- FTSE 100 down 73 points
- Supermarket sales up but prices surge
- UK jobless rate edges lower
2pm: IMF raises this year's UK growth forecast, but cuts 2023 projection
The IMF has raised its growth forecast for the UK for this year, but cut next year's estimate, before taking into account the government's mini-budget and spending plans.
In its latest world economic outlook, the organisation said it expected the UK to grow by 3.6% this year, up from July's forecast of 3.2%.
But next year it has reduced its estimate from 0.5% to 0.3%. It said high inflation would reduce purchasing power and tighter monetary policy would take a toll on consumer spending and business investment.
Following its initial criticism of chancellor Kwasi Kwarteng's mini-budget and ahead of the spending announcement due on Halloween, it said: “The fiscal package is expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation."
Global growth is set to fall from 6% in 2021 to 3.2% this year and 2.7% next.
This is the weakest growth profile since 2001 except for the financial crisis and the pandemic, said the IMF.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “The global economy is weakening further and facing a historically fragile environment. The outlook continues to be shaped by three forces. Persistent and broadening inflation, causing a cost-of-living crisis, the Russian invasion of Ukraine and the associated energy crisis, and the economic slowdown in China. For this year, our projection for world GDP growth is unchanged at 3.2%, as in the July World Economic Outlook update. Global growth is forecast to slow down to 2.7% in 2023, 0.2 percentage point lower than projected in July.
"The slowdown is broad based. More than a third of the global economy will contract in 2023, while the three largest economies in the world, the United States, the Euro area, and China will continue to stall.
"For the first time, we calculated risks around the baseline projections. We find there is a 25% chance that growth will fall below 2% in 2023."
12.48pm: Credility cost of UK mini-budget is £10bn a year in extra interest payments - IFS
More from the latest report from the Institute for Fiscal Studies, which has said the government needs to find £62bn a year to bring down debt levels.
The IFS - in conjunction with Citi - calculates that borrowing this year could hit £200bn, double the amount forecast by the Office for Budget Responsibility in March.
Look at what’s happening to the national debt as a result of the mini Budget.It’s no longer going down. Thanks to all those measures (energy price guarantee/tax changes) it’s going UP.
THIS is one thing freaking out markets. There’s currently no plan for getting the debt down. pic.twitter.com/T7SHeiAiEH
— Ed Conway (@EdConwaySky) October 11, 2022
Meanwhile it has also calculated the credibility cost of Kwasi Kwarteng's mini-budget.
The IFS reckons the “credibility cost” of the mini-Budget was about £10bn in extra debt payments each year.With that money we could fund significant tax cuts. We could build more than a hundred new hospitals.
It’s a LOT of money - but it’s now going on higher debt interest bills
— Ed Conway (@EdConwaySky) October 11, 2022
12.07pm: Banks bond buying should not end on Friday - pensions group
The Bank of England should consider extending its bond-buying programme beyond its original deadline of Friday, a pensions organisation has said.
The intervention by the Bank to try and stabilise the bond market in the wake of the turmoil following the mini-budget should go on until October 31 - the date of the chancellor's fiscal statement - and possibly beyond, according to the Pensions and Lifetime Savings Association.
"A key concern of pension funds since the Bank of England's intervention has been that the period of purchasing should not be ended too soon," it said.
"Many feel it should be extended to the next fiscal event on 31 October and possibly beyond, or if purchasing is ended, that additional measures should be put in place to manage market volatility."
11.42am: US markets on course for downbeat start
US stocks are expected to open lower again amid concerns that the world’s biggest economy will take a hit from higher interest rates and escalating geopolitical risks.
Futures for the Dow Jones Industrial Average were down 0.9% in pre-market trading, while those for the S&P 500 were 1.0% lower and contracts for the Nasdaq-100 shed 1.0%.
“It’s rare that we have such a sour mixture of bad news on the wire,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
She cited escalating tensions in Ukraine, rising COVID-19 cases in China, mounting tensions between US and China, the sell-off in US and other treasuries, and the relentless appreciation in the US dollar as factors for the gloomy outlook.
“First, the week started with images of Russian bombs falling on Ukrainian cities following the blast on the bridge that linked Russia to Crimea. That means a further escalation of the war before winter. And it’s extremely bad news,” she said.
Meanwhile, a surge in COVID-19 cases in China is fueling fears that the likes of Shanghai or Shenzhen will face lockdowns and there has been a ratcheting up in tensions between the US and China, she added.
“ (US president) Joe Biden’s latest decision to further restrict chip exports to China didn’t please the Chinese, nor chip investors. Nvidia took another 3% hit in the teeth yesterday and slipped below the $120 per share for the first time since March 2021,” noted Ozkardeskaya.
US stocks were already suffering after Friday’s non-farm payrolls came in higher than expected, suggesting that the Federal Reserve’s aggressive interest rate hikes will continue as rate setters fight inflation. The Federal Reserve has delivered three 75 basis point interest rate hikes this year and a fourth is seen as a growing possibility in November.
As things stand, the US earnings season kicks off amid a worrying environment. Analysts are slashing profit forecasts and some predictions indicate the S&P500 will slump to its worst level since the third quarter of 2020 when markets were hit by the COVID-19 pandemic, said Ozkardeskaya.
Key banks are due to release quarterly results later this week, among them Blackrock (NYSE:BLK) on Thursday while JP Morgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) report on Friday.
On the data front, producer price figures for September are due on Wednesday, and consumer price inflation data, also for September, are due on Thursday.
Back in the UK, the FTSE 100 is off its worst but still down 1.05% or 73.37 points at 6885.94, having earlier fallen to 6860.
11.31am: Mortgage rates hit 6.4%
More bad news for mortgage holders, with rates continuing to rise in the wake of Kwasi Kwarteng's controversial mini-budget.
Mortgage interest rates *still* rising according to the latest Moneyfacts data - 2 year fixed now at 6.4%, up from 4.75% on day of #MiniBudgetFor context, each 0.1 percentage point increase equates to around £11.50 extra on monthly repayment costs of £200,000 mortgage ???? pic.twitter.com/sjKrzoYjvX
— Ben Chu (@BenChu_) October 11, 2022
11.14am: UK sells £900mln of bonds
Some mixed news from the government bond market.
A sale of index linked bonds was a success. However the interest rate was the highest since 2008.
UK Government sells £900m of index linked bonds.Good news: decent cover (2.75 bids for every bond on offer). Nowhere near a failed auction (biggest fear of all).
Bad news: interest rate is awfully high - highest since 2008. And note the real yield is ON TOP of inflation… pic.twitter.com/du5GW4yNBb
— Ed Conway (@EdConwaySky) October 11, 2022
10.45am: Gilt rally fizzles out
The Bank of England's continued intervention in the bond market saw gilt yields edge lower initially, but it has not lasted and now they are virtually flat on the day.
The 30 year gilt yield is down less than a basis point at 4.7% while the 10 year is unchanged at 4.47%.
Nigel Green, chief executive of financial advisory group deVere Group, said: "Since the reckless ‘mini-budget’ at the end of last month, UK financial markets have been in a tailspin, reeling from the government’s controversial plans to slash taxes and increase spending in a desperate dash for growth...
“We’ve now had weeks of markets being rattled - as we have seen with the turmoil in the mortgage market and the pension market, and with the plummeting pound - because there seems to be no credible long-term plan. Instead, it’s all just last-minute, reactionary moves...
“The UK faces the threat of significant, extended financial instability unless the Bank of England and the UK government work together on a long-term plan to calm markets.
“The current last-minute, panic mode approach that’s being taken is highly damaging to the UK’s economic prospects."
10.08am: Centrica (LON:CNA) bucks downward trend
On such a downbeat day there are some bright spots.
British Gas owner Centrica PLC has climbed 2.32% to 70.64p after Citigroup (NYSE:C) analysts raised their rating from neutral to buy, although they cut their price target from 97p to 81p.
Next PLC (LON:NXT) is up 0.6% at 4556p. Numis has moved from add to buy, albeit slicing its target from 7000p to 6800p.
Generally though the mood is not getting any better.
The FTSE 100 is currently down 1.23% or 85.78 points at 6873.53.
9.35am: Gilt market concerns hit financial shares
Financial stocks are under pressure after the Bank of England's latest move to try and stabilise the gilts market, in some disarray since the chancellor's mini-budget.
Legal & General Group PLC (LON:LGEN) is leading the losers, down 3.35%, while Aviva PLC (LON:AV.) is off 3.12%.
Victoria Scholar, head of investment at interactive investor said, “European markets have opened in the red with the FTSE 100 leading the declines. Legal & General and Aviva are trading at the bottom of the UK basket shedding more than 3% each after the Bank of England extended its gilt market stabilisation measures, putting pressure on financial and insurance stocks.”
On the Bank's move, Joshua Raymond, director at online investment platform XTB.com, said: “With each move by the BoE to restore stability in the gilt market, the more serious market participants realise the problem facing UK financial security. Yesterday we saw the BoE double auction liquidity levels. Today they’ve widened the asset list to include index linked gilts.
"The last few days of trading have seen Long term UK bond yields rising fast back towards levels before the BoE started to intervene. That tells you there’s a dislocation between the BoE's actions and investor confidence. Either the market believes the BoE's actions are too small and too temporary or there’s a serious lack of confidence in UK public finances. In all likelihood, it’s probably both and that’s very troubling for the medium term.”
Overall the FTSE 100 has recovered a little from its worst levels but is still down 0.98% or 68.48 points at 6890.83.
Mining shares are also weaker on worries of further lockdowns in China and a subsequent slump in demand for commodities.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "COVID-19 cases in China rose to the highest levels in two months, fueling fears that big cities like Shanghai or Shenzhen face lockdown risks, again, at a time the government steps up efforts to contain contagion before the twice-in-a-decade Communist Party gathering where Xi Jinping will certainly be given another term."
Rio Tinto PLC (LON:RIO) is down 2.72%, Glencore PLC (LON:GLEN) has lost 2.6% and Anglo American PLC (LON:AAL) has fallen 2.56%.
9.09am: Gilt yields dip a little after latest Bank move
Gilt yields have edged lower after the Bank of England moved again to try and support the market, to avoid what it called “material risk to UK financial stability”.
After intervening last week in the wake of the mini-budget, announcing yesterday it would raise its daily bond buying limit from £5bn to £10bn, it has now said it will include index linked gilts in its purchase programme.
The 30 year gilt yield is down 3 basis points at 4.683% while the 10 year has dipped 7 basis points to 4.4%.
But Neil Wilson at Markets.com said: "As expected the market was always going to retest the Bank’s resolve and put the Budget to the sword. To expand your emergency intervention in the market once is unfortunate, to do so twice looks like carelessness. Friday [the supposed deadline for the Bank's programme] probably won’t be the last day of the Bank’s intervention in the gilt market – you’d think it will need to continue right up until either something really breaks and it gives up, or the Chancellor reveals his cunning plan to restore order…
"Time-limited central bank backstops are not prone to succeeding in the long run. Usually, the market waits for the intervention to end before retesting the limits. Markets are like toddlers – always testing the boundaries, wildly overreacting and usually working to cause maximum mayhem at the most inconvenient times. Gilts trade a tad firmer after a steep selloff yesterday, but you wonder how long it holds."
Meanwhile Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management, said: “Index-linked gilts had a very bad day on Monday, with yields rising by 64bps. The 30-year was down 16 percent on the day. These are illiquid bonds and just a few sellers can send prices crashing.
"The Bank of England has therefore been forced to include these in its bond buying programme. More generally, the Bank's intervention hasn’t really worked in stabilising the bond market after the loss of confidence following the government’s mini-Budget. Weak international markets haven’t helped, either. Unfortunately this is having a real impact on mortgage rates, the economy and people’s lives. The mini-Budget has triggered a phenomenal amount of uncertainty in markets.”
Wes Wilkes, chief executive at wealth managers IronMarket, said: "I question whether this latest action from the Bank of England will have any effect and it's arguably naive to believe that we will see an orderly end to its gilt purchase scheme. That said, Threadneedle Street has been put in an extremely difficult position by the Government's policy messaging and whilst, ordinarily, a back-stop buyer feels supportive, this time it just feels desperate. Also, what stops the selling resuming once the back-stop is removed? The whole situation is a farce."
Elsewhere the pound has slipped back following the UK jobs figures.
It is currently down 0.5% at US$1.1018 while against the euro it has lost 0.39% to €1.136.
Craig Erlam, senior market analyst at Oanda, said: "One lesson from the pandemic was that companies shouldn't be in such a rush to let workers go as hiring them back can be difficult and expensive. While that knowledge, alongside higher wages, may help households navigate the cost-of-living crisis and impending recession, it makes the job of reining in inflation that much harder for the Bank of England.
"How hard that will prove to be will depend on the Chancellor's budget in three weeks. Markets expect at least 1% of rate hikes in November, maybe more, but that may well change over the coming weeks.
"The pound tumbled again after the data and is threatening to break back below 1.10 against the dollar, a move that will no doubt fuel parity debate once more."
8.27am: Inflation adds £643 to average annual grocery bill
Grocery price inflation surges to 13.9% in September, adding £643 to the average annual bill.
The latest figures from Kantar show inflation at a record high since it began tracking prices during the 2008 financial crash.
Fraser McKevitt, head of retail and consumer insight at Kantar, said: “The cost-of-living crisis is still hitting people hard at the checkouts and this latest data will make tough reading for many. Based on our numbers, the average household is facing a £643 jump in their annual grocery bill to £5,265 if they continue to buy the same items. Taking that at a basket level, that’s an extra £3.04 on top of the cost of the average shopping trip last year which was £21.89."
Sales of supermarket own label goods continue to grow, up 8.1% while branded items fell 0.7%.
Shoppers are also snapping up imperfect goods. McKevitt said: "“People are pretty savvy at seeking out best value and retailers are expanding their ranges to help them do this. We’ve seen grocers making a virtue of visually imperfect fruit and vegetables in recent years, allowing them to carry on offering the fresh products consumers want but at a cheaper price. Many shoppers have been converted and sales of ranges like Tesco (LON:TSCO) Perfectly Imperfect or Morrisons Naturally Wonky were up collectively by 38% this month.”
Total grocery sales rose by 4.8% in the 12 weeks to 2 October 2022, with Lidl the fastest growing supermarket for the fifth month in a row, with sales up 2.9%.
It is no surprise discounters are top of the pile, with Aldi close behind Lidl with sales up 20.7%. Lidl’s share of the market is now 7.1%, up from 6.2% last year while Aldi moved to 9.3% from 8.0%.
Asda led the way among the biggest traditional supermarkets, with sales up 4.5%. Sales at Sainsbury’s rose by 3.0% and at Tesco by 2.5%, while Morrisons saw sales fall by 3.9%. Both Iceland and Ocado (LON:OCDO) grew by 5.3%, slightly ahead of the market to maintain their market shares at 2.3% and 1.6% respectively. Convenience retailer Co-op also held market share flat year-on-year at 6.4%, with its sales growing by 3.3%. Waitrose’s market share is now 4.7%.
8.14am: Sharp drop at the open
Leading shares have dropped sharply as the Bank of England reacts to further concerns about gilt yields, real wages fall and a think tank predicts the government needs to find £60bn of spending cuts.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV), said: “The Institute for Fiscal Studies has warned the UK faces a significant shortfall in revenue, given the weakened economy and promised tax cuts. According to the think tank, the government will need to slash spending by £60bn a year by 2026-2027.
"That is an enormous sum, and something that doesn’t gel with promises that current plans are the best way to get the country back to a prosperous position. Chancellor Kwasi Kwarteng is likely to rebuff these predictions and stick to the notion that tax cuts are expected to deliver adequate spending for public services."
But that has added to the malaise in the market, with the FTSE 100 down 77.47 points or 1.11% at 6881.84. The rocket attacks by Russia on Ukraine are also causing some concern.
Richard Hunter, head of markets at interactive investor, said: "The FTSE100 was unable to sidestep the investment gloom, with a dip in early exchanges which leaves the premier index down by 6% so far this year. Some solace was provided by broker upgrades to the likes of Next and Centrica, although weakness in the broader financials and retailers put pay to any immediate thoughts of investor respite.”
7.59am: Jobless rate down but so is pay after inflation
The UK jobless rate edged lower in August, a slightly better outcome than expected.
The unemployment rate dipped to 3.5% in the three months to Auguts from 3.6% in the previous three months. Analysts had expected an unchanged figure. This is the lowest since early 1974.
Headline indicators for the UK labour market for June to August 2022 show that▪️ employment was 75.5%
▪️ unemployment was 3.5%
▪️ economic inactivity was 21.7%
➡️ https://t.co/jId6puNtCy pic.twitter.com/vjnIATyNMf
— Office for National Statistics (ONS) (@ONS) October 11, 2022
Wages were also better than expected, with pay excluding bonuses up from 5.2% to 5.4% compared to estimates of 5.3%.
But in real terms, taking into account inflation, it fell by 2.9%.
"This is slightly smaller than the record fall in real regular pay we saw April to June 2022 (3.0%), but still remains among the largest falls in growth since comparable records began in 2001," the ONS said.
The UK consumer price index measurement of inflation was 9.9% in August, down slightly from 10.1% in July.
After taking inflation into account, average pay including bonuses fell by 2.4% in the year to June to August 2022.Excluding bonuses, it fell by 2.9% https://t.co/vfIffJfVb9 pic.twitter.com/nTer95ZSt7
— Office for National Statistics (ONS) (@ONS) October 11, 2022
7.44am: Bank to add index linked gilts to bond buying programme
The Bank of England has stepped in again to support the gilt market after yields rose again on Monday.
Last week it was forced to intervene after pension funds faced serious problems as bond prices fell.
After announcing additional measures yesterday including raising its daily bond buying limit from £5bn to £10bn, it has now said it will include index linked gilts in its purchase programme, an area particulary under pressure at the moment.
This morning, in line with its financial stability objective, the Bank has announced that it will widen its gilt purchase operations to include index-linked gilts.https://t.co/6gHVb569Hp— Bank of England (@bankofengland) October 11, 2022
It said: "The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.
"Therefore the Bank is announcing today that it will widen the scope of its daily gilt purchase operations also to include purchases of index-linked gilts. This enhancement to our operations will be in effect from 11 October 2022 until 14 October 2022 alongside the Bank’s existing daily conventional gilt purchase auctions.
"These additional operations will act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity. As with the conventional gilt purchase operations, these additional index-linked gilt purchases will be time-limited and fully indemnified by HM Treasury. The Bank has also consulted with the Debt Management Office."
Former central bank official Sir John Gieve tells @BBCr4today that “the moves yday must have alarmed them” and that serious investors are “still exposed to a spiral”.The could extend it for a couple more weeks - but this is a “time limited” intervention.
— Anna Isaac (@Annaisaac) October 11, 2022
Former deputy governor Sir John Gieve suggests that emergency action may be extended from this Friday to the Oct 31 fiscal event but must make it clear it's time limited.He says the "underlining" move in the markets is linked to the mini budget
— Sam Coates Sky (@SamCoatesSky) October 11, 2022
6.59am: FTSE 100 set for subdued start
FTSE 100 expected to open lower today following a subdued showing in the US yesterday and ahead of some key US data later this week with the FOMC minutes due for release tomorrow and CPI figures on Thursday.
Spread betting companies are calling the lead index down by around 33 points.
In the US stocks ended down on Monday, but off earlier lows, with weakness in technology and chipmakers, as investors assessed US efforts to hobble China's semiconductor industry and the impact of more interest rate hikes.
By the close the Dow Jones Industrial Average was down 94 points, or 0.32%, at 29,203, the S&P 500 fell 27 points, or 0.75%, to 3,612 and the Nasdaq Composite dropped 110 points, or 1.04%, to 10,542 to close at a two year low.
In London today, unemployment and average earnings figures.