Closing summary
Time for a recap…
The Bank of England has fired a warning shot at the financial markets not to get carried away with the recent fall in inflation, as it also faced criticism for “confusing” comments on interest rate moves.
Appearing before the Treasury Committee, BoE governor Andrew Bailey told MPs that he believes inflation is on track to fall back to the 2% target. But he warned that risks are to the upside, explaining:
“We are concerned about the potential persistence of inflation as we go through the remainder of the journey down to 2%.
I think the market is underestimating that.”
Bailey also welcomed October’s drop in inflation to 4.6% as “obviously good news”, but news which was largely expected.
He cited two risks; first, that domestic inflation remains high, and second that Middle East conflict drives up the oil price.
Fellow rate-setter Catherine Mann – who was in the minority voting for a rate rise to 5.5% this month – argued that tougher action was needed, saying:
I think actions speak louder than words, especially when you deal with the markets.
That is a key reason why I believe it’s important to have action, in showing commitment to the target.
Treasury committee chair Harriett Baldwin criticised the recent comments from the BoE She accused it of a “confusing running commentary”, after chief economist Huw Pill said expectations of rate cuts next summer were not unreasonable.
Elsewhere….
UK public sector net borrowing has hit its second-highest October level since records began in 1993, as inflation-linked debt interest repayments pushed up the deficit.
The UK borrowed almost £15bn to balance the books last month, but that still left borrowing since April nearly £17bn lower than expected.
Tax receipts rose, helped by rising pries and the ‘fiscal drag’ pulling more people into higher tax bands
This gives chancellor Jeremy Hunt some fiscal headroom ahead of tomorrow’s Autumn Statement.
Deliveroo riders do not have the right to collective negotiations on pay and conditions, the UK’s top court has ruled, in a blow to gig economy campaigners and the unions that represent them.
Analysis from Which? has found that just one in 50 Black Friday deals are at their cheapest price on the day of the sales extravaganza.
The UK faces the prospect of a battery “gigafactory gap” that will undermine the electric car industry unless the government offers the growing sector more help, MPs on parliament’s business committee have said.
Shell Energy has been fined £1.4m for failing to alert more than 70,000 phone and broadband customers to the end of their contracts or tell them what they could save by signing up to a new deal.
Capita, which runs services for local councils, the military and the NHS and manages the BBC TV licence fee, plans to cut 900 jobs as part of efforts to save costs, many of them in the UK.
Telegraph and Spectator sale paused
Just in: the sale process of the Telegraph and The Spectator is to be paused until early December.
In a brief statement, the Boards of the parent companies of Telegraph Media Group Limited and The Spectator have announced that the sales processes for each of the businesses shall be paused today until a crucial court hearing scheduled for 4 December.
Breaking: Telegraph and Spectator sale paused
— Thomas Seal (@TW_Seal) November 21, 2023
That court hearing is due to consider whether to liquidate a key holding company owned by the Barclay family.
The pause comes after the Barclay’s struck a deal with RedBird IMI, an Abu Dhabi-backed vehicle, to secure the funding they need to repay over £1bn owed to Lloyds bank, which was conducting an auction of the Telegraph and Spectator.
Yesterday, RedBird IMI said it is to take control of the Telegraph and Spectator after agreeing loans to repay the Barclay’s debts.
If the holding company company, called Penultimate Investments Holding Limited, was liquidated it would remove the Barclays from a role in the Telegraph’s future, and leave Lloyds free to pursue an unencumbered auction of the newspapers, Sky News reported.
A number of suitors had been questioning whether to invest further time and money in submitting offers given developments in recent days, Sky added this morning.
City bond dealers are expecting the UK to cut its plans for government debt sales this year, Reuters reports, ahead of tomorrow’s autumn statement.
The Debt Management Office (DMO) is expected to cut its gilt issuance remit for 2023/24 to around £222.8bn, down from £237.8bn, a poll has found.
That follows UK borrowing this year undershooting expectations for many months (although not October, as we learned at 7am), and running at nearly £17bn less than expected so far.
Reuters adds:
About half of the primary dealers thought the DMO might cut its plans for net issuance of short-term T-bills back to zero, from a 5 billion pound increase in the current remit.
The poll showed public sector net borrowing excluding publicly owned banks - the headline budget deficit measure - was likely to come in around £117bn pounds by the end of 2023/24 in March next year, roughly £15bn less than the OBR forecast in March.
Deliveroo riders are not employees, Supreme Court rules
In a landmark decision for the gig economy, the UK Supreme Court has ruled today Deliveroo riders cannot be recognised as employees or represented by trade unions for collective bargaining.
The ruling is a blow to hopes that gig economy workers could receive greater job protection.
In a unanimous ruling this morning, five justices at the UK’s highest court dismissed an appeal against an early ruling. The case was brought by the Independent Workers Union of Great Britain (IWGB) wants to represent Deliveroo riders in north London in order to negotiate on issues of pay, hours and holiday with the company.
Announcing the court’s decision, Judge Vivien Rose said Deliveroo riders do not have an “employment relationship” with Deliveroo and were not entitled to compulsory collective bargaining.
In a written ruling, the Supreme Court said that Deliveroo riders could appoint a substitute to undertake a delivery, can work for competitors, do not have to work specific hours or even carry out any deliveries at all.
Also this, Deliveroo have zero liability if a substitute courier breaks the rules - it's all on the original rider. Stunned that this is allowed. pic.twitter.com/3IJz2irdoL
— Marlon Solomon (@supergutman) November 21, 2023
Another argument was that Deliveroo drivers are free to reject offers of work and to work for the company’s competitors.
Beth Leng, Employment Lawyer and Partner at SA Law, explains:
“Whilst the decision may go against the grain of a recent trend in cases – towards affording those in the gig economy greater protection - the decision of the Supreme Court focuses almost entirely on the issue of substitution.
The court agreed with previous decisions that the power conferred on Riders under the new contract to appoint a substitute was “virtually unfettered” – it wasn’t limited to other Deliveroo Riders and applied both before and after delivery. The court concluded: “such a broad power” was “totally inconsistent” with the requirement for personal service.
This will no doubt be a blow to campaigners in this area but once again, it underlines the importance of a detailed examination of how these gig economy contracts work in practice.”
Deliveroo have welcomed the ruling, with a spokesperson saying:
“This is a positive judgement for Deliveroo riders, who value the flexibility that self-employed work offers.
The IWGB said the ruling came as a “disappointment”, adding:
“As a union we cannot accept that thousands of riders should be working without key protections like the right to collective bargaining, and we will continue to make that case using all avenues available to us, including considering our options under international law.”
Updated
Pound at 10-week high against the dollar
The pound has hit its highest level in 10 weeks today, after the Bank of England pushed back against market expectations for interest rate cuts.
Sterling has hit $1.2556 this morning, after BoE governor Andrew Bailey told MPs that the markets were underestimating the risks that inflation will remain persistent, having dropped to 4.6% last month.
Bailey’s comments last night, that it is ‘far too early’ to think about interest rate cuts will also be supporting the pound.
The dollar, in contrast, has been weaking in the last few weeks as traders anticipate several cuts in US interest rates in 2024.
British pound hits 10-week high, Bank of England officials reiterate higher-for-longer stance https://t.co/lrPWr1gIKb via @Reuters pic.twitter.com/dwsVOC4EyT
— 🇪🇺 🇲🇨🇨🇭Dan Popescu 🇫🇷🇮🇹🇷🇴 (@PopescuCo) November 21, 2023
Mike Owens, senior sales trader at investment platform Saxo, suggests the pound could strenthen tomorrow if Jeremy Hunt announces any policy that exceeds expectations for domestic economic growth.
Professor Costas Milas, of the Management School at the University of Liverpool, agress that the Bank of England’s policymakers have created confusion over interest rates (as Harriett Baldwin MP said this morning).
He tells us:
The BoE’s policymakers keep on giving mixed messages on interest rates which, in turn, mislead markets. Confusion then grows further because the BoE then uses the very market expectations of interest rates to forecast both inflation and GDP growth!!!
One suggested way foreword is to publish inflation and output forecasts based on the interest rate expectations of the Bank’s MPC. This might also be problematic since individual MPC members are also likely to give very mixed messages regarding their own interest rate expectations…
There is no obvious solution to this problem. Nevertheless, the MPC should continue publishing forecasts of inflation and output based on constant (that is, current) interest rates.
These forecasts will at least serve as benchmark estimates of the future state of the economy without running the risk of creating market confusion.
BoE's Ramsden: Brexit has chilled business investment
Deputy governor Sir Dave Ramsden has warned that the 2016 EU referendum has “chilled” business investment in the UK.
He was speaking to the Treasury Committee after Labour MP Keir Mather asks the Bank about its forecasts for business investment – showing a 1% fall in 2024, and a flatlining in 2025, before 2% growth in 2024.
Q: How much are high interest rates holding back business investment?
Ramsden says there was a “break” in the trend of business investment growth in 2016. It had been growing after the financial crsis, but then flattened off in 2016.
Ramsden says there are a variety of reasons, but there’s a lot of analytical evidence that a key driver of business investment decisions is certainty.
That means certainty about the outlook for the economy, stability through low and stable inflation, but also certainty over fiscal policy, and over the relationships your economy will have, he explains, adding:
It is hard to conclude otherwise than that the decision to leave the EU, that may have had lots of good reasons for it, has chilled business investment.
The best thing the Bank can do to stimulate business investment is get inflation down to target, Ramsden says, adding that higher borrowing costs do have a short term impact on investment.
Bailey: Mortgage arrears lower than we'd expect
Labour MP Siobhain McDonagh asks the Bank of England’s policymakers if they expect a rise in evictions.
McDonagh points out that mortgage holders face an average increase of £3,000 per year when refixing their home loans. And in the last quarter, there were 87,930 home owners in mortgage arrears, and 4,100 repossession claims.
BoE governor Andrew Bailey agrees that there is a ‘tick-up’ in arrears, but from low levels.
Arrears levels are actually lower than the Bank would expect, which he attributes to higher-than-expected wage increases.
Bailey says:
We’ve actually seen less of this, so far, than we would have expected to see and past evidence would expect.
He adds that the Bank is watching arrears figures closely, but also says it is much harder to repossess a home than it was in the early 1990s.
Labour MP Angela Eagle tries to tempt the Bank of England governor into puncturing Rishi Sunak’s pleasure about inflation falling to below half its level at the end of last year.
Q: There are claims that the prime minister is personally responsible for halving inflation, do you agree?
Andrew Bailey says the government and the PM adopted a target – it’s not the Bank’s target (which is to get inflation down to 2%).
He agrees that the Bank of England is responsible for controlling inflation.
Q: Are you worried that tax cuts might be announced tomorrow, which would be inflationary? Would it force you to raise interest rates?
Bailey says he will wait and see what is in the autumn statement. But there’s a crucial difference with the mini-budget a year ago – this time, there will be a report from the Office for Budget Responsibility.
Q: Are there any tax cuts that aren’t inflationary? Is an inheritance tax cut less inflationary than a 1p cut on income tax?
Bailey refuses to speculate, adding that any tax cuts will be factored into the Bank’s next forecasts.
Andrew Bailey has also denied that the Bank of England is blundering by selling off government bonds bought under its quantitative easing programme, at a loss.
This process of quantitative tightening (QT) was expected, in July, to cost £150bn – with the bill falling on taxpayers.
That’s because government bond prices have fallen, compared to after the financial crisis and in the pandemic, when they were bought by the BoE.
The European Central Bank, in contrast, is not unwinding its bond portfolio, points out Danny Kruger MP.
Bailey replies that it doesn’t matter whether you sell the bonds, or hold them till they mature.
Either you crystallise the loss (by selling the bond for a lower face value) or you run up a carry cost (the difference in interest rates between what the BoE is paid for holding the bond, and what it pays out on its reserves).
Other central banks are accruing “very large losses and liabilities on their balance sheets”, Bailey insists.
Deputy governor Sir Dave Ramsden points out that the asset purchase programme did deliver £123bn of profits for taxpayers up until 2022, so the losses currenly accruing should be set against that.
Future losses are “hugely uncertain”, Ramsden insists – it depends on future path of bank rates and yields.
Kruger says it would be “a great shame” if that £123bn profit was all wiped out.
BoE denies being slow to raise rates
The Bank’s policymakers have also denied they were too slow to raise interest rates to fight inflation.
John Baron MP, Treasury Committee member, argues that the Bank doesn’t have time to pause on its way up because it was “so far behind the curve”, unlike other central banks who “started increasing earlier”.
Andrew Bailey hits back, saying:
“We were the first major central bank to raise rates, so that is not true.”
Sir Dave Ramsden also pointed out that other central banks acted less quickly:
“We weren’t so far behind the curve. We actually raised interest rates in December 2021, which is before the Fed and before the European Central Bank.
Those are the facts.
“It is simply not the case that we were behind the curve when you look at the inflation numbers, the shocks we were dealing with, and what other central banks were doing.”
When the Bank started raising rates in December 2021, inflation had risen from 3.1% in September to 5.1% in November.
The US Federal Reserve started its tightening cycle in March 2022, while the ECB made its first move in July 2022.
"I'm sorry, we were the first"
— Bloomberg UK (@BloombergUK) November 21, 2023
Bank of England officials, including Governor Andrew Bailey, respond to accusations that they were "behind the curve" in hiking rates https://t.co/XIiE7StjUc pic.twitter.com/api406kzY6
Updated
Bailey: Inflation target should remain at 2%
Andrew Bailey has also pushed back against suggestions that the UK’s inflation target of 2% is too low in the current environment, and should be raised.
The Bank of England governor says “it’s a very bad argument” to claim that the target should be 3%, because bringing inflation down from 3% to 2% will be too hard.
Frankly, of course, the next time we had this problem people would say ‘let’s call it 4’, and that’s a very bad place to be.
Bailey says there isn’t an 'objective magic’ to 2%, but it is the operational definition of price stability.
Sir Dave Ramsden points out that other countries have now converged on the UK’s symmetric 2% target, which was set in 1997.
Bank accused of “confusing running commentary” over interest rates
MPC member Jonathan Haskel rides to Huw Pill’s defence, saying he was misquoted.
Harriett Baldwin seems unconvinced, pointing out that the BoE’s chief economist did say that market expectations for cuts next year were not unreasonable.
Ahha, Haskel says. Huw was trying to say what the market thinks, not what he or the Bank think, he insists.
Pill’s comments, though, certainly moved the markets – driving up the prices of government bonds and pushing down borrowing costs.
Baldwin then chides the committee, though, saying the Bank’s “confusing running commentary” makes it hard for businesses and mortgage-holders to make decisions in the real world.
Deputy governor Sir Dave Ramsden hits back, denying that the BoE is giving a “confusing running commentary”.
We are commenting and being very clear in distancing ourselves from market expectations.
Ramsden then repeats the Bank’s concerns about persistent inflation.
He says the Bank believe inflation will have fallen to 3.8% by the end of the first quarter of 2024. That’s “further good news”.
But services inflation (which makes up almost half the inflation basket) will still be 6.4%.
Those are the indicators of persistence that we are focusing on when setting Bank Rate at the current level.
Markets are entitled to their view, but that doesn’t mean we are validating that view when we are comment on it.
That was Huw’s position, that’s Andrew’s position, and my view when we comment on markets.
Updated
Sir Dave Ramsden, BoE deputy governor, defends the central bank’s recent comments on interest rates.
He says central bankers are encouraged to communicate, and to be accountable.
He then echoes Andrew Bailey’s concerns that the markets have reacted too much to recent signs of improvement in inflation.
Ramsden points to a speech he gave on Friday, which warned that the market curve (where investors think interest rates will be) has fallen by 50 basis points [half a percentage point] over the next three years, compared with the assumptions in the Bank’s November’s monetary policy report.
Other things being equal, Ramsden says, that means less restrictive monetary condtions.
And with the supply side of the economy constrained, current market pricing implies more demand, and an increased risk of inflation, Ramsden cautions.
We are absolutely committed to getting inflation back to the 2% target.
Updated
Andrew Bailey: Markets are underestimating risks of persistent inflation
Harriett Baldwin MP then challenges the Bank of England about the various recent comments from policymakers.
Q: One day, your chief economist [Huw Pill] says market expectations of cuts are not unreasonable, the next day you say it’s too early to talk about rate cuts. Yesterday, you said it was far too early. It’s a runnning commentary for markets.
Andrew Bailey tells the Treasury Committee that the market is putting “too much weight” on the current data releases, including the fall in inflation in October.
He says the committee is concerned about the potential persistence of inflation, in the remainder of the journey to 2% inflation.
I think the market is underestimating that.
MPC member Catherine Mann then weighs in, with an apparent rebuke to the fellow committee members (such as Bailey) who wouldn’t vote for a rate rise this month as she did.
I think actions speak louder than words, especially when you deal with the markets.
That is a key reason why I believe it’s important to have action, in showing commitment to the target.
Will Bank maintain rates at 5.25%?
Q: So all other things being equal, with inflation at 4.6%, you’ll keep rates at 5.25% for an extended period?
Andrew Bailey says his view is that it is sensible to keep rates where they are, as the Bank did three weeks ago.
But he repeats that risks are to the upside.
MPC member Catherine Mann (one of three hawks who voted to raise rates this month) argues that rates should be higher, due to price pressures next year.
She tells the Treasury Commmittee that BoE surveys show firms expect to raise prices by 4.5% to 5% next year, or up to 6% in the services sector.
Those firms expect to offer wage rises of 5% and increase workforces by 1.2%, Mann says.
So they’re looking for next year to be more robust than it is now.
More tightness now is important, Mann insists, to cement the Bank’s commitment to the 2% target.
Harriett Baldwin then reminds the Bank of England governor of the analogy used by chief economist Huw Pill in August.
Q: We’ve reached Table Mountain, in terms of interest rates?
Andrew Bailey says Table Mountain is qite a good analogy, because:
There is a case now, I personally think, for holding the rate where it is… for an extended period.
But the risks are to the upside too, Bailey adds.
He cites two risks.
First, that domestic inflation remains high, partly due to inefficiencies in the jobs market leading to higher wages.
Second, the risk that turmoil in the Middle East drives up the oil price. So far, that hasn’t happened, but it could happen “if there was a wider regional engagement”.
Bailey: Fall in inflation was good news, but largely expected
Treasury Committee chair Harriett Baldwin begins by asking the Bank of England about the drop in inflation in October, “to 4.7%”.
Q: Do you agree with the market expectation that you have done enough on interest rates to bring inflation down to 2% in the next year?
Andrew Bailey apologises for correcting Baldwin, but inflation was actually 4.6% in October (Baldwin may have been using the newer CPIH measure, rather than the CPI measure which the Bank targets).
Bailey says the fall (from 6.7% in October) was “obviously good news”, but news which was largely expected.
Bailey explains the Bank expects some more of last year’s surge in prices to unwind in the next few months, including on food prices.
But beyond that, further falls in inflation will depend on the unwinding of second-order effects (where inflation expectations push up wages).
The BoE governor warns there is a “weakening picture of demand in the economy”, while in the labour market wages are still well above levels consistent with the 2% inflation target.
But, Bailey says he thinks the UK is on target to come back to 2%.
[Reminder: Six of the MPC’s nine members voted to leave interest rates on hold this month, while three voted for a rise to 5.5%].
Updated
Bank of England appears before MPs
Andrew Bailey, governor of the Bank of England, is about to testify to MPs on the Treasury committee.
He’s being accompanied by Sir Dave Ramsden, Deputy Governor for Markets and Banking, and two external members of the Monetary Policy Committee – Jonathan Haskel and Catherine Mann.
The Committee say:
Members of the committee are likely to ask witnesses for their assessment of recent data on wage growth and unemployment, and how these might feed into future decisions on inflation. The panel may be questioned on whether they believe there is a risk the Bank has over-tightened monetary policy as well as whether they have any concerns about the quality of labour market data on which their decisions are partly based.
The Committee may also choose to question the witnesses about the prospect of changes to the Bank Rate and their individual voting records.
🗣 This morning, we’re hearing from the Governor of the @bankofengland and Monetary Policy Committee members.
— Treasury Committee (@CommonsTreasury) November 21, 2023
📺 Join us in the Grimond room at 10.15am @HouseofCommons, or watch the session live 👇https://t.co/5NoILystjN https://t.co/lSJTmhPNvU
Updated
Three in five Brits think closing tax loopholes should be a priority in the autumn statement, a new poll conducted by Tax Justice UK has found.
This rises to nearly three in four of those that voted Conservative at the 2019 general election.
However, only one in four think that cutting taxes, rather than spending on public services, should be a priority for the Chancellor.
Rachael Henry, Head of Advocacy and Policy at Tax Justice UK, explains:
‘Britain has many extremely wealthy individuals and companies that are not paying their fair share. Britain’s tax code is littered with unfair loopholes that benefit the super-rich, while the rest of us are struggling to pay the bills.
The public don’t want to see tax cuts. They want investment in public services so they can see a GP or send their kids to school without fear of classrooms collapsing.
The government can raise desperately needed cash for the NHS and schools by making those that can, pay their fair share of tax. If they choose to leave this cash on the table, it’s clear they have chosen the side of the wealthiest, rather than standing with the majority in Britain trying to get by.’
New research from Tax Justice UK this uncovered over £7 billion available to the Treasury if just five tax loophole areas were closed.
They are:
End fossil fuel subsidies for oil and gas companies to raise £4.4 billion a year
2. End classic car exemption to raise £130 million a year
3. End video games tax relief to raise £197 million
4. Close capital gains tax loopholes to raise £1.1 billion a year
5. Close inheritance tax loopholes to raise £1.7 billion a year
Worryingly, government borrowing in October alone was higher than the independent Office for Budget Responsibility had expected.
The OBR had inked in borrowing of £13.7bn for last month, below the £14.9bn which the government actually borrowed to balance the gap between tax receipts and spending.
That breaks the recent trend of borrowing coming in below the OBR’s forecast, which has given Hunt £16.9bn of wiggle room.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Recent months had seen public sector net borrowing come in consistently below the OBR’s forecast, but October broke that pattern.
A deficit of £14.9bn compared with the £13.7bn deficit predicted by the OBR in March and was £4.4bn higher than the deficit in October 2022. The overshoot was more than accounted for by higher-than-expected public spending, notably on debt interest payments. These were the highest for an October since records began. Monthly tax receipts also exceeded the OBR forecast, but to a lesser extent.
Back in the City, UK meat producer Cranswick has lifted its profit forecast this morning, after passing on higher costs to customers.
Cranswick says it expects to hit the “upper end of current market consensus” for the current financial year, ending on 30 March.
Revenues are up 12.3% this year, due to “effective inflation recovery” – the passing on of higher pig prices – and “resilient volume growth”.
Cranswick, which produces sausages, bacon and chicken products, as well as houmous and pet food, says that the broad-based cost inflation it experienced has now slowed.
IEA: Middle East crisis puts oil market on edge
The oil market is “on edge” over the latest crisis in the Middle East, the head of the International Energy Agency (IEA) has warned.
IEA chief Fatih Birol told an energy conference in Norway today that the Israel-Hamas war has not currently had a significantly effect on market prices.
But he warned that this could change, if the conflict escalated.
Birol said:
If one or more of the oil producing countries in the region is directly involved in the conflict, we may see the implications of that.
Brent crude rose towards $94 per barrel in mid-October, after the Hamas attack of October 7. But it then started to dip, falling to $77/barrel towards the end of last week.
Capita to axe 900 jobs in cost-cutting drive
UK outsourcing firm Capita has announced it will cut around 900 jobs worldwide as part of a “significant cost reduction programme”.
The cuts will mainly fall on indirect support function and overhead roles, as Capita tries to cut costs by £60m per year.
Capita, which runs crucial services for local councils, the military and the NHS, employs 43,000 people, mostly in the UK but also across Europe, India and South Africa.
In the UK, it has offices in London, Manchester, Sheffield, Leeds, Edinburgh and Belfast, while its European operations are based in the Republic of Ireland, Poland, Germany and Switzerland.
Jon Lewis, Capita’s CEO, says:
“We are, today, announcing the accelerated delivery of the efficiency savings announced in our Half Year Results with a £20m increase in overhead cost reduction to £60m on an annualised basis from Q1 2024.
As part of the organisational review which underpins the programme we are announcing today, we continue to identify further areas of cost efficiency and will pursue these during 2024.”
Shares in Capita have rallied 9% in early trading.
Updated
October’s public finances are no barrier to (some) tax cuts, writes Investec economist Ellie Henderson.
Henderson also explains how inflation added to government spending, and revenues, last month:
Within the headline number, central government expenditure was £13.7bn higher than in October 2022. £4.5bn of this lift comes from added expenditure on net social benefits, largely reflecting the inflation-linked uprating of benefits. Interest payments were also £1.1bn higher than last year, as the index-linked gilt stock is uprated by RPI inflation.
Slightly offsetting this though was a £2.6bn fall in expenditure on net social benefits where falling wholesale energy prices resulted in reduced spending on energy support schemes this October relative to last year.
On the other side of the balance sheet, central government receipts were £2.5bn higher than a year ago. VAT receipts once again received a boost (+£1.2bn) due to the increase in the price level over the year, while income tax receipts (+£1.1bn) were healthy reflecting the tight labour market.
Updated
Today’s public borrowing figures do give Jeremy Hunt some potential ‘wiggle room’ to cut taxes tomorrow, says Victoria Scholar, head of investment at interactive investor, as borrowing this financial year is £16.9bn below forecast.
Although borrowing in October was only £3bn less than in October 2020 at the height of the pandemic when billions were being spent on expensive programmes such as the furlough scheme, the government’s finances are in a much better position than the OBR had predicted earlier this year. This potentially provides some wiggle room for the Chancellor Jeremy Hunt when he makes his announcements tomorrow.
So far, the government has been trying to stick with fiscal prudence, refraining from tax cuts and spending increases in order to provide a fiscal backdrop that supports that Bank of England’s monetary tightening path designed to tame inflation.
But with a General Election looming, better-than-expected government finances, Sunak’s year-end target to halve inflation already met, and the Conservatives struggling in the polls, the Chancellor may resort to some vote winning tax cuts in tomorrow’s Autumn Statement.”
Updated
Laura Trott: We can now focus on growth and cutting individual taxes
Laura Trott, chief secretary to the Treasury, has dropped a clear hint that personal tax cuts could be announced – or at least promised - in tomorrow’s autumn statement.
Speaking on Radio 4’s Today Programme, Trott argues that the economic situation has “completely changed” compared with a year ago.
Trott says:
Last week we met the prime minister’s pledge to halve inflation, the economy is in a very different place to where we were a year ago, and we can now focus on going for growth, pushing up the growth rate of the economy, and cutting taxes for individuals.
She adds that the economy has “turned a corner”, because of actions by the government and the Bank of England.
[However, inflation is still twice the BoE target of 2%, after falling to 4.6% in October].
New Chief Secretary to the Treasury Laura Trott tells @MishalHusain pretty clearly that “we can now focus on cutting taxes for individuals” because of “turning corner” on economy…
— Faisal Islam (@faisalislam) November 21, 2023
Trott says:
We are now able to talk about this [focusing on personal tax cuts]. We are moving to a different stage”.
However, she won’t confirm whether or not the chancellor will actually announce a personal tax measure tomorrow.
Trott also won’t say whether benefits will be raised by September’s inflation rate (6.7%) as usual, rather than October’s lower reading – we’ll find out tomorrow.
Updated
There are early signs of “fiscal deterioration” in today’s public finances, warns ITV’s Joel Hills, pointing to the rise in borrowing in October to almost £15bn.
As the chancellor limbers-up to deliver tax-cuts which only a few weeks ago he told us were “virtually impossible,” early signs of “fiscal deterioration”.
— Joel Hills (@ITVJoel) November 21, 2023
In the financial year to-date, the government has borrowed £17 billion less than @OBR_UK forecast in March but in October… pic.twitter.com/nFWbidowk3
…borrowing overshot both the OBR forecast and the consensus.
— Joel Hills (@ITVJoel) November 21, 2023
Inflation has swelled tax receipts but they are offset by higher current expenditure + debt interest payements.
What a chancellor gives away before an election, a chancellor may have to take back after an election.
UK productivity dips
UK productivity has fallen, new figures show, highlighting the weakness of the economy.
The Office for National Statistics report that output per UK worker fell by 0.1% in July-September, compared with a year ago.
UK output per hour worked declined by 0.3%, year-on-year.
Bart van Ark, managing director of The Productivity Institute, says the UK needs to urgently make changes to tackle its productivity problems, which are holding back growth.
“Another poor quarterly performance for productivity reinforces our view that Britain is in urgent need of a national agenda to double annual productivity over the next 10 years. We anticipate growth is likely to stall for 2023 on the whole.
“A combination of the pandemic plus already weak productivity in the decade preceding it has seen the UK stuck in a growth rut of around 0.5% a year on average. The recent downward revision by the Office for National Statistics of productivity growth in the public sector from 0.7% to 0.3% per year over the past decade is adding to the problems on our plate.
“If the country’s productivity performance doesn’t improve, we predict UK GDP growth would drop to less than 1% a year on average over the next decade. This would fall far short of what’s required to bolster businesses and the government’s revenues, which will be needed to invest in living standards and accelerating performance in the private and public sectors.”
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Tax receipts up almost £24bn this year
Tax receipts so far this financial year have swelled by £23.9bn to £457.3bn, new data from HM Revenue and Customs (HMRC) shows.
HMRC report that since April, cash receipts were higher mainly from Income Tax, Capital Gains Tax and National Insurance contributions (NICs) (£11.2bn), VAT (£8.2bn) and business taxes (£7.1bn).
Receipts from Inheritance Tax have totalled £4.6bn for April-October, a rise of £500m compared with last year. There’s speculation that Jeremy Hunt could make cuts to inheritance tax – which is paid by fewer than 4% of all estates.
Paul Barham, partner at Mazars, says:
“£4.6bn has been collected in IHT payments since April and while on track for a record year, it’s future is firmly in the spotlight. Rumours of changes are rife but exactly what the Chancellor is planning is yet to be revealed.
“There are several options on the table. There could be the raising of the threshold at which estates become liable to an inheritance tax charge, acknowledging the increases in property and asset wealth through recent years, or the standard 40% tax rate could be lowered. Or indeed a combination of these could be announced.
“In many of these scenarios, the age-old advice of planning early is likely to stick. Estate planning needs time and that will always be true.”
However, cash receipts from stamp taxes fell (by £3.3bn) while tobacco taxes dropped (by £1bn).
The drop in stamp duty tax receipts is due to “lower transaction numbers, the lower rate of taxation and a more generous relief for first time buyers introduced in September 2022”, HMRC says.
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National debt/GDP still highest since 1963
The broad picture is that Britain’s national debt is still its highest level since the early 1960s.
Public sector net debt was £2,643.7bn at the end of October, which is around 97.8% of the UK’s annual gross domestic product (GDP).
That’s 2.3 percentage points higher than a year ago, and the highest share of the economy since 1963.
However, this isn’t dampening speculation about tax cuts tomorrow.
Lindsay James, investment strategist from Quilter Investors, says:
Historically, managing a debt load of this magnitude has been a delicate balancing act. Yet, in the context of this fiscal tightrope, the government’s newfound slack is something they will want to take advantage of, hence the change of rhetoric from one of absolutely no tax cuts to potential changes to income tax or national insurance contributions. Tomorrow’s Autumn Statement is poised to be a pivotal moment, with the government facing mounting pressure to ease the tax burden.
As we stand on the cusp of a range of significant fiscal announcements, the nation will be hoping for measures that will not unsteady our trajectory out of the cost of living crisis but serve to invigorate our economy too.
Capital Economics: Hunt won't resist pre-election splash
With the election drawing nearer, the Chancellor surely won’t be able to resist the temptation to unveil “a pre-election splash tomorrow”, predicts Ruth Gregory, deputy chief uk economist at Capital Economics.
But any tax cuts won’t fully reverse the current squeeze, and could be followed by pain in 2025, Gregory warns:
Even if Mr Hunt spends the bulk of any money at his disposal, much of the planned £39bn (1.3% of GDP) tightening unveiled after the Truss/Kwarteng mini-budget will remain in place.
So this won’t be a big fiscal loosening, rather a partial reversal of the planned tightening. And any pre-election splash in 2024 will almost certainly be followed by hefty tax rises in 2025 after the election.
This fiscal tightening in 2025 is another reason to think that when interest rate cuts occur they will be faster and larger than investors currently anticipate.
Divya Sridhar, economist at PwC UK, agrees that Jeremy Hunt has some headroom for tax cuts in tomorrow’s autumn statement, as borrowing this financial year is almost £17bn below forecasts.
Having analysed today’s public finances, Sridhar explains:
Expenditure on net social benefits and debt interest payments were both higher in October 2023 compared to this time last year, with inflation driving up government costs.
“Debt interest payments in October were at £7.5bn, surpassing levels seen last year and more than 50% higher than the OBR’s forecast in March earlier this year. This was a result of RPI movements in recent months and is a contrast to September where interest payments were lower than expected.
“Looking ahead, all eyes are on the Autumn Statement due to be released tomorrow. The Chancellor has cautioned against expecting tax cuts. However, the recent public borrowing figures and the latest inflation data suggest that there will be some headroom. Nevertheless, upside risks to short-term inflation persist as natural gas futures have spiked again following geopolitical instability in the Middle East.”
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Interest payable on central government debt hits October record
Inflation has pushed up the UK government’s borrowing, today’s public finances report shows.
In October 2023, the interest payable on central government debt was £7.5bn –- the highest interest payable in any October since monthly records began in April 1997.
That’s £1.1bn more than in October 2022, and £2.6bn more than the Office for Budget Responsibility (the fiscal watchdog) had predicted.
The interest payment on index-linked government debt (or gilts) is linked to the retail prices index measure of inflation.
The ONS says:
The large month-on-month increases in Retail Price Index (RPI) observed since early 2021 have led to substantial increases in debt interest payable, with the largest three months on record occurring in 2022 and 2023.
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Introduction: Borrowing rises, but Hunt gets £17bn boost for tax cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain borrowed almost £15bn to balance the public finances last month, more than expected, new figures show.
However, borrowing so far this financial year is nearly £17bn lower than forecast – giving room for some policy changes in tomorrow’s autumn statement.
Public sector net borrowing excluding public sector banks rose to £14.9bn in October, the Office for National Statistics reports. That’s £4.4bn more than in October 2022, and also more than September’s £14.6bn.
Economists had expected a smaller deficit last month, of around £12bn.
It’s the second highest October borrowing since monthly records began in 1993, after October 2020 (when Covid-19 pandemic spending pushed the deficit up to almost £20bn).
Public sector net borrowing, excluding public sector banks, in October 2023 was £14.9 billion.
— Office for National Statistics (ONS) (@ONS) November 21, 2023
£4.4 billion more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
➡️ https://t.co/3pz6P3drkT pic.twitter.com/9e5524XQ9g
This takes borrowing this financial year (since April) up to £98.3bn, which is nearly £22bn more than a year ago.
But, despite some upward revisions to borrowing over recent months, it is still £16.9bn less than the Office for Budget Responsibility (OBR) forecast in March 2023.
That confirms that chancellor Jeremy Hunt does have some more ‘headroom’ to raise spending or cut taxes while sticking to the UK’s fiscal rules, when he delivers the autumn statement at 12.30pm on Wednesday.
Hunt has responded to the news, saying:
“We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2%. That means being responsible with the nation’s finances.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs.”
Yesterday, prime minister Rishi Sunak hinted that business taxes could be cut to boost economic growth.
Sunak promised to reduce the tax burden “carefully and sustainably” and “over time”, stressing that he is focused on “the supply side” of the economy.
Also coming up today
The Treasury Committee will question the Bank of England governor, Andrew Bailey, and members of the Monetary Policy Committee (MPC) today, about inflation and economic data.
The committee are likely to quiz witnesses about the latest wage growth and unemployment, and if there’s a risk the Bank has overtightened monetary policy….
Last night, Bailey said there was more work to do to bring inflation back to its 2% target – and there remained a risk that borrowing costs might need to increase in the coming months.
The governor declared:
“Let me be very clear: it is far too early to be thinking about rate cuts.”
The agenda
7am GMT: UK public finances for October
10.15am GMT: Treasury committee to question Bank of England governor Andrew Bailey on inflation and economic data
1.30pm GMT: Canadian inflation rate for October
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