- FTSE off worst levels for the day
- Chancellor scraps plans to cut higher rate of tax
- Vodafone (LON:VOD) in talks with Hutchison to merge UK arms
2.10pm: Shorter chips on the menu
As iif things wern't bad enough the summer drought has hit the potato harvest meaning shorter chips and smaller baked potatoes are likely to be on the menu.
Tim Rooke, chair of the National Farmers Union's potato forum, said the past few months had been "very difficult" for the industry, with the yield for those who had not irrigated their crops down between 25pc and 40pc.
Mr Rooke said he did not expect there to be shortages on shelves, but that customers would "have to accept that the chips that we buy may not be as long as they normally are, and certainly the fresh potatoes that you buy from the supermarket may not just be as big as we'd hope they'd be".
The UK was hit by its biggest drought in 20 years this summer, with July proving the driest it has been since records began in 1935.
Meanwhile the FTSE 100 is steadily eating away at its earlier losses now down just 23 points at 6,871.
1.55pm: Chancellor still has lots of work to do - IFS
Kwasi Kwarteng must consider more u-turns, or make cuts to public spending to fund his mini-budget, warns the Institute for Fiscal Studies.
IFS Director Paul Johnson said the chancellor still has a lot of work to do if he is to show a credible commitment to fiscal sustainability:
“The direct impact of the government’s U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance.”
“At a medium-run cost of around £2bn a year, it represented only a small fraction of the chancellor’s mini-budget announcements.”
“His £45bn package of tax cuts has now become a £43bn package - a rounding error in the context of the public finances.”
“The chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.”
“Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services.”
“On the latter, the Chancellor has indicated that departments’ cash spending plans that run to 2024-25 will be left unchanged, which amounts to a real-terms cut in their generosity in the face of higher inflation.”
“This will squeeze public services, but will not be enough to plug the fiscal hole the Chancellor has created for himself.”
12.50pm: Vodafone confirms Three UK talks
Vodafone confirmed press reports that it is in discussions with CK Hutchison in relation to a possible combination of Vodafone UK and Three UK.
The envisaged transaction would involve both companies combining their UK businesses, with Vodafone owning 51% and CK Hutchison owning 49% of the combined business.
The relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration will be paid.
Vodafone said "By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses."
"The merged business would challenge the two already consolidated players for all UK customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the UK."
12.06pm: Mixed start expected in the US
At midday blue chip stocks have pulled off their earlier lows but remain lower now with an expected subdued start in the US unlikely to provide much of a boost.
At 12.05pm the FTSE 100 was 45 points lower at 6,848 while the broader FTSE 250 was 48 points worse off at 17,120, well off earlier lows.
Looking across the pond US stocks are expected to open mixed on Monday, starting the new quarter on a cautious note after recording sizeable falls in the third quarter.
Fears that the world’s biggest economy will be stuck in a prolonged recession amid rising interest rates and spiralling inflation continue to weigh on investors’ minds and are likely to keep trading volatile.
Futures for the Dow Jones Industrial Average were up 0.3% in pre-market trading, while those for the S&P 500 rose 0.1% but contracts for the Nasdaq-100 were 0.3% lower.
11.38am: Manufacturing downturn to extend well into 2023
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said today’s UK manufacturing PMI numbers confirmed the sector “is on the brink of a recession.”
The S&P Global/CIPS manufacturing PMI fell to 48.4 in September, from 47.3 in August, below the consensus and the flash estimate of 48.5.
Dickens pointed out that both the output and new orders indices remained well below the 50.0 mark, despite edging up to 44.2 in September, from 42.7 in August and to 44.8, from 43.9, respectively.
She said the sector already was struggling before the disruption to markets caused by the new chancellor’s mini-budget and noted that now on top of the weakness in demand due to surging CPI inflation, firms appear to be carrying excessive inventory for the level of demand.
“Both are consistent with the output index remaining below the 50.0 mark in the coming months” she warned.
With the sharp rise in borrowing costs likely to reduce investment and cut jobs Dickens said “the downturn in manufacturing output look set to extend deep into 2023.”
10.48am: Vodafone (LON:VOD) and Three UK in talks to combine British operations - Sky
Vodafone PLC and the owner of Three UK have accelerated talks about a deal to combine their British operations, paving the way for the creation of the industry’s mobile phone industry’s biggest player by customer numbers, according to a report on Sky News.
Sky said it has learnt that Vodafone and CK Hutchison are hopeful of striking an agreement by the end of the year to establish a joint venture or other form of business combination.
People close to the talks said the discussions had intensified in recent weeks following a period in which they were thought to have stalled.
CK Hutchison, the Hong Kong-based conglomerate, has been exploring a sale of Three UK for some time, the report said, and has decided that a deal with Vodafone represents its best opportunity to help it play a role in market consolidation, with the latter's chief executive, Nick Read, under pressure from shareholders to revive its flagging share price.
The report said several significant hurdles remained outstanding with the most imposing of these likely to be the regulatory scrutiny that a deal would face both from Ofcom, the telecoms industry regulator, and the Competition and Markets Authority.
Shares in Vodafone were 2.1% higher on the news.
10.10am: Pensions watchdog called into emergency talks
The Pensions Regulator has for the first time been drafted into high-level emergency talks led by the Treasury and Bank of England as they examine measures to calm financial markets in the wake of the meltdown which followed Kwasi Kwarteng’s mini-budget, according to The Guardian.
The watchdog, which oversees the £1.5tn pension sector, is understood to have been summoned into closed-door meetings of the Authorities’ Response Framework (ARF), which are triggered when an “incident or threat” could cause major disruption to financial services in the UK.
Officials will now consider how to further respond to the meltdown that followed the chancellor’s speech and forced the Bank of England to intervene with a £65bn bond-buying programme in order to avoid a pensions crisis.
FTSE 100 now retesting worst levels for the day, down 75 points.
9.40am: UK manufacturing remains in the doldrums - PMI survey
September saw the downturn in UK manufacturing output extend to three months, as companies cutback production in response to declining new order intakes, according to a survey.
The seasonally adjusted S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was 48.4 in September, up from 47.3 in August but below the flash estimate of 48.5.
???????? #UK's Manufacturing #PMI posted 48.4 in September (Aug: 47.3), below the 50.0 neutral mark for a third straight month. Weak domestic and overseas markets combined with inflationary pressures to curb goods production. Read more: https://t.co/EWyzjhJF4R pic.twitter.com/J6pwkRRgVe— S&P Global PMI™ (@SPGlobalPMI) October 3, 2022
Although the rate of contraction in output eased slightly since August, it nonetheless remained substantial overall.
Contractions were registered across the consumer, intermediate and investment goods industries. The steepest decline was at intermediate goods producers, which was also the only sub-sector to see its rate of contraction accelerate
There was less positive news on the price front as well, with rates of inflation for input costs and output charges both accelerating.
9.21am: Government's credibility called into question
The credibility of the UK government has been called into question following the U-turn on its tax policy announced today.
The UK government still has ‘a lot to do’ to recover its credibility, warns Jane Foley, head of FX Strategy at Rabobank.
“Clearly sterling has performed better on the news, but there are still a lot of questions, ultimately the 45p tax rate was only a small part of the unfunded tax cuts announced.”
“The question remains is this enough? The answer will be clear in a few weeks’ time when the bank of emergency measures end.”
“UK assets, the pound and gilts are not out of woods yet, and the British government has a lot to do to get back credibility.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown (LON:HRGV) agreed.
“The Prime Minister was hoping to carve out a reputation as the new Iron Lady, instead she will be seen as highly malleable.”
“But the credibility of the government in providing a steady hand on the tiller at a time of such economic uncertainty has been lost, perhaps irrecoverably.”
8.51am: FTSE 100 lower, oil majors rise on higher oil prices
FTSE 100 remained weaker on Monday as heavy falls in the US and Asia plus concerns over the financial stability of Credit Suisse (SIX:CSGN) weighed on the market.
At 8.55am London’s blue-chip index was down 56 points at 6,838.
Support from oil majors limited the losses, with the index heavyweights, BP PLC (LON:BP) and Shell PLC (LON:RDSa) both higher as oil prices rose on reports that OPEC+ is to consider slashing oil output by more than 1mln barrels a day.
The group will meet in person on Wednesday for the first time in more than two years and a larger-than-expected reduction would reflect the scale of the producer group’s concern that the global economy is slowing fast in the face of rapidly tightening monetary policy.
News that the government has scrapped plans to cut the higher rate of tax pushed the pound higher against the dollar and reduced expectations for future interest rate levels which provided support to housebuilders with Barratt Developments PLC (LON:BDEV), Berkeley Group Holdings PLC (LSE:BKG), Taylor Wimpey PLC (LON:TW) and Persimmon PLC (LON:PSN) all towards the top of the FTSE 100 risers.
The chancellor issued a statement, hours before he had been due to defend the plans at the Conservative Party conference, saying: "We are not proceeding with the abolition of the 45p tax rate."
"We get it, and we have listened," he added.
The pound jumped as speculation of the U-turn broke but conceded some of those gains as the news was confirmed.
"The great Truss retreat on tax saw the pound surge briefly in value, jumping above USD1.12, up by around 1 per cent in a matter of minutes just after rumours swirled about the move," said Hargreaves Lansdown analyst Susannah Streeter.
“But the credibility of the government in providing a steady hand on the tiller at a time of such economic uncertainty has been lost, perhaps irrecoverably," Streeter continued.
In the FTSE 250 Telecom Plus PLC (LON:TEP) led the way with shares up 18.2% as the group boosted full-year profit guidance after record" customer growth during the first half.
The company, which trades as Utility Warehouse and offers bundled services such as energy, broadband and insurance, said net customer additions were 86,004 in the first half, bringing the total customer base to 814,684 as at 30 September.
The group now expects full-year profits to be "materially ahead" of current market expectations.
8.35am: CBI welcomes tax U-turn
The CBI, which represents British businesses, have welcomed the decision not to abolish the 45p tax rate.
Tony Danker, director-general of the CBI, has told Radio 4’s Today programme that scrapping the plan should help markets stabilise.
Danker said: "Businesses up and down the country want the markets to stabilise."
"That is an absolute precondition to investment and growth, and it’s a precondition to getting onto these very good reforms."
"So yes I think it’s a good development this morning." he said.
8.10am: FTSE 100 opens sharply lower
FTSE 100 has opened sharply lower as expected after the heavy falls in the US on Friday and with investors nervously watching developments at Credit Suisse (SIX:CSGN) after the bank’s management moved to reassure both staff and investors over the weekend over its financial strength.
At 8.05am the lead index was down 65.56 points at 6,828.25 while the broader FTSE 250 was 131 points lower at 17,038.
In the UK, the chancellor announced that plans to cut the higher rate of tax have been scrapped in what commentators described as a humiliating U-turn coming only a day after prime minister, Liz Truss, said there would be no change to policy.
The pound initially jumped against the US dollar on the news before falling back and is now just 0.2% higher at US$1.1192.
On Credit Suisse, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "The share price is down below 4 francs a share, and the credit default swaps are going through the roof.
"The 5-year CDS for Credit Suisse spiked to 250 from around 60 at the start of the year. It means that the market is aggressively pricing a default for one of the biggest Swiss banks.
"Is it possible? Yes, it is possible, but it is highly unlikely. Because Credit Suisse is certainly ‘too big to fail’."
On a quiet day of company news life-saving technology company, Halma (LON:HLMA) PLC, said it has acquired Maryland-based medical consumable devices outfit IZI Medical Products in a deal valued at as much as US$168.0mln.
7.48am: Pound to rise further after tax U-turn
Scrapping the abolition of the 45p top end tax rate is a ‘big deal’ for the pound, says Viraj Patel, macro strategist at Vanda Research.
He predicts the pound may push higher this week, as the damage caused by Kwasi Kwarteng’s mini-budget is unwound.
My estimates suggest $GBPUSD should be trading around 1.13-1.14 if the entire 'Kami-Kwasi budget' risk premium is unwound. Seems reasonable we get there in the next few sessions... 45p tax cut was the nail in the coffin for the pound last week. Taking this out is a big deal pic.twitter.com/LXwfCp3PWD— Viraj Patel (@VPatelFX) October 3, 2022
7.30am: Chancellor confirms plans to cut higher rate of tax have been scrapped
The chancellor has confirmed that plans to cut the higher rate of tax have been scrapped.
"It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country."
"We get it and we listened" he said.
We get it, and we have listened. pic.twitter.com/lOfwHTUo76— Kwasi Kwarteng (@KwasiKwarteng) October 3, 2022
7.25am: Pound jumps on news of government U-turn
The pound advanced against the dollar on the expected announcement that the government will scrap plans to cut the higher rate of tax.
Sterling is up 0.7% to US$1.2453 and is up 0.20% to EUR0.982.
£ https://t.co/BQC05McL4c pic.twitter.com/dr5V5Zqzco— Harry Cole (@MrHarryCole) October 3, 2022
7.15am: UK government to scrap plans to cut higher rate of tax
Monday is expected to see Kwasi Kwarteng, the chancellor, announce a huge U-turn with various media outlets reporting he will announce that he is scrapping plans to cut the highest rate of tax.
Only yesterday Liz Truss told the BBC’s Laura Kuenssberg that she was committed to sticking to the plan, announced in the mini-budget, to abolish the 45% top rate of tax.
Now the government is set to ditch it – after it became clear on the first day of the Conservative party conference that Truss would face a huge rebellion if she tried to force her MPs to vote for it.
The Sun’s political editor, Harry Cole, first broke the news of the U-turn last night.
????????????NEW: Liz Truss preparing to ditch 45p rate TODAY after late crisis talks with Chancellor
Humiliating climb down plan comes after day of acrimony on Brum
Announcement expected in morn in body blow to new Government
No denial from No10 this eve https://t.co/He8qwMayou
— Harry Cole (@MrHarryCole) October 2, 2022
7.00am: FTSE 100 to open lower
FTSE 100 is expected to open lower on Monday following heavy losses in the US on Friday and with ongoing nervousness about the state of the UK finances.
Concerns over the solvency of Credit Suisse (SIX:CSGN) will also be in focus with management moving to reassure staff and investors over the weekend that the bank has a strong capital and liquidity position.
Spread betting companies are calling the lead index down by around 50 points.
The Dow closed Friday down 500 points, 1.7%, at 28,726, the Nasdaq Composite lost 162 points, 1.5%, to 10,576 and the S&P 500 dropped 55 points, 1.5%, to 3,586.
The session dropped the S&P 500 to its lowest close of 2022, and the Nasdaq clinched its worst month since April.
In the UK today, there is speculation that the UK government is going to scrap plans to cut the highest rate of tax, while manufacturing PMI figures are also due.