Closing summary
Eurozone GDP grew by 0.4% in the third quarter of this year, twice as fast as the 0.2% growth expected.
That follows Germany’s welcome dodging of a recession, and France’s Olympics-fuelled growth over the summer, which we’ve seen this morning.
Rachel Reeves has announced £40bn of tax rises on businesses and the rich as Labour’s first budget in 14 years sought to reverse more than a decade of decline in Britain’s public services.
After months of speculation since the party’s general election landslide victory, the chancellor revealed a sweeping package of tax increases she said would be vital to balance the books and turn the page on austerity.
“The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Reeves said. “There are no shortcuts, and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.”
At its heart was an increase in national insurance contributions (Nics) paid by employers – worth £25bn by the end of this parliament – alongside billions of pounds in increases from changes to capital gains tax, inheritance tax, VAT on private schools and the non-dom tax regime.
In financial markets, borrowing costs initially fell, as investors welcomed the confirmation of large tax hikes.
But the rally reversed – causing bond prices to fall and and yields (or interest rates) to rise, as the City digested the sharp increase in government borrowing forecast by the Office for Budget Responsibility, the fiscal watchdog.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care – JK
Updated
John Burn-Murdoch, columnist and chief data reporter at the Financial Times, observed that the tax burden is also high in other countries.
The thing about "the UK’s tax burden is now at a record high", is that this is also true for almost all countries 📈 pic.twitter.com/Is40bLZOdt
— John Burn-Murdoch (@jburnmurdoch) October 30, 2024
Economists at ING have looked at how the budget has been received in financial markets.
Financial markets have been on a wild ride since the announcement of the UK’s latest budget. Big tax rises are coming, but not as quickly as big spending increases. And the prospect of higher growth has led investors to curtail expectations for Bank of England rate cuts.
Markets initially liked the tax hikes, but quick spotted the higher borrowing projection.
UK bond yields did initially dip as the chancellor was speaking, and markets liked Rachel Reeves’ confirmation that tax rises would raise £40bn (1.5% GDP) per year. That’s a big number by any comparison and is much more than Labour promised to raise during the general election. Investors also warmed to Reeves’ commitment to balancing the current budget (day-to-day spending vs taxes), initially within five years, and latterly over three.
But no sooner had the chancellor ended her speech did the tide quickly begin to turn. 10-year government bond (gilt) yields are up four basis points on the day, at the time of writing, and almost 15bp from the intraday low.
Updated
Keith Cooney, head of business rates at the property firm Knight Frank, said:
Today it was revealed that despite a change in government, the £29bn business rates tax burden is set to increase again for 2025 with the largest ratepayers – which will include the country’s key employers – being asked to effectively fund any support for SMEs.
Despite pledges to support the high street the chancellor has cut the business relief for retail, leisure and hospitality from 75% to 40% albeit retaining the cap of £ 110,000 per business. Moreover, the move to fund a reduction in the multiplier for retail, leisure and hospitality from 2026/7 with a higher rate targeting warehouses, is shortsighted as government is effectively taxing the infrastructure that these businesses rely on to move goods to their premises and directly to the consumer.
This all adds even more complexity to an already highly complex system, and simply the shifts the tax liability without acknowledging that the tax burden on UK businesses is simply too high. It is difficult to see how these measures will help fix the foundations needed for economic recovery.
Will Hutton, political economist and Observer columnist, wrote on X:
A shock and awe budget that for all the leaks has caught everyone off guard - on both left and right. The left never thought she’d dare - the right cling to the impossible view you can have a small state, low taxes and great public services. My hunch is growth will follow too
— Will Hutton (@williamnhutton) October 30, 2024
Updated
Phil Vernon, head of business rates at PwC UK, said:
The introduction of permanently lower business rates multipliers for high street retail, hospitality and leisure (RHL) properties from 2026-27 will be welcomed by these sectors. However, the government intends to fund the relief through a higher multiplier for properties with a Rateable Value over £500k. This is likely to spell higher rates bills for other property types such as offices, factories or distribution hubs from 2026.
In the short term, the freeze in the small rates multiplier in 2025 is good news for many small businesses. Companies in the RHL sectors will be pleased with the extension of the current relief although this will be slightly tainted by the cutting of the relief from its current level of 75% to 40%. This would mean a single-property business with a gross rate charge of £100k would see their annual rates bill rise from £25k to £60k next April.
In addition, with the relief capped at £110k per business, this means that the wider retail sector will not see a significant reduction in their rates bills until at least 2026, when the new multipliers are introduced.
Andy Jones, partner at EY UK, has also looked at the retail measures.
For retailers, the bottom line is that today’s budget will likely result in increased cost pressures amid what is already a challenging backdrop. A particularly significant headline, as expected, is the proposed increase in the national minimum wage and National Insurance Contributions (NICs) for employers. Whilst good news for workers, this will impact retailers during a time of already-intense cost pressures.
Moreover, whilst the announcement to ease the removal of the business rate discount will be welcome news for some businesses, it will still be an increase on the amounts paid today. That said, many may be hopeful that it is a first indication of the new government’s approach to taxation and an indication that further reliefs that may come in the future. Therefore, overall, whilst the freeze on fuel duty and the reduction in alcohol duty rates for draught products will be welcomed, the budget will likely lead to increased inflationary pressures for retailers and likely price rises for consumers.
Chris Sanger, EY’s tax policy leader, added:
Business rates is an area that governments have struggled with for at least the last decade. This is a tax that is paid regardless of whether a business is in the red or the black - whether there are profits to fund this tax or not. We have seen the tax rate increase from the low 40s to the high 50s, marking a big increase in the costs for those firms using real estate.
Here is some reaction to the changes to business rates for shops, pubs, bars and restaurants.
Kate Nicholls, chief executive of UKHospitality, said next year “will be painful for hospitality,” with an increased annual tax bill of £3bn.
This budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.
Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40% is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.
But, she added:
However, there are reasons for longer-term positivity. I am pleased that the chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality. Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.
Simon Green, head of business rates at property consultancy Gerald Eve, was more blunt.
The decision to slash the retail, hospitality and leisure relief scheme from 75% to 40% is absolute madness. It will see rates bills more than double overnight for 250,000 small businesses, leading to business failures and job losses.
AstraZeneca's China president Leon Wang under investigation
Meanwhile… AstraZeneca’s China president Leon Wang is standing back because he is under investigation by Chinese authorities, the UK’s biggest pharmaceutical firm has announced.
Wang, who is also the company’s executive vice president for international markets, “is cooperating with an ongoing investigation by Chinese authorities”. It is not clear whether he has been detained. The company said:
Our China operations continue under the leadership of the current general manager of AstraZeneca China.
If requested, AstraZeneca will fully cooperate with the investigation.
Michael Lai is general manager at AstraZeneca China.
Last month, it emerged that five current and former AstraZeneca employees had been detained by Chinese police as part of an investigation into possible breaches related to data privacy and importing unlicensed medications. Update: Eight to nine current or former staff were detained.
The detentions took place earlier this summer, and targeted Chinese citizens who marketed cancer drugs for the oncology division of the British drugmaker, in news first reported by Bloomberg.
Police are investigating whether AstraZeneca employees were involved in importing a drug meant to treat liver cancer, but which had not been approved for distribution across mainland China.
The investigation, which is being led by police in the Shenzhen region, is also examining the way the company collected patient data, and whether that may have broken China’s privacy laws.
China has become a big market for AstraZeneca, and it has invested heavily in the country, announcing plans last year to build a $450m factory and signing a number of licensing deals with Chinese companies, including one for an obesity and type 2 diabetes pill. It acquired the Shanghai-based Gracell Biotechnologies, which develops cell therapies for cancer and autoimmune disease, for $1.2bn earlier this year.
Updated
Reeves reveals £5bn funding for housebuilding
To build 1.5m more homes in the coming five years, as the Labour government has pledged, Reeves has revealed £5bn of government funding, including £3.1bn for affordable housing (an increase of £500m). There is also £3bn support for small housebuilders and the build-to-rent sector in the form of housing guarantee schemes.
The chancellor also said that local authorities would hire “hundreds of new planning officers” to speed up housebuilding. The government is reducing ‘right to buy’ discounts for council tenants to buy the homes they are living in, and local authorities get to keep full receipts from the sale of council homes.
Following the deadly Grenfell fire in 2017, the government will spend £1bn to remove dangerous cladding from tall buildings next year, Reeves said.
Helen Barnard, director of policy, research & impact at the charity Trussell Trust, posted on X:
Affordable housing announcements: reducing Right to buy discounts, LAs retain full receipts, social rents CPI +1% over next 5 years, more planning officers, £1bn to remove cladding. All good stuff! #Budget2024
— Helen Barnard (@Helen_Barnard) October 30, 2024
Updated
Reeves: 'permanently lower' tax rates for shops and pubs
Rachel Reeves has announced permanently lower tax rates for retail, hospitality & leisure properties from 2026-27, to help the high street.
While relief on business rates for the industry is being extended, it will be reduced from 75% to 40% in 2025-26, up to a cap of £110,000 per business. The small business tax multiplier will be frozen next year. Those two measures amount to £1.9bn of support to small businesses and the high street, according to the Treasury.
We're protecting our high streets.
— HM Treasury (@hmtreasury) October 30, 2024
From 2026-27 permanently lower tax rates will be introduced for retail, hospitality & leisure (RHL) properties.
Plus, for 2025-26, 250,000 RHL properties will receive 40% relief on their bills, up to a cash cap of £110,000 per business. pic.twitter.com/OWSplc4YJc
Updated
£40bn of tax rises in the budget
Over in parliament, Rachel Reeves is presenting the budget, and revealed it includes £40bn of tax rises – to address the ‘black hole’ in the public finances, and other unfunded commitments.
You can track it all here:
On the US GDP report, Richard Flynn, managing director at Charles Schwab UK, says:
“Today’s figures show that the economy has grown less than expected. In recent quarters we have seen the economy sustain healthy growth considering the point in the cycle and the time since the last recession, so it’s not entirely surprising to see a slowdown today.
It’s important to remember that one report does not a trend make – this may be a change in the wind, but it also may just be a wobble. Overall, the economy is in a good place so we wouldn’t expect today’s numbers to factor too heavily in the Fed’s next policy decision.
Recession will likely not be at the top of central bankers’ risk lists at this point – they’ll be keeping a much closer eye on inflation and jobs numbers as they seek to maintain this period of calm.”
US growth slows to 2.8% per year
Newsflash: The US economy grew a little slower than expected in the last quarter.
US GDP grew at an annual rate of 2.8% in July-September, new data show, the equivalent of 0.7% growth in the quarter.
That’s slightly below forecasts of a 3% annualised rise in GDP, and also a little slower than the 3% growth recorded in Q2.
US company payrolls stronger than expected
Boom! US companies created many more jobs than expected this month.
US private sector payrolls rose by 233,000 jobs in October, data provider ADP reports, smashing forecasts of a 113,000 increase.
ADP Payroll 233k exp was 113k. Big jump.
— Viral Patel (@viralpatel15) October 30, 2024
That may show that the US labo(u)r market is stronger than thought, dampening the pace of interest rate cuts in the months ahead.
Hopes of any good news “rabbits” in the budget may be dashed, flags George Eaton of the New Statesman.
“The era of rabbits is over,” a Reeves source tells me ahead of the Budget.
— George Eaton (@georgeeaton) October 30, 2024
Volkswagen hit by 60% fall in profits as sales in China slump
Volkswagen has reported a 60% drop in profits amid a slump in sales in China, with the carmaker emphasising the difficulties it faces as it prepares to close factories in Germany for the first time.
Germany’s biggest carmaker has told workers it is considering shutting three plants serving its main Volkswagen brand in its home market and cutting staff pay, raising the prospect of an extended battle with unions representing 120,000 German employees.
VW remains profitable but earnings before tax dropped almost 60% to €2.4bn (£2bn) in the quarter from July to September, down from €5.8bn a year earlier.
Carmakers around the world are struggling with limp demand for new vehicles as higher interest rates take their toll, while several – including VW’s German rivals BMW and Mercedes-Benz – have reported that demand in China in particular has dropped.
The British sportscar brand Aston Martin also confirmed on Wednesday that the “weak macroeconomic environment in China” was dragging it back.
Track the UK budget here:
My colleague Andrew Sparrow is live-blogging all the UK budget action today, which you can see here:
(I’ll pop over to assist a little later, when Rachel Reeves begins her speech)
The Institute for Fiscal Studies have published a handy thread on today’s budget, highlighting how government spending and borrowing have risen in recent years:
A key ingredient of the Budget will be the @OBR_uk’s updated growth forecast.
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
The IMF is more optimistic about the UK’s growth than its European peers, but a large upgrade of the @OBR_uk’s forecast is unlikely.
[THREAD on how the UK compares to other countries: 1/4] pic.twitter.com/M0jrhyzjUK
At the turn of the millennium, the size of the UK state – measured by overall government spending – was below the average of advanced economies.
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
That gap has now closed.
[2/4] pic.twitter.com/BzWVPR05x5
Government revenues have risen since 2001, and particularly sharply over the last parliament.
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
But unlike on the spending side, this increase still leaves the UK with lower revenues than its peers.
[3/4] pic.twitter.com/yGPf8OXXyr
An appetite to spend that resembles other advanced economies, but is not matched by a corresponding willingness to tax, has led to the UK’s debt rising by more than most of its peers.
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
Read more on how the UK compares to other countries here: https://t.co/i8w76Vx8Hg
[4/4] pic.twitter.com/QSUwBqUVP5
The London stock market has dipped very slightly this morning, but we can’t blame the selloff – such as it is! - on the budget.
GSK are the top faller, down 3.2%, after it cut its forecast for vaccine sales this morning (see 10.37am).
Mining compan Anglo American is close behind, down 3.1%. That follows reports that global mining company BHP has “moved on” from its three unsuccessful attempts to take over Anglo.
Lloyds Bank are another faller, down 1.4%. It’s caught up in last week’s landmark court ruling over car finance mis-selling, which may lead to lenders paying out billions of pounds in compensation to borrowers.
This has left the FTSE 100 share index down 18 points (-0.2%) at 8200 points, having earlier hit its lowest level since mid-September.
Kyle Chapman, FX markets analyst at Ballinger Group says eurozone economic expansion was much stronger than expected at 0.4% in the third quarter.
That has cut betting on a 50bp rate cut in December, and handing a modest boost to the euro, he says, adding:
“The upbeat growth data will go a long way in alleviating the ECB’s fears about faltering activity and undershooting inflation. There is a flicker here of the rising real wage, higher consumption path that policymakers had been flagging as the source of a rebound. My expectation is for policymakers to continue with back-to-back 25bp rate cuts, which will do the job just fine. There is no need to panic yet, and that takes a 50bp move off the table for now.
That said, these are hardly figures to get excited about. Germany may have eked out a touch of growth, but that is from a weaker position in Q2 than previously thought and the structural headwinds to growth will evidently persist in the longer term. The quarterly growth data is backward looking and only captures one month of the poor PMI prints that have spooked the ECB into easing more aggressively.
It points to a stronger outlook for consumption but does not preclude a fizzling out of the growth momentum in the fourth quarter which would reignite the discussion about a jumbo rate cut in December.”
The boss of British drugmaker GSK has called for the chancellor to encourage investment into the country through research and development tax credits.
Speaking as the company published its third-quarter results, Emma Walmsley, GSK chief executive, said:
“We remain very committed to this country as a company, with significant R&D and manufacturing investment.
“It is important for us that the fiscal environment remains competitive and you know, we’re looking forward to seeing the details that are coming through.
We want to see investment encouraged, whether that’s through the patent box or research and development tax credits, and we’ll see more on that today.”
R&D tax credits are aimed to encourage investment in research and development by allowing companies to claim tax credits or reduce their tax bill by showing cash has been reinvested in research projects. The Patent Box is designed to encourage companies to keep intellectual property in the country by offering lower rates of corporation tax on profits made from inventions patented locally.
The comments came as GSK’s total sales for the three months up to 30 September hit £8bn, a 2% increase from compared to the previous year.
However, its vaccines sales forecast dropped for the year due to a sharp decline in sales of its new respiratory virus jab Arexvy. The jab which saw significant sales after its launch last year plunged 72% year-on-year to £188m, hit by fewer of the shots being given out in the US.
UK government bonds are continuing to strengthen in morning trading, pushing down borrowing costs a little further.
The yield (interest rate) on 10-year UK government debt is now down 7 basis points, at 4.23%, down from last night’s five-month closing high of 4.3%.
[bond yields fall when prices rise].
Russ Mould, investment director at AJ Bell, says investors will be hoping this isn’t simply the calm before the storm, adding:
“The last thing the market wants is for Reeves to pull a Halloween-themed rabbit out of the hat that scares investors and causes another Liz Truss-era horror show.
For all the wild speculation around what might be in the Budget, investors don’t seem to be on tenterhooks going into the announcement.”
Research institute the National Institute of Economic and Social Research are hopeful that Rachel Reeves’s new fiscal rules will create the space needed to drive investment, without undermining stability.
Monica George Michail, associate economist at NIESR, says:
The UK is at a critical juncture: after years of sluggish growth and deteriorating public infrastructure, a sustained rise in government investment is vital to promote long-term growth and boost living standards.
Growing demands for defence and green infrastructure further add urgency for decisive action to secure the UK’s economic future.
We look forward to the Chancellor’s budget announcement today and hope the new fiscal rules will strike a balance between creating fiscal space and ensuring long-term financial stability.”
Eurozone beats forecasts with 0.4% growth
Newsflash: the eurozone has beaten growth forecasts.
Eurozone GDP grew by 0.4% in the third quarter of this year, twice as fast as the 0.2% growth expected.
That follows Germany’s welcome dodging of a recession, and France’s Olympics-fuelled growth over the summer, which we’ve seen this morning.
Statistics body Eurostat says:
Ireland (+2.0%) recorded the highest increase compared to the previous quarter, followed by Lithuania (+1.1%) and Spain (+0.8%). Declines were recorded in Hungary (-0.7%), Latvia (-0.4%) and Sweden (-0.1%).
The year on year growth rates were positive for seven countries and negative for six.
Euro area #GDP up by 0.4% in Q3 2024, +0.9% compared with Q3 2023: preliminary flash estimate from #Eurostat https://t.co/u7R8Eb4NmX pic.twitter.com/jQviWwoGBj
— EU_Eurostat (@EU_Eurostat) October 30, 2024
Updated
Campari shares tumble 15% after results miss expectations
Sticking with Italy briefly, shares in drinks company Campari have dropped by 15% after its latest financial results disappointed the markets.
Net sales at the spirits firm behind Aperol, Grand Marnier and Cinzano fell by 1.4% in the last quarter, missing forecasts of a rise.
Campari blamed macroeconomic weakness, poor weather (it wasn’t the best summer for a cheeky outdoor Aperol spritz), pressure on disposable income from inflation and falling confidence among consumers and retailers.
Campari’s pretax profits dropped by 20% in the quarter.
Maybe they should consider bringing back those classic Cinzano adverts with Joan Collins & Leonard Rossiter…..
Updated
While Germany has beaten growth expectations, Italy has done worse than expected.
Italian GDP was flat in July-September, new data this morning shows, worse than forecasts of 0.2% growth for Q3.
Germany, France, Spain and Italy GDP
— Alexstephansen (@astephansen) October 30, 2024
Olympics likely helped France. Spain fastest growing major economy in Europe pic.twitter.com/N8zTX7vEzp
Updated
The euro has jumped to its highest level in over a week, after Germany’s economy avoided a recession in July-September.
The single currency is up 0.25% at $1.0845, with investors calculating that hefty cuts to eurozone interest rates are now a little less likely.
Reuters reports that the odds of a large, half-point, cut from the European Central Bank at its next meeting in December has dropped to 22%, from 45% early this morning.
⚠️ TRADERS TRIM BETS ON 50 BP RATE CUT FROM ECB IN DECEMBER, NOW SEE 22% CHANCE FROM AROUND 45% CHANCE BEFORE DATA
— PiQ (@PiQSuite) October 30, 2024
Germany avoids recession after growing by 0.2% in Q3
Newsflash: Germany has avoided falling into recession, in a welcome sign for Europe’s largest economy.
Germany’s GDP expanded by 0.2% in July-September, new data shows, beating expectations of a contraction of 0.1%.
That will be a relief for Berlin, at a time when Germany’s economy is being buffered by high energy costs and problems in its car sector.
BUT it’s not all good news. Germany’s second-quarter GDP report has been revised down, to show a contraction of 0.3% – worse than the 0.1% fall first reported.
So the rise in activity in Q3 is against this new, lower, benchmark.
🇪🇺 Eurozone GDP: Bloomberg consensus: +0.2%e).
— Luigi De Michele (@luigidemich) October 30, 2024
🇮🇹 *#ITALY PRELIM 3Q GDP UNCHANGED Q/Q; EST. +0.2% - BBG
🇩🇪 *#GERMANY PRELIM 3Q GDP RISES 0.2% Q/Q; EST. -0.1% - BBG
🇫🇷 *#FRANCE GDP GREW 0.4% IN 3Q Q/Q; EST. +0.3%
🇮🇪 *#IRELAND PRELIM 3Q GDP RISES 2% Q/Q (v -1.0% prior)
Updated
UK bonds are recovering ahead of the Budget, says Kathleen Brooks, research director at XTB:
The UK’s 10-year Gilt is outperforming its European counterparts with just a few hours to go before Rachel Reeves’s first Budget, scheduled for 1230 GMT.
Is this a sign that the bond market will welcome the fiscal shake up that is set to be announced later today? we could traders see ‘sell the rumour and the buy the fact’ in the UK Gilt market, once the uncertainty of the Budget is out of the way.
UK borrowing costs fall ahead of the budget
Rachel Reeves may risk a sigh of relief if she checks the bond markets this morning, because UK government borrowing costs are dipping.
The yield, or interest rate, on 10-year government bonds has dropped to 4.26% this morning, a fall of over basis points from last night’s close of 4.3%.
Yesterday, the 10-year yield hit its highest level since the general election.
Just published: front page of the Financial Times, UK edition, Wednesday 30 October https://t.co/09LBupOYVY pic.twitter.com/XV0bYGV1PW
— Financial Times (@FT) October 29, 2024
The yield on UK government debt (known as gilts) has been rising in recent weeks, up from 3.75% in mid-September.
That could be a sign of investors anticipating the UK will issue more government debt – with increased supply weighing on prices (which fall when yields rise).
But there are other factors too – including concerns over the US election, which have pushed up US borrowing costs.
Japanese bank MUFG told clients this morning:
UK Gilt yields have been rising this month with the 10-year yield up just over 30bps from the September close. But it is debatable how much of that move reflects fears over increased Gilt supply on the potential for increased borrowing.
The US Treasury 10-year yield is up over 50bps this month on expectations of a Trump election victory next week and that is helping lift yields everywhere.
UK private sector expects no growth in final months of the year
UK firms expect no growth over the next three months, according to a new survey that shows the challenge facing Rachel Reeves to stimulate the economy.
The CBI’s latest Growth Indicator has shows that private sector firms expect no change in activity over the next three months.
Alpesh Paleja, CBI interim deputy chief economist, says Reeves needs to boost business confidence today:
“Our latest surveys paint a picture of an economy shifting down a gear as we head into the final quarter of 2024. Weaker growth expectations are weighing on firms’ hiring intentions, which have treaded water since the beginning of the summer.
“In the budget, the Chancellor has an opportunity to boost confidence despite the difficult fiscal picture. Business will want to see messages of hard choices balanced with interventions that deliver a vision of optimism.
‘Many businesses are very concerned about potential increases to Employers’ NICs and the impact it will have on pay, hiring and investment. If the government does follow through, then they will want to see the government act on other key areas of investment, such as reforming the Apprenticeship Levy
“Giving firms certainty over future tax plans in the form of a business tax roadmap, measures to enhance productivity, and the country’s net zero trajectory can all help cement the path to long-term growth.”
BAE shares dip after UK nuclear sub shipyard fire
Shares in weapons producer BAE Systems have dropped by 1% in early trading, after a fire broke out at its shipyard in Cumbria, where British nuclear submarines are built.
Two people were taken to hospital with suspected smoke inhalation after the fire at the shipyard in Barrow-in-Furness began at around 12.45am today.
The police said there is “no nuclear risk” but residents should stay inside with doors and windows closed.
BAE Systems said:
“We are working with emergency services to deal with a fire at site in Barrow in Furness. Two colleagues have been taken to hospital having suffered suspected smoke inhalation.”
BBC Radio Cumbria’s Jennie Dennett has reported that there is “no sign of fire now” but a “metallic smell of smoke in the air”.
BAE’s shares have dropped by 1.25% to £12.64, making it one of the top fallers on the FTSE 100 share index this morning.
Updated
Next on for £1bn profits as cold weather lifts sales
The cold snap this autumn has helped drive sales at retailer Next, putting it on track to make more than £1bn profits this year.
Next has raised its guidance for profits this year to £1.005bn, up from £995m previously, after selling more stock than expected in the last three months.
Next’s full price sales in August-October were up 7.6% compared with last year, beating forecast of 5.0% growth.
It told shareholders this morning:
We believe the strong performance was driven by the early arrival of colder weather this year, versus an unusually warm September and early October last year.
If Next were to hit £1bn of profits for the first time, it would join only a handful of UK retailers that have done so, including Tesco – and Marks & Spencer in a previous era.
Next’s shares have jumped by 1.3% in early trading.
French economic growth gets Olympic lift
Hosting the Olympics this summer has helped the French economy to accelerate.
France's GDP grew by 0.4% in the third quarter of this year, new data from statistics body INSEE this morning shows, up from 0.2% in April-June.
Lots of interesting detail in the French Q3 GDP numbers; Olympic boost to domestic demand, EU regulation strikes again, this time to sting capex in transport, and a poor harvest hit ag exports. Overall, though -> good headline, poor details (as in Q2).
— Claus Vistesen (@ClausVistesen) October 30, 2024
The data suggests the summer sporting festivities boosted consumer spending – it rose by 0.5% in the third quarter after a flat performance in the second quarter.
INSEE says GDP “accelerated moderately in the third quarter….boosted by the Paris Olympic and Paralympic Games”, adding:
Final domestic demand (excluding inventories) regained some momentum, driven by a rebound in household consumption (+0.5% after +0.0%).
Conversely, gross fixed capital formation continued to decline (-0.8% after -0.1%). Overall, domestic demand (excluding inventories) made a positive contribution to GDP growth this quarter: +0.2 points after +0.1 points in Q2 2024.
AFP: Germany likely to drop into recession today.
Official data this morning could show that German output contracted again in the third quarter as its industrial slump drags on, tipping Europe’s largest economy into recession.
The AFP newswire reports:
Federal statistics agency Destatis will unveil its quarterly GDP estimate at 09:00 GMT.
The economy ministry has said it expects “a renewed slight decline” after gross domestic product already shrank by 0.1 percent in the second quarter.
A technical recession is defined as two consecutive quarters of contraction.
“The German economy is unlikely to have emerged from its weak phase in the third quarter,” the ministry said in its autumn forecasts this month.
Analysts surveyed by FactSet were narrowly more upbeat, predicting a quarter-on-quarter stagnation.
Sterling traders hedge against risks from 'generational budget'
Currency traders have been racing to protect themselves against possible big swings in the value of the pound, as the UK budget is released today.
One-week implied options volatility - which measure the demand for protection against large moves in the pound over the coming week - have risen to 10.375%, Reuters reports, which is the highest since March 2023.
The overnight rise from around 6.325% was the largest one-day increase in one-week implied volatility since September 2022, the month of Liz Truss’s mini-budget (which triggered the sort of market chaos that Rachel Reeves is desperate to avoid).
Pepperstone strategist Chris Weston says today’s budget is being taken more seriously by traders than usual:
It’s budget day in the UK, and while these events rarely pose the sort of risks to price action that warrants real focus on positioning, this one is different.
It is seen by some as a generational budget, that will define Chancellor Reeves’s career and could significantly impact Keir Starmer’s public approval rating, which has been shot to pieces of late.
Currently the pound is trading flat against the US dollar, at just over $1.30.
Introduction: Investors brace for the budget
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
It’s a significant day in the UK and in Europe, with Rachel Reeves delivering Labour’s first budget in almost 15 years, and growth data from across the eurozone likely to show Germany is in recession.
Reeves could present one of the largest tax-raising budgets in decades today, as she tries to raise funds to repair UK public services.
The chancellor is expected to announce a swathe of “difficult but necessary decisions” to restore economic stability.
She’ll promise to “invest, invest, invest” to drive economic growth and provide funding for the NHS, to build homes and rebuild schools.
After a lot of gloominess since the July election, Reeves could strike a more optimistic note today, saying:
“My belief in Britain burns brighter than ever. And the prize on offer today is immense.
“More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards.”
Reeves is also expected to stick to Labour’s pledge not to introduce higher taxes on working people.
Instead, companies will carry a lot of the burden, with a rise in employers’ national insurance contributions expected. Capital gains tax rates, or inheritance tax, may also be in the chancellor’s sight.
Income tax thresholds may be frozen for even longer than already planned, which will drag more people into higher tax rates as their salaries rise.
Another measure – an inflation-busting rise in the minimum wage, was announced last night.
Reeves will also set out the details of her changes to the UK’s debt rules. She’s expected to target public sector net financial liabilities (a measure known as PSNFL, or “persnuffle”) which takes into account all the government’s financial assets and liabilities, increasing her latitude to borrow for investment in long-term infrastructure.
The Office for Budget Responsibility will give its verdict after the speech. The OBR is also expected to release its report into the spending forecast drawn up by the previous, Conservative, government for the spring budget in March, despite former chancellor Jeremy Hunt’s efforts to delay it.
The report may show whether or not Labour was left with a £22bn “black hole” of unfunded commitments. Hunt says it’s unfair to publish it on the day of the budget.
The success of Reeves’s first budget will be judged, eventually, by whether it does stimulate faster growth in the UK, leading to higher tax receipts to fund better public services.
We’ll get a taste of how other European countries fared last summer, with the first estimate of eurozone GDP for the third quarter of the year. Economists predict that Germany may have shrunk slightly in July-September, which would put Europe’s largest economy into recession.
The agenda
9am GMT: Germany’s GDP report for Q3 2024
9.30am GMT: UK construction PMI report
10am GMT: Eurozone GDP report for Q3 2024
12.15pm BST: The ADP survey of US private sector job creation
12.30pm GMT: Rachel Reeves delivers the budget
12.30pm GMT: US GDP report for Q3 2024
1.30pm GMT: Office for Budget Responsibility publishes its latest Economic and Fiscal Outlook report
1.30pm GMT: Office for Budget Responsibility publishes its review of the previous government’s March spending plans
Updated
