Rolling coverage of the latest economic and financial news
- Introduction: UK borrowed £22.3bn last month, an October record
- UK borrowed £215bn since April – a record
- HMRC: Tax revenues have slumped £70bn
- Retail sales jump in early Christmas rush
- National debt now 100.8% of GDP, not seen since the early 1960s
- Rishi Sunak to put squeeze on public sector salaries
Time to wrap up, with a brisk summary.
Britain’s national debt has hit its highest level since the early 1960s, as the Covid-19 pandemic continues to drive up government spending and hit income.
“Markets should be very comfortable that we have plenty of capacity left.
“I find it kind of ironic now that I’m being prudent and returning the money to Congress like I’m supposed to that people are questioning that.”
Mnuchin says people are misunderstanding Fed funding decision, there’s plenty of firepower left https://t.co/pJjdhcgviD
A week that began with a bang, with Moderna’s impressive vaccine trial results, has ended rather more quietly.
The FTSE 100 index has closed 17 points higher at 6351, up 0.3%. Mining group Antofagasta (+3.4%), software company Avast (+3.1%) and retail group JD Sports (+2.7%) were the top risers.
With 61 days until January 20th, financial markets are trying to figure out if any near-term uncertainties will produce a significant stock market pullback.
The escalating pandemic is putting pressure on Congress to pass a stimulus package with federal unemployment benefits and small-business aid.
Oil giant BP has sold its London headquarters for £250m – in a timely example of how Covid-19 has forced companies across the UK to rethink their business practices.
The company told staff that running a large office in central London was “expensive, unnecessary” and out of step with modern corporate practices.
BP has confirmed the sale of its St James Sq HQ for £250m, telling staff that the space was “expensive, unnecessary and out of step with modern corporate practice”
More on BP’s flexible workspace overhaul here, published in August https://t.co/L2B1vl1yxo
Bitcoin is continuing its recent strong rally, taking another step towards new highs…
Heads-up, UK readers looking to get onto the housing ladder.
Nationwide is “open-minded” about offering lower deposit mortgages that could help first-time buyers who are struggling to secure a loan during the coronavirus crisis, its chief executive has said.
Worryingly, but not surprisingly, consumer confidence in the eurozone has fallen this month.
The EC’s latest gauge of consumer morale in the eurozone has dropped to -17.6 points in November, from -15.5 last month.
#Eurozone flash consumer confidence (Nov) -17.6 v -17.7 exp. (prev -15.5)
(this hasn’t been positive since 2018…)
Stocks have dipped at the start of trading in New York.
Fed Chair Powell had recently hinted that those emergency programs, which are due to expire at the end of the year, were likely to be extended in December.
But Mnuchin’s decision to pull the plug on most of them now leaves the Fed racing to come up with alternative measures of support for the economy as there has been no let-up in the surge of new infections across the country.
These tweets from Bloomberg’s Michael McDonough show how the pandemic is worsening in the US:
Each COVID wave gets worse: (State-by-state 5D increase of COVID-19 confirmed cases over the past 260 days) pic.twitter.com/7hfvwlFZVN
Daily Number of New COVID-19 Cases in the U.S. pic.twitter.com/cKrjeqGzpS
The action comes days after Pfizer Inc. and its German partner BioNTech announced that its vaccine appears 95% effective at preventing mild to severe COVID-19 disease in a large, ongoing study.
The companies said that protection plus a good safety record means the vaccine should qualify for emergency use authorization, something the Food and Drug Administration can grant before the final testing is fully complete. In addition to Friday’s FDA submission, they have already started “rolling” applications in Europe and the U.K. and intend to submit similar information soon.
Anneliese Dodds MP, Labour’s Shadow Chancellor, has also warned that a pay freeze on public sector workers could hurt the recovery:
“Workers on the Covid front line have kept our country going through this pandemic. Thousands of them have lost their lives in the process.
“Now – in the middle of a deadly second wave – the Chancellor wants to freeze their pay. The Prime Minister and Chancellor who once clapped for key workers on the steps of Downing Street is turning its back on them at the first opportunity.
Speaking of tax….a new study has found that tax abuse by multinational companies and avoidance by rich individuals is costing countries $427bn a year.
This includes the impact of shifting profits out of the countries where they were generated into tax havens, where corporate tax rates were low or non-existent.
HM Revenue and Customs (HMRC) has reported that UK tax receipts have slumped by over £70bn so far this financial year.
Its latest Tax Receipts & National Insurance Contributions report, published this morning, shows a sharp fall in takings since April.
“A large part of this relates to taxes deferred, particularly in relation to VAT (£38.7bn fall for the first 6 months) where businesses were permitted to defer all payments due for a period. Some of this cash will come back over the next couple of years.
The fall in Corporation tax is huge – almost £12bn over the first 6 months, suggesting total corporation tax receipts will be down by more than a third over the year as a whole. In October alone, receipts were down by almost £7bn, although this was partly offset by about £3bn higher receipts from the largest companies in September due to a change in their payment pattern.
The figures will be particularly unwelcome to Chancellor of the Exchequer Rishi Sunak as they further limit his scope for action as he prepares to deliver his economic forecast on Wednesday 25 November.
‘Some of the shortfall will reflect time-to-pay agreements negotiated by businesses. Provided those businesses survive, this tax will become payable in due course. It will be interesting to see how the Chancellor factors this into next week’s statement.
The slight rise in alcohol duty will be accounted for as people shifted their purchases from restaurants and pubs to supermarkets and off-licences. It also seems that people in the UK are smoking more.
Here’s our news story on the UK public finances:
Oil is nudging higher too this morning, a sign that vaccine optimism is overriding anxiety over the pandemic.
Brent crude has gained 1.1% to $44.70 per barrel, back towards the two-month highs seen last week.
In the markets, shares are heading higher after a cautious start to trading.
The UK FTSE 100 is up 46 points, or 0.7%, at 6,380, back towards the five-month highs seen on Monday.
Stock markets have recouped a small portion of the ground they lost yesterday as bargain hunting seems to be in play. The health crisis and vaccine stories continue to be in focus.
Seeing as such great progress has been made with respect to potential Covid-19 vaccines, it is possible that we will not see severe falls in stocks, like we saw in October, as it feels like the pharma sector is close to tackling the crisis. A number of major European counties are in lockdown this month and there is chatter about when the restrictions will be lifted.
This chart from economic consultancy group CEBR shows just how dramatically UK borrowing has risen this year, compared to the previous two financial years:
It was announced this morning that millions of public sector workers in England are likely to face a pay freeze next year. The 5.5 million workers paid by the government, equivalent to 17% of the workforce, are expected to see their wages frozen, although NHS workers may be exempt. With Cebr forecasting inflation to rise towards 2% in 2021, this policy change will result in a real-terms wage reduction for those affected.
Although, the Chancellor of the Exchequer is likely to argue that it reflects falling private sector earnings.
The Institute of Chartered Accountants in England and Wales says Rishi Sunak should focus on building the economic recovery in next week’s spending review, rather than worrying about borrowing costs.
Alison Ring OBE, ICAEW Director for Public Sector, says Britain’s extremely low bond yields mean high government spending levels are not yet a problem.
“The Government continued spending heavily during October, although at a slower rate than in previous months. Fortunately ultra-low borrowing costs mean that the Chancellor will not have to worry about having to plug the fiscal hole with next week’s Spending Review. Instead the focus should be on how the Government can put in place building blocks for economic recovery.
“The long-delayed National Infrastructure Strategy will be key, as will proposals to reform government operations to make them more effective. Ministers must be hoping that recent positive news on vaccines will allow the focus in 2021 to change from providing emergency life-support for the economy to ‘building back better’.”
When we talk about sustainable public finances, it’s important to remember that Britain’s borrowing costs are currently remarkably low.
This morning, 10-year UK gilts are trading at a yield of 0.32% in the bond markets (you can see prices here).
Usual reminder that the UK govt can borrow at low rates and extra borrowing is vital to avert a slump https://t.co/XZHM7kEk1h
Another thing. If we see wages as merely a cost, we miss the role of wages as a source of demand. This is notwithstanding the moral case for wage rises https://t.co/rvH84terpD
The TUC are also opposed to any public sector pay freeze, with general secretary Frances O’Grady saying:
“A pay freeze would be a bitter pill for care workers, refuse collectors, emergency workers and all the key workers in the public sector who have helped keep the country going through this pandemic.
“Freezing their pay is no way to reward key workers for their service. Unions will fight for the proper pay rise they have earned.
Freezing the pay of millions of key workers is no way to reward their service. The very least they deserve for getting us through this crisis is a proper pay rise. https://t.co/3bsR6g5OaW
Chancellor of the Exchequer, Rishi Sunak, has insisted that the government has acted responsibly by raising spending to fight the pandemic:
“We’ve provided over £200bn of support to protect the economy, lives and livelihoods from the significant and far reaching impacts of coronavirus.
“This is the responsible thing to do, but it’s also clear that over time it’s right we ensure the public finances are put on a sustainable path.”
“Key workers across all public services remain at the heart of the fight against Covid.
“Reports of pay restraint for all but frontline NHS staff would be a cruel body blow to other health, care and public service employees working tirelessly to get us through the pandemic. It would also backfire badly with the public.
Here’s our news story on the pick-up in retail sales last month:
Capital Economics points out that October’s public finances figures were better than expected.
Although borrowing was a record, at £22.3bn, it’s not as bad as the £35bn+ which the City had expected, and down on September’s figures.
The decent rise in retail sales in October and the smaller increase in government borrowing suggests that the economy held up better than expected when the COVID-19 tiered restrictions were being implemented.
But the second lockdown that began in November will probably prompt retail sales to fall again and public borrowing to rise faster.
Despite the pandemic, UK retail sales kept rising in October, with some consumers starting their Christmas preparations early.
Retail sales volumes grew by 1.2% last month, the sixth month of growth in a row, the Office for National Statistics reports.
“Despite the introduction of some local lockdowns in October, retail sales continued its recent run of strong growth.
Feedback from shops suggested some consumers may have brought forward their Christmas shopping, ahead of potential further restrictions. Online stores also saw strong sales, boosted by widespread offers.”
The Institute for Fiscal Studies flags up that UK borrowing this year is lower than the budget watchdog has predicted:
However, this small silver lining could be blown away by the second wave of Covid-19 cases, and restrictions:
‘Over April to October borrowing ran below @OBR_UK‘s August forecast. But it is still at record levels: in just seven months borrowing is already a greater share of this year’s national income than over the whole of 2009-10, when borrowing peaked during the financial crisis.’
‘In the coming months, substantial additional sums will need to be borrowed. But what matters more than the height of borrowing this year is the extent to which it remains elevated in years to come,’ says Research Economist Isabel Stockton.
After seven months of this financial year, the UK has now borrowed more than in the year after the financial crisis.
The record-breaking £214.9bn borrowed in April-October already exceeds the £157.7bn borrowed in 2009-2010 after the collapse of Lehman Brothers.
Britain’s national debt, as a share of the economy, is at its highest since the early 1960s.
October’s borrowing has pushed public sector net debt to around £2,076.8bn, the ONS reports, or around 100.8% of gross domestic product (GDP).
That debt-to-GDP ratio is now at levels last seen since the 1960-61 financial year, when Harold Macmillan was prime minister and Britain was paying down the debt incurred in the second world war.
The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain has racked up another month of record-breaking borrowing, as the cost of the Covid-19 pandemic continues to mount.
Borrowing in the first seven months of the financial year-to-October 2020 was £214.9 billion, nearly four times the £56.1 billion borrowed in the whole of 2019/20. #deficit #debt #PSNBex https://t.co/Y5EmrtqZTo pic.twitter.com/N4LyBQbzJT
It is understood that NHS staff, including doctors and nurses, will be exempt from the renewed period of restraint to avoid triggering an angry public backlash as a result of the frontline role played by healthcare workers during the pandemic.
However, unions warned a renewed pay freeze elsewhere would still come as a kick in the teeth for staff after Boris Johnson had promised to bring austerity to an end before the 2019 election, and as millions of key workers continue to keep the country going through the health emergency.