Closing post
Time to wrap up (as we’re playing a Dragons Den game at the Bond Vigilantes Forum here in London #OutOfMyDepth):
The oil price has dropped to its lowest level in two weeks, on hopes of a pick-up in supply from the Middle East.
Brent crude fell as low as $97.43 a barrel, following reports that Tehran had proposed reopening the strait of Hormuz in seven days if a US blockade was lifted.
Traders also noted that Saudi Arabia is trying to resume flows on a vital pipeline that was disrupted by drone attacks this month.
Donald Trump has told the UN’s General Assembly that he believes Iran will make a deal after November’s midterm elections.
But at pixel time, Brent crude is trading at a smidgen over $100/barrel.
Economists have warned that the UK public finances look dismal, after borrowing jumped in August.
The UK government borrowed a higher-than-expected £18.3bn last month, increasing the pressure on John Healey as he attempts to calm jittery bond markets before next month’s budget.
Bond investors have been told that UK and US government bonds would be significantly lower if Trump had not launched the Iran war.
M&G’s Bond Vigilantes Forum also heard that there are opportunities in the fixed-income world, thanks to the jump in yields since February.
M&G fund manager Miles Tym told reporters that the big risk from the budget is that government spending isn’t controlled as much as bond investors hope.
He says:
“Don’t make it any worse” is what the market is looking for.”
Andrew Chorlton, chief investment officer at M&G, welcomed the lack of leaks ahead of next month’s budget, and warned that the government “has a balancing act to play”.
Chorlton also flagged that the AI industry is starting to arguably dominate credit markets, due to the massive borrowing underway to fund data centres.
The Bond Vigilantes Forum also heard that the UK’s fiscal position, although challenging, is more attractive than certain other countries, such as the US, as Britain has plans to bring its deficit down.
And with that, it’s time to try to win a prize:
Updated
Big interest rate cut in Nigeria
There’s been central bank drama today – the Central Bank of Nigeria has unexpectedly made its largest interest rate cut in amost two decades.
Nigeria’s monetary policy committee lowered its benchmark rate to 23% from 26.5% today.
That’s Nigeria’s largest reduction according to data going back to 2007, Bloomberg reports.
M&G’s fund manager Charles de Quinsonas, who kindly brought this cut to my attention, says that this gives “a sense of the yields” that are still available in emerging markets, as Nigerian inflation is expected to drop from its current rate of 15%.
After a quick break, the Bond Vigilantes Forum is back in session, and learning that the rise in private credit has taken much of the risk out of the high yield bond market.
That’s according to M&G’s deputy CIO, Stefan Isaacs. He points out that 10 years ago, the high yield (ie, riskier) market was primarily funded through corporate bonds and to a lesser extent, by leveraged loans, has become a market that is very significantly funded by private credit.
Over that timescale, private credit has grown five-fold, and has been competing for opportunities to lend with the higher-yielding markets.
The speed of that growth means that some mistakes are likely to have been made, Isaacs warns, saying:
Risk has definitely migrated to private markets.
The question is, does it come back to the higher-yield markets and on what terms?
I think that’s going to be a really interesting dynamic over the next few years, something we’ll be watching really closely and hopefully taking advantage of.
Updated
Without Iran war, US 10-year yields would be 'between 3% and 4%'
Interest rate on US and UK bonds would be significantly lower if Donald Trump hasn’t launched his war with Iran this year, bond investors have heard.
M&G fund manager Ben Lord tells the Bond Vigilantes Forum here in the City that “we were so set” before the war began – inflation was about to fall to 2%, and central banks were all going to be cutting interest rates.
And then Trump did his thing.
So… inflation up. Yields are up. It’s been brutal.
Today, US 10-year Treasuries are trading at a yield (rate of return) of nearly 5%, with UK 10-year gilts around 5.2%.
Lord says he believes that 10-year Treasury yields would be somewere betwen 3% and 4% now, if Trump hasn’t launched the war at the end of February.
But these higher yields do mean that, after a long time, investors are now being paid to take duration risk, Lord adds.
M&G: Fiscal drag improving UK's fiscal position
The UK’s fiscal position, although challenging, is more attractive than certain other countries, such as the US, the Bond Vigilantes’ Forum hears.
M&G fund manager Miles Tym points out that in the US, the debt high but the deficit is high as well and set to remain high for the foreseeable future.
Tym says:
There’s no policy to bring that down effectively.
Whereas in the UK, yes, the debt to GDP ratio starts at a similarly high level. But the dynamics of the deficit are somewhat more favourable, assuming that [forecast cuts to the deficit] are delivered
Tym then explains that the UK’s net deficit has started to fall and is set to continue to fall over the next couple of years.
He suggests that it’s not “fully appreciated” that UK fiscal policy is set to tighten by a reasonable amount over the next two or three years.
Not through hikes in tax rates, but through fiscal drag, where tax bracket thresholds are frozen.
Tym explains:
So as wages go up, you drag more people into that earnings category.
So actually the total tax take as a percentage of GDP is actually set to rise by a couple of percentage points over the next three years in this country.
Q: How much of the recent rise in the US Treasury yields is due to the oil price and the situation in Middle East versus expectations of higher growth or Trump’s inability to manage the fiscal deficit?
M&G’s Richard Woolnough replies, citing research showing a correlation of over 90% between oil price moves and Treasury yields.
So it [US bond yield moves] is driven a lot by the oil price and the central bank reaction to that.
The term ‘Bond vigilantes’ does sound a little threatening, associated with soulless investors who will step in and prevent governments borrowing as much as they’d like.
M&G’s Richard Woolnough argues that they are not the bad guys, though.
Woolnough tells today’s BV Forum:
A long, long time ago, they were used to be movies with Charles Bronson. There was a vigilante, and he only ever turned when there was a baddie.
So when there’s ‘baddie lending’, then yes, the vigilantes will turn up.
Opportunities in the bond market, despite the risks....
M&G’s Andrew Chorlton then repeats the argument he ran past the journalists over lunch earlier – that there are lots of opportunities in the fixed income market.
Chorlton acknowledges that it’s been painful in the bond markets, and volatile, and there’s lots of risks on the horizon.
But those risks are well known, he argues.
We know that governments around the world have got a challenge. We know that central banks are going to hike in the face of inflation.
We know there are geopolitical challenges around the world. But arguably that’s why you’re getting a 2% real yield.
The AI industry is starting to arguably dominate credit markets, M&G chief investment officer Andrew Chorlton tells the Bond Vigilantes Forum.
He argues that there are effectively got two credit markets at the moment – AI companies who are issuing debt at a rapid rate to fund their infrastructure rollout, and the rest of the market.
Chorlton says:
That’s going to start creating another, potential risk for investors to be aware of.
Jim Leaviss remembered
Investment manager M&G is now holding its annual Bond Vigilantes Forum in the City.
The event was inspired by M&G’s excellent Bond Vigilantes blog, created by Jim Leaviss, the well-respected fund management veteran who very sadly died in July.
Attendees are reminded of Leaviss’s “unwavering commitment” to making bonds fun and interesting, and:
He was loved and respected by many in this room and indeed this industry.
Updated
M&G: Market hopes budget will keep spending under control
Q: What are the big risks from next month’s budget, for the bond markets?
M&G fund manager Miles Tym says the big risk is that government spending isn’t controlled as much as bond investors hope.
He says:
“Don’t make it any worse” is what the market is looking for.”
Tym explains that the market accepts that there won’t be big spending cuts, but it is looking to see that the government is keeping spending under control.
And if taxes need to be raised, that this involves “credible ways” that aren’t too damaging.
The drop in the oil price today will interest bond investors, as the cost of crude has had a major impact on fixed-income markets this year.
Asked about the correlation between the oil price and bond yields, M&G fund manager Eva Sun-Wai tells reporters in London that higher oil has created a difficult policy challenge for central banker.
Sun-Wai explains:
It’s a very difficult challenge for central banks to have to combat supply side inflation with demand driven policy.
Lack of budget leaks welcomed
The lack of leaks ahead of next month’s budget is an encouraging sign, Andrew Chorlton, chief investment officer at M&G explains.
Chorlton tells journalists here in London that the UK’s market reputation has been damaged in the past by leaks, backtracking, and some measures that have been expected then not being included in the budget after all.
He adds:
“So hopefully we’ll all find out at the same time at the end of October and, and react accordingly.”
Looking at the UK, he says:
It’s not a surprise that the government has a balancing act to play in the budget next month, whether it’s the old chancellor [Rachel Reeves] or the new one [John Healey].
Chorlton then jokes that hopefully we won’t get another new chancellor before the budget (!) on 28 October, adding:
Whoever is the chancellor, they’re facing that challenge.
Bond markets in a 'fairly healthy' place
The bond markets are at a “fairly healthy starting place” following the recent rise in yields, argues Andrew Chorlton, chief investment officer at M&G.
He’s speaking at a lunch event in the City now (at the top of M&G’s rather stylish Leadenhall site).
And he’s explaining to the assembled journalists that fixed income is offering more attractive valuations.
Chorlton points out that, with US Treasuries and UK gilts yielding 5%, investors are being offered real yields of 2% to 3%, which is ‘not a bad starting point”
Petrol and diesel prices head higher, says RAC
Despite the drop in oil prices this week, fuel prices are still heading higher, with diesel getting closer to £2 a litre.
The latest figures from the RAC motoring group show the average price of unleaded and diesel have both crept higher, to 172.85p a litre and 196.89p a litre respectively.
The unleaded price is now 40p per litre higher on average than it was at the start of the war while diesel is 54.5p more expensive.
This has become a real problem for some people. “Around half my day’s pay goes to filling up my car now,” says Jon Barden, a former humanitarian adviser turned handyman, who says his fuel costs have doubled. His diesel Ford estate, once used for camping trips, is now used to carry heavy tools to jobs around Tottenham in north London.
Back in the UK, conditions in the factory sector have picked up.
Total order books were reported as below “normal” in September, to the smallest extent since July 2023 (-9%, from -25% in August), new data from the CBI shows.
Oil has now hit a new low of $97.50 a barrel.
That’s still some way above Brent’s pre-Iran war levels of around $72 a barrel, though.
Updated
Oil is continuing to drop, and has touched a two-week low.
It’s now traded as low as $98.33 a barrel, its lowest since 8 September.
Shares in BP have dropped by 2.5% following the dip in the oil price below $100 a barrel this morning.
It’s the biggest faller on the FTSE 100 share index, followed by weapons producer BAE Systems (-2%), as hopes of a diplomatic resolution to the Iran war pick up again.
Kyodo also reports that Iran’s proposal has already been conveyed to Washington through mediators, and calls for renewed talks aimed at reaching a permanent end to hostilities between the two countries.
However, the senior Iranian government official they site also ruled out a meeting between Iranian President Masoud Pezeshkian and U.S. President Donald Trump on the fringes of the gathering, while alo saying progress toward an agreement remains possible.
Oil below $100 as Iran 'makes strait of Hormuz offer'
Newsflash: The oil price has dipped below the $100 a barrel level.
This follows a report on the Kyodo news service that Iran has offered to reopen the Strait of Hormuz within seven days if the United States takes initial steps toward easing military pressure.
One senior Iranian government official told Kyodo:
“There is a possibility of moving toward an agreement.”
But the official added that Washington must demonstrate “seriousness and commitment” if diplomacy is to advance.
Neil Wilson of Saxo Markets says:
Pressured by its exports grinding to a halt the economic toll is being felt in Tehran and it seems to be pinning hopes on this offer ending the stalemate.
This looks too good an offer for Trump to turn down ahead of his key week with Xi and with polls indicating voter dissatisfaction of his handling the Iran war and economy ahead of the mid-terms, which are looking like the Democrats could take both houses.
As ever with US-Iran chatter and rumours this needs to be taken with a grain of salt but should it hold it’s going to mean crude holds lower, which would take the pressure of bond yields.
Back to the UK government’s higher-than-expected borrowing of £18.3bn in August.
Susannah Streeter, chief investment strategist at the Wealth Club, said:
Tax speculation is ramping up ahead of the budget, especially given the latest snapshot of the government coffers shows prime minister Andy Burnham and chancellor John Healey are walking an increasingly tricky tightrope when it comes to the public finances.
That is prompting fresh speculation about a potential increase in capital gains tax, particularly if reported plans to raise the personal income-tax allowance from £12,570 become a reality. If the government is looking to put more money into people’s pockets by reducing their income-tax bill, it would need to find the money elsewhere, and CGT is increasingly being talked up as a potential source.
For investors, the prospect of a higher CGT bill could mean some simply decide not to sell assets and hang onto them instead. But there are alternatives, including tax-efficient investment schemes that can shelter returns while also directing capital towards British businesses, laying the seeds for future growth.
Government-backed venture capital schemes support young businesses which are seen as crucial to driving economic growth and the creation of high-value jobs for the future. Investing in these schemes is a bit like following in the footsteps of angel investors, but rather than backing a single start-up, you’re spreading your investment across a portfolio of young, ambitious businesses.
Updated
B&Q owner Kingfisher raises profit outlook despite sharp drop in bathroom sales at B&Q
In the retail sector, the B&Q and Screwfix owner Kingfisher has raised its full-year profit outlook, despite a sharp drop in bathroom sales at its B&Q chain and the impact of the heatwaves on certain products.
Kingfisher shares jumped 8.5% on the profit upgrade.
An 8.1% drop in big ticket sales at B&Q in the three months to 31 July was mainly down to bathrooms, while kitchens saw “good sales,” Kingfisher’s outgoing chief executive Thierry Garnier said, adding that the company will refresh its bathroom ranges. He described the consumer climate as “mixed”. The DIY chain’s overall like-for-like sales fell 1.8% over the period, its second quarter.
The multiple heatwaves over the summer, which also affected France, Poland and Spain, led to a “relatively complicated season,” Garnier added. Airconditiong units and fans had “outstanding sales”, but the company sold fewer building materials, indoor and outdoor paint.
Ahead of the budget on 28 October, Garnier said Kingfisher’s number one priority are business rates, calling on the government to create a level playing field between brick & mortar and online retailers. (Only physical retailers pay business rates, a property tax.)
That will create more and issues in the future.
We very much hope that we have positive news on business rates for the retail industry in the coming weeks.
He hopes that larger stores won’t be penalised in business rates reform.
Turning to the crisis in youth unemployment – nearly 1 million 16- to 24-year-olds are not in employment, education or training (Neet) – Garnier said there has been a shortage of trained people in the UK for years.
He added that Screwfix has a strong apprenticeship programme and has recently joined an initiative with the industry body, the British Retail Consortium, to provide work experience placements for young people (called Open Shift).
B&Q and Screwfix support around 1,000 apprenticeships each year and in the most recent year, more than 600 people finished their apprenticeship, including 347 from Screwfix.
Garnier resigned in May after nearly seven years as CEO to become the boss of the Dutch-Belgian supermarket group Ahold Delhaize, but remains in post for now, as he has a 12-month notice period. He said the Kingfisher’s succession plan is “moving at pace”.
Kingfisher made an adjusted profit before tax of £404m in the six months to 31 July, up nearly 10% on last year, helped by cost cutting measures and a one-off £14m business rates refund. Total sales rose 0.8%, while like-for-like sales (at outlets open at least a year) edged 0.3% higher.
The company raised its profit forecast for the 2026-27 year to between £595m and £635m, from £565m to £625m.
Updated
The pound has dipped to its lowest level since late July this morning, Reuters points out.
It hit $1.3331 before a small recovery.
The Institute of Economic Affairs, the right-wing, free-market thinktank, argues that today’s public finances shows the government “cannot tax its way out of Britain’s fiscal problems”.
Dr Valentin Boboc, senior economist at the IEA, says:
“Borrowing is already £8bn higher than the OBR expected at this point in the financial year, putting further pressure on the Chancellor ahead of the Budget.
“The problem is not weak revenues. Tax receipts are rising strongly, but spending is rising faster. With debt approaching £3 trillion and the cost of servicing it remaining painfully high, further tax rises would only paper over the cracks.
“The Chancellor needs to get a grip on spending and focus on reforms that can deliver stronger economic growth. Without that, Britain will remain stuck in a cycle of higher spending, higher taxes and disappointing growth.”
[The government, though, might point out that Brexit – which the IEA saw as a major opportunity – has rather hampered UK growth]
Philip Shaw of Investec has highlighted how UK government spending rose faster than income in August, which pushd up the monthly deficit:
The scale of the borrowing was principally due to the relatively low growth of tax receipts of 3.8% on the year, particularly VAT (+1.7%) and excise duties (-0.4%).
Current spending (excluding interest payments) was 4.9% higher, similar to the trend for 2026/27 so far. Interest payments were £8.8bn, modestly (£0.4bn) above those in August last year.
Updated
Key event
The oil price has shrugged off a brief dip below the $100 a barrel mark yesterday.
This morning, Brent crude is up 1.1% at $101.50/barrel, as traders continue to assess the hopes of a diplomatic breakthrough in the Middle East.
Yesterday afternoon, Brent fell below $100 a barrel for the first time in a fortnight. That appeared to be due to relief that the US had not renewed its bombing campaign against Iran, as Tehran had warned on Sunday.
Hopes that US president Donald Trump could meet Iranian president Masoud Pezeshkian during the United Nations General Assembly in New York later this week also pushed oil lower.
But concerns over an escalation in the region remain. Earlier this morning, Saudi Arabia’s civil defence body issued an alert in its Najran region, amid ongoing hostilities between the kingdom and Yemen’s Iran-backed Houthis. That alert has now been lifted.
In the travel sector, Germany’s Tui has reported falling summer and winter revenues for its tour operations and airlines, but flagged better trading in the last four weeks, as people book later in light of “geopolitical and economic uncertainty”.
The travel company said summer 2026 revenues were down 5%, but highlighted a 2% rise in the last four weeks. Summer trading was worst in the UK, down 7%, while revenues dipped 2% in Germany, but Tui managed to stick to its selling prices.
Greece and Spain, including the Balearics and Canaries, were the most popular summer destinations.
Winter bookings have fallen 7% overall, with a 9% decline in the UK and a 4% drop in Germany. The Canaries, mainland Spain, Egypt and Cape Verde are expected to form the core of Tui’s winter programme, similar to other years, along with the long-haul destinations Thailand, Mexico and the Dominican Republic.
The company narrowed its outlook for 2026 underlying operating profits, saying demand was strong for its holiday experiences portfolio in the fourth quarter. Tui now expects annual underlying earnings before interest and taxes to reach between €1.2bn and €1.3bn, rather than the previously forecast €1.1bn to €1.4bn.
Its cruises and resorts business was affected by the Jamaica hurricane.
RSM: Healey has probably lost about half the headroom he inherited
How much ‘headroom’ might John Healey still have to keep within the government’s fiscal rules?
That’s the question dogging Westminster and the City.
Back in March, ex-chancellor Rachel Reeves raised this buffer to £23.6bn, from £21.7bn at the November 2025 budget.
That meant the government had a larger cushion to hit its two fiscal rules – to have the day-to-day budget in surplus, and for ‘net financial debt’ to be shrinking relative to the size of the UK economy.
But increased spending commitments, and the rising cost of servicing the national debt, will erode this headroom
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, reckons about half of the Reeves headroom remains:
“The chancellor has probably lost about half the headroom he inherited, leaving it between £10bn to £15bn. As long as the headroom is in double figures, he will probably be able to avoid topping it up, but the drop in headroom means any additional day-to-day spending, such as on defence or cost of living, will have to be paid for by higher taxes.
“What’s more, if the recent rise in energy prices is sustained through the next few months, household energy bills could rise by another 25% in January, which would take them above the level that the previous government capped them at. That would only further increase the pressure to act on cost of living by temporarily subsiding energy bills.
Gilt yield rise a little
UK government bond prices are dipping at the start of trading, as City traders digest today’s rise in borrowing.
This is pushing up the yield, or interest rate, on UK gilts slightly.
The yield on 10-year UK bonds is up 3 basis points to 5.232%, while 30-year bond yields are also 3bps higher at 5.729%.
Both yields are still below the multi-year highs set earlier this month in the bond turmoil, though.
But Chris Beauchamp, chief market analyst at IG, suggests the bond market is turning the screws on Westminster:
“The PM and chancellor will be feeling quite claustrophobic today as the walls close in around them. Borrowing costs keep climbing, while borrowing itself is outpacing the teeny rise in tax receipts.
Everyone can diagnose the problem, but it’s far from clear that a PM who swept to power promising good things for all is capable of holding a fractious Labour party together to carry out the tough work needed.”
Updated
Treasury minister: We must show fiscal discipline
Chief Secretary to the Treasury, Emma Reynolds, says the government is committed to meeting the fiscal rules with “a buffer against uncertainty”.
Responding to this morning’s public finances data, Reynolds says:
“Britain has huge potential to deliver good growth in every postcode, creating jobs, raising living standards and investing in the services people rely on. But we can only deliver that growth with fiscal discipline.
“At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services.
“That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.”
Today’s public finances paint a “dismal picture” ahead of October’s budget, says Ruth Gregory, deputy chief UK economist at consultancy Capital Economics.
After borrowing jumped to £18.3bn in August, Gregory told clients:
This supports our view that a small or medium-sized tax and spending Budget is more likely than a big one and that many of the PM’s policy ambitions will be reined in or delayed to avoid big tax hikes and/or a backlash in the markets.
Gregory points out tha government tax receipts were £200m higher than forecast by the OBR. The problem, she explains, is that central government expenditure overshot the OBR’s forecast by £2.3bn, partly because higher RPI inflation pushed up debt interest payments (see earlier post).
And if the economy weakens, and the government announces more cost-of-living support, borrowing could rise further.
Gregory concludes:
We think borrowing will be about £125bn (3.9% of GDP) in 2026/27 (OBR forecast £115bn) and that the Chancellor will need to raise between £9-14bn in the Budget to restore his existing fiscal headroom.
Debt interest bill hits August record at £8.8bn
The cost of servicing the UK’s national debt has hit a record high for any August, as rising inflation drove up interest payments.
Today’s public finances show that central government debt interest bill was £8.8bn in August – the highest August figure since monthly records began in 1997.
This includes a £2.1bn bill on index-linked gilts – bonds where the repayments is linked to the RPI inflation rate.
August’s debt bill was lower than in each of the first three months of the current financial year, the ONS points out.
These debt payments are soaking up money which could otherwise be used to fund schools, hospitals, defence, or all the demands on the public purse.
Nabil Taleb, economist at PwC UK, explains:
Higher debt servicing costs absorb a greater share of government revenues, reducing fiscal room and leaving the public finances more exposed to future economic shocks.
“A better near-term borrowing outturn would help, but it would not remove the pressure created by higher government borrowing costs. Thirty-year gilt yields recently reached their highest level since 1998, which matters because it raises the cost of long-term financing at a time when fiscal room is already tight. While higher gilt yields do not feed through into debt interest costs immediately, they make it harder for improvements in the monthly borrowing figures to translate into lasting fiscal headroom. For the Budget, that leaves the government relying not just on better borrowing data, but on some easing in borrowing costs as well.”
Self-assessed (SA) Income Tax receipts over the last two months jumped notably, today’s public finances show.
SA income tax payments in July and August were £18.6bn in total, which is £1.9bn more than in the same period last year.
ONS: borrowing higher than the official forecast
ONS senior statistician Tom Davies said:
“Borrowing in the financial year so far was lower than over the same period last year. However, it was higher than the official forecast, largely because central government borrowed more than anticipated.
“On the month, borrowing was up by almost a fifth on last August, as spending increased more than government income partly reflecting the impacts of inflation.”
There is one piece of good news in the public finances – the UK has borrowed less so far since April than a year ago.
So far this financial year, the UK has borrowed £77.3bn, which is £2.2bn less than in the same period last year (but £8.1 billion above the OBR forecast).
And as a share of the economy, it’s actually the 10th-lowest April to August borrowing since comparable monthly records began in 1993.
Introduction: UK borrowing jumps to £18.3bn in August
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s national debt is rising faster than expected after the government borrowed more than expected, again, to balance the books.
The latest public finances data, just released, shows that the UK borrowed £18.3bn in August, which is £2.9bn more than in August 2025, as spending rose faster than government income.
This is higher than the £15.6bn forecast by the City. But more importantly, it’s £3.5bn above the Office for Budget Responsibility (OBR)‘s forecast for August.
And it means that so far this financial year, the UK has borrowed £8.1bn more than the OBR’s forecast.
This all adds up to a headache for chancellor John Healey as he works on next month’s budget, as the recent bond market turmoil has eaten into his ‘headroom’ to keep within the fiscal rules.
Emeritus professor Joe Nellis, head of economic research at accountancy and advisory firm MHA, says this morning’s data is “another reminder of the fiscal straitjacket facing the Government” ahead of the budget.
Nellis adds:
But why is the deficit proving so hard to reduce? The weakness lies mainly on the expenditure side. Higher inflation is impacting spending on public-sector pay, state benefits and pensions. And last week’s announcement that inflation has hit 3.1% will not have helped.
On top of this, the cost of servicing the national debt remains exceptionally high. Public sector net debt is just below £3 trillion, representing around 94% of GDP, the highest since the early 1960s.
The agenda
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7am BST: UK public finances for August
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10am: UK Treasury Gilt 2032 Auction
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11am BST: CBI industrial trends report
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3pm BST: Eurozone consumer confidence report
Updated
