restrictions.

But the UK’s inflation target is 2%, so this won’t worry central bankers (who are more concerned about rising unemployment and the economic damage of Covid-19).

Introduction: Another month of record borrowing

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain has racked up another month of unprecedented borrowing, as the economic cost of Covid-19 continues to mount.

Figures just released show that public sector net borrowing hit £36.1bn in September 2020, a record level for the month, and more than economists expected.

That’s £28.4bn more than in September 2019, and the third-highest borrowing in any month since records began in 1993 -- following April and May this year.

It means that since April (the start of the financial year) the UK has borrowed around £208.5bn to cover the cost of protecting the UK economy from the pandemic.

That’s £174.5bn more than a year ago -- and the highest borrowing in any April to September period since records began in 1993. Every month since April has seen record borrowing.

UK public finances to September 2020
UK public finances to September 2020 Photograph: ONS

September’s borrowing has pushed the UK national debt up to £2,059.7, or around 103.5% of GDP -- the highest debt to GDP ratio since 1960.

This includes billions spend on PPE equipment, the job retention scheme that saw millions of workers paid by the government, and lost tax receipts as the economy locked down.

The ONS explains:

  • Central government tax receipts are estimated to have been £37.7bn in September 2020), £6.0bn less than in September 2019, with large falls in Value Added Tax (VAT), Business Rates and Corporation Tax receipts.
  • Central government bodies are estimated to have spent £77.8bn on day-to-day activities (current expenditure) in September 2020, £18.1bn more than in September 2019; this includes £4.9bn in Coronavirus Job Retention Scheme (CJRS) and £1.0bn in Self Employment Income Support Scheme (SEISS) payments.

Fortunately, Britain can borrow cheaper than ever before.

Ten-year UK gilts trading at an interest rate below 0.2%, showing solid demand for UK debt, and meaning that the cost of servicing the Covid-19 borrowing will be historically low.

More details and reaction to follow...

The agenda

  • 7am BST: UK inflation data for September
  • 7am BST: UK public finances for September
  • 12pm BST: US weekly mortgage approvals data
  • 1.10pm BST: Bank of England deputy governor Sir Dave Ramsden speaks on “UK Monetary Policy: Issues and Outlook”
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The Season 1 Finale Of HBO's Neighbors Is Must-Watch Television For One Big Reason
Stop what you're doing and watch it.
Cinemablend
Cinemablend
‘I’m trying to de-escalate. He has a needle in my arm’: Southern California woman goes to tattoo shop. Then the owner asks her something shocking
A woman has sparked discussion online after she called out her tattoo artist for his inappropriate behavior once he learned she was recently single.
The Mary Sue
The Mary Sue
Forget birdwatching, I’m into moth-watching: they’re fascinating and misunderstood insects
According to new research, distinguishing between the UK’s 2,500 species could halt cognitive decline – so my brain could not be happier, or healthier, says science writer Helen Pilcher
The Guardian - UK
The Guardian - UK
I tried HigherDose’s $1,400 PEMF mat to help me relax. I got weird dreams and disappointment
This pricey infrared therapy mat claims to help mood, sleep and muscle recovery. It felt more like a glorified heating pad
The Guardian - US
The Guardian - US
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