- FTSE 100 recovers from early falls, now down 10 points
- UK CPI tops 10%, driven by rises in food prices
- Banks fall on reports the sector could face a windfall tax
12.55pm: Labour tables motion to ban fracking
The Labour party will table a binding motion on Wednesday on the prospect of banning fracking in the UK, creating a headache for the government.
Last month, the government announced it was lifting the moratorium on shale gas production in England in a bid to increase domestic energy sources.
But the move has prompted considerable opposition, including from many Conservative MPs.
Business Secretary Jacob Rees-Mogg has previously suggested the government would not offer MPs a chance to vote on the future of fracking.
A message sent to Conservative MPs by party whips on Wednesday morning said the vote was being considered "a confidence vote in the government" and that MPs were under a "hard three-line whip" to vote against the motion.
12.25pm: PM "completely committed" to pensions triple lock
The Prime Minister, Liz Truss has said she is "completely committed" to the pensions triple lock which means that pensions should rise in line with inflation – which hit 10.1% in figures announced today.
Speaking at today’s PMQs Truss said “We have been clear in our manifesto that we will maintain the triple lock and I am completely committed to it. So is the Chancellor."
The triple lock means that pensions either rise 2.5%, or in line with inflation, or in line with average earnings, whichever is higher.
There had been speculation that this could be scrapped as the government scrambles to fill in the £40 billion black hole in the public finances.
11.55am: FTSE 100 back in positive territory with US seen higher
London’s blue chip index pushed higher late morning despite stronger than expected UK CPI numbers with sentiment given a lift on hopes that US stocks will extend their gains for a 3rd day in a row.
Futures for the Dow Jones Industrial Average were up 0.2% in pre-market trading, while those for the S&P 500 were 0.4% higher, and contracts for the Nasdaq-100 gained 0.7%.
While better-than-expected earnings in the US give a boost to global financial markets, recession fears, hawkish Fed expectations and the strength of the US dollar are factors that could dent investor optimism, noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
So far, earnings from the banking sector have been mixed, although most banks topped market estimates.
“JP Morgan reported its highest ever quarterly net interest income due to the rising interest rates in the US. Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) also topped analyst estimates despite concerns of a slowing economy,” said Ozkardeskaya.
"Notably major US banks, even those that did well in the third quarter, boosted reserves to deal with a potential economic downturn."
“They all put hundreds of millions of dollars to absorb potential losses on loans” Ozkardeskaya commented.
11.45am: Gilt yields up slightly as Bank signals QT will start in November
UK short and medium-term borrowing costs rose this morning, after the Bank of England confirmed it will start unwinding its money-printing programme next month.
The Bank said last night that it will press on with its plan to sell some of its UK bonds from the start of November.
This quantitative tightening programme had been delayed once, following the turmoil which followed the mini-budget, and there were concerns that the Bank’s sales could destabilise markets.
Perhaps with that in mind, the Bank will not try to sell its holdings of long-dated gilts, instead, it will focus on selling short- and medium-term debt, including gilts with a residual maturity of up to 20 years.
This morning, the yield, on two-year bonds has risen to 3.62% from 3.54% last night, while 10-year gilt yields are up a similar amount to 3.98%.
But 30-year gilts are strengthening, pulling down yields to 4.17% from 4.27%, which is the lowest in almost two weeks.
11.14am: House price rises slowed in August - ONS
House price inflation slowed in August but remained solidly in double-digit levels, according to date released today.
The Office for National Statistics reported that UK average house prices increased by 13.6% over the year to August, down from 16.0% in July.
The average UK house price was £296,000 in August 2022, which is £36,000 higher than this time last year.
House prices rose by 1.1% between July and August on a seasonally adjusted basis, a slight fall compared to the 1.3% monthly increase recorded in July.
Wales continued to record the highest pace of growth, with prices rising by 14.6% year-on-year, compared to 17.4% in July.
In England, the growth rate was 14.3%, down from 16.8% in July. In Scotland, the rate cooled from 11% to 9.7%.
But Myron Jobson, senior personal finance analyst, interactive investor, pointed out “There is a clear and obvious lag between the latest official data on house prices and what is happening in the property market at present.”
“More up-to-date house price indices paint a picture of a housing market that is running out steam, with rising mortgage rates and the escalating cost-of-living crisis cooling demand for homes.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, agreed: “August’s official house price data are based on transactions which have been facilitated by mortgage offers made a few months earlier.”
“The continued growth in prices, therefore, is not a sign that they are holding up well in the face of the recent surge in mortgage rates.”
Pantheon has forecast that property prices will fall by 8% over the next 12 months.
Meanwhile, FTSE 100 has recovered from some early jitters and is heading back to its opening levels, now down just 8 points.
10.44am: Business rates set to soar by £3bn
Today’s rise in consumer price inflation to 10.1% in September has implications for business rates which could rise by £3bn next April as a result – the biggest annual jump since 1991.
The tax on all commercial properties will rise in line with the inflation data for September, which the Office for National Statistics (ONS) revealed today.
Experts are warning that this would be a major blow to businesses during a cost-of-living crisis and are urging the government to intervene to abandon the rise.
The Telegraph quoted Jerry Schurder, business rates policy lead at property experts Gerald Eve who said: “The last time that the Uniform Business Rates had to increase by as much as 10.1% was in 1991 when it rose by 10.9%.”
“Businesses are quaking in their boots at the risk of the new Chancellor forcing up business rates in line with inflation – which would add another £3bn per annum to already unaffordable costs” he said.
“The Prime Minister claims that her policies are designed for ‘growth, growth and growth’ but further business failures and shop closures will result unless the UBR is frozen again” he added.
9.48am: Moneysupermarket.com (LON:MONY) slides as Amazon (NASDAQ:AMZN) launches a UK insurance comparison website.
Shares in Moneysupermarket.com (LSE:MONY) slumped 8% as Amazon said it had launched a small online insurance store in the UK, with an initial focus on home policies.
So far it has just three insurers on board and plans to add more next year.
At first, the Amazon Insurance Store will only be available to a limited number of Amazon UK account holders, and payment will be taken from the same payment card used for other shopping.
This is a small start but Amazon has been eyeing the UK insurance market for a while. Last year it partnered with a London-based broker called Insuretech to offer a range of policies to small and medium-sized businesses.
Jonathan Feifs, Amazon's general manager of EU payment products, told the BBC that in the UK particularly, shopping for insurance online was "a well-established behaviour".
9.35am: Confidence amongst small businesses falls sharply - FSB
Rising costs and a slowdown in consumer spending as a result of the cost of living crisis has led to a collapse in confidence among small firms, a new survey out today shows.
Net confidence plummeted to minus 35.9 in the three months to October, down by 11.2 points over the last quarter, according to the Federation of Small Businesses (FSB).
The FSB said more and more firms are relying on debt to generate cashflow with the government’s botched mini-budget likely to have heaped pressure on SMEs finances due to it leading to a steep rise in interest rates.
Cost pressures, falling revenues and a growing culture of late payments are combining to hit small business confidence, according to FSB’s latest Small Business Index.Our national chair @MMcTagueFSB speaks to @BBCNews ???????? pic.twitter.com/71qjxI6nqt
— FSB (@fsb_policy) October 19, 2022
Over four in 10 small companies have suffered a drop in revenues, while around a third reported a jump in income.
“Recent political and economic turmoil hasn’t helped, which is why it is vital the government focuses on stability,” Martin McTague, national chair of the FSB, said.
8.55am: FTSE around opening levels, banks fall on windfall tax reports
FTSE 100 hovered around its opening levels on Wednesday hit by stronger than expected UK consumer price inflation figures and falls in banking stocks after a report suggested the sector could face a windfall tax.
At 8.50am the FTSE 100 was down 3 points at 6,934 while the FTSE 250 fell 51 points to 17,478.
Banks were a weak feature following a report in the Financial Times that the new chancellor of the exchequer is weighing a further windfall tax on banks and energy to help finance a £40bn hole on the public finances.
For the banking sector, this would be on top of a corporation tax rate that is due to rise to 25% next year, as well as an 8% bank surcharge.
Michael Hewson, chief market analyst at CMC Markets UK, said “This comes across as incredibly short-sighted at a time when the government should be looking to encourage investment into the UK economy.”
“It is true that banks look set to make higher profits from the rise in interest rates as well as reserves from overnight deposits held overnight at the Bank of England, but they are also likely to have to make further provision for impairments as the UK economy deteriorates over the next 12 months” he added.
Lloyds Banking Group PLC (LON:LLOY) fell 3.30% to 41.20p, NatWest Group PLC (LON:NWG) slipped 1.94% to 232.15p and Barclays PLC (LON:BARC) dipped 1.41% to 145.4p.
Shares in Flutter Entertainment also fell today following a rating downgrade by Barclays.
The broker has cut its rating to equal weight from overweight highlighting higher leverage, rising interest rates and an impending recession.
As a result, Barclays said this requires a re-think on Flutter’s valuation compared to industry peer, Entain PLC (LON:ENT).
After a stress test of the group’s balance sheet given its higher leverage, Barclays concluded a preference for Entain (less leverage, less incremental recession risk to the multiple, US upside, historical bid support) to Flutter.
Shares fell 1.88% to 10,712.50p.
8.25am: CBI calls for further details on energy support package
The rising inflation figure underlined the need for the Government to give more details on its revised energy support package, said the Confederation of British Industry's principal economist Martin Sartorius.
He said: "Inflation returned to its recent 40-year high and is expected to grow further in October as energy bills rise in line with the Government's energy price guarantee.
"While the Chancellor's statement on Monday seems to have restored some fiscal stability, adjustments to the energy price guarantee suggest inflation may yet remain higher for longer.
"The prospect of household energy bills rising sharply again in April 2023 emphasises the need for Government to set out the details of any future targeted support sooner rather than later, in addition to how the country will establish its longer-term energy security."
8.12am: FTSE makes steady early progress
FTSE 100 made a cautious start on Wednesday after stronger than expected UK inflation figures with the consumer price index rising to 10.1% in September from the year before, above City forecasts.
At 8.10am London’s blue chip index was up 6 points at 6,943, while the FTSE 250 slipped 45 points to 17,485.
Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown (LON:HRGV) said: ‘’Despite attempts to turn down the heat, the cauldron of hot prices continues to bubble, spitting out yet more problems the UK government has to grapple with amid the ongoing political turmoil.”
Strong growth in food prices drove the increase maintaining the pressure on the Bank of England to raise interest rates to bring inflation down to its 2% target.
Victoria Scholar, Head of Investment, interactive investor said: “The central bank is between a rock and a hard place as it looks to curb price pressures without inadvertently adding to the risk of recession.”
ING Economics said it expects the Bank of England to increase rates by 75bps at its November meeting.
The pound fell after the numbers, down 0.53%, against the US dollar at $1.1264.
In corporate news, ASOS) PLC fell 0.5% to 487.50p after it reported an annual pre-tax loss of £31.9mln of £177.1mln as the company warned that "The second half of the year proved more challenging than expected.”
“While ASOS had expected an acceleration in revenue growth against weaker comparatives, inflationary pressures on consumers increased markedly as the year progressed, and impacted consumers' confidence and discretionary income.”
“As a result, growth in the second half was lower than had been anticipated," it explained.
7.55am: Political reaction to inflation numbers
New chancellor Jeremy Hunt has said the government will prioritise help for the most vulnerable, after inflation rose to 10.1%.
In a statement, Hunt said: “I understand that families across the country are struggling with rising prices and higher energy bills.”
“This government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.”
Shadow chancellor Rachel Reeves was not impressed: “Inflation figures this morning will bring more anxiety to families worried about the Tories’ lack of grip on an economic crisis of their own making.”
“The facts speak for themselves: mortgage costs are soaring, borrowing costs are up, living standards down and we are forecast to have the lowest growth in the G7 over the next two years.
7.52am: Economists expect inflation to peak in October, 75bps rate rise expected
Reaction to the inflation numbers has been coming in, thick and fast.
ING Economics said it thinks UK inflation is now only fractionally away from the peak, which is likely to come in October.
“But depending on how the government's energy price guarantee is structured beyond April next year, inflation could be 2-3pp higher for much of 2023 if most consumers switch back to the Ofgem regulated price for electricity and gas” it cautioned.
with regard to interest rates, ING said "the dramatic scaling back of fiscal support by the new chancellor will be seen as lowering medium-term inflation, and that’s what BoE policymakers will be more interested in.”
As a result they have scaled back their forecast for November’s meeting to a 75bp rate hike, from 100bp previously.
ING forecast bank rate peaks of between 3.5-4% by early next year, below market expectations.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics said September’s CPI numbers maintain the pressure on the Monetary Policy Committee to hike the bank rate substantially at its next meeting on November 3, despite the developing recession.
Looking ahead, Tombs continues to expect the headline rate of CPI inflation to rise to nearly 11% in October, primarily due to the 27% increase in consumer energy prices.
But the headline rate should fall back to about 9% in Q1, as the anniversary of big increases in food and motor fuel prices is reached, he commented.
Beyond Q1, however, the outlook for CPI inflation once again is highly uncertain, he stated, now that the new chancellor has pledged to scale back the Energy Price Guarantee, so that only some households continue to receive subsidised energy.
George Lagarias, chief economist at Mazars said he expects the pace of price rises to ease going forward.
“For one, demand is set to weaken. The market and political shocks of the last weeks, including Chancellor Hunt’s comments about ‘difficult spending cuts’, sent a powerful message to consumers that their own spending decisions would need to be constrained, if not constricted” he said.
“Second, the year-on-year numbers from October and on could begin to look better, by simple virtue of the base effect, as inflation had started to pick up at the same time last year.”
7.41am: Sterling drops against the US dollar, euro on hot inflation data
UK inflation came in hotter than expected at 10.1%, all but ensuring heavy-handed rates rises in November.
The GBP/USD pair was already slipping in the build up to the announcement, and the one-hour chart suggests the downtrend could be extended during the Asia market hours.
For now, Sterling is changing hands at US$1.13.
Hot inflation data could send the pound below US$1.13 in Wednesday’s session – Capital.com
EU Inflation data is due to be announced at 10.00am, with consensus estimating double-digits for the second time ever.
In the lead up, the EUR/USD pair is trending downwards on the one-hour chart, with the exchange rate remaining under parity at US$0.98.
The EUR/GBP shot up over 20 pips the second after the UK announced its hot inflation data, bringing the pair to 87p.
The euro is also trending positively against the Swiss franc.
The Japanese yen continues to fall against the entire G10 set, with the USD/JPY pair at fresh 30-year highs of 149.35 yen.
Official intervention from the dovish Bank of Japan is likely at the 150 yen price point.
7.28am: Producer price inflation tops City forecasts
The Office for National Statistics said producer input prices rose by 20.0% in the year to September 2022, down from 20.9% in the year to August 2022, its third consecutive monthly fall but above City forecasts for a rise of 18.7%.
Producer output (factory gate) prices rose by 15.9% in the year to September 2022, down from 16.4% in the year to August 2022, and slightly above expectations for an increase of 15.7%.
Crude oil and petroleum products provided the largest downward contributions to the change in the annual rates of input and output inflation, respectively, the ONS said.
Monthly input prices increased by 0.4%, and output prices increased by 0.2% in September 2022.
Services producer prices rose by 6.6% in the year to September 2022, up from 5.4% in the year to June 2022, this is the highest the rate has been since records began in 1999, the ONS said.
7.10am: Inflation tops 10%, driven by growth in food prices
Britain's annual rate of consumer price inflation rose to 10.1% in September, from 9.9% in August, the Office for National Statistics (ONS) said on Wednesday.
Economists had forecast the inflation rate would rise to 10.0%.
The ONS said rising food prices made the largest upward contribution to the change in the CPI annual inflation rates between August and September 2022, while the continued fall in the price of motor fuels made the largest, partially offsetting, downward contribution to the change in the rates.
Food and non-alcoholic beverage prices rose by 14.6% in the 12 months to Sept, up from 13.1% in August, the 14th consecutive monthly rise and the highest since April 1980.
NEW:Rate of inflation back up to 10.1% in September on target Consumer Prices Index measure… 5 times target.
Normally used as basis for uprating rises in pensions under triple lock, and benefits and tax credits, for April, but that is unclear right now. pic.twitter.com/nESDdkHAgI
— Faisal Islam (@faisalislam) October 19, 2022
6.59am: FTSE seen higher
FTSE 100 expected to open higher on Wednesday following further gains in the US overnight although investors will be eyeing UK inflation numbers carefully.
Spread betting companies are calling London’s lead index up by around 21 points.
"We can expect to see a positive European open, with the focus today set to be on inflation levels in the UK and the EU for September” CMC Markets analyst Michael Hewson commented.
US markets reported a second day of strong gains on Tuesday boosted by solid results from Goldman Sachs (NYSE:GS) and Lockheed Martin (NYSE:LMT), amongst others, reducing concerns that the quarter three earnings season would be disappointing.
By the close the Dow Jones Industrial Average was 338 points higher, or 1.12%, at 30,524, the S&P 500 was up 42 points, or 1.14% at 3,720 and the Nasdaq Composite advanced 97 points, or 0.9%, to 10,772.
Sentiment was given a further boost by better than expected numbers from Netflix (NASDAQ:NFLX) after the market closed.
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