Sterling rallies to fresh six-week high; UK’s autumn statement delayed to 17 November – as it happened

Financial markets were sanguine about the delay to the government’s autumn statement from 31 October to 17 November, while the Liberal Democrats attacked the “damaging cloud of uncertainty” and analysts flagged concerns that the Bank of England will have to set interest rates before the anticipated spending cuts and tax rises.

At his first prime minister’s questions, Rishi Sunak refused to commit to raising benefits in line with inflation.

The pound hit a fresh six-week high of $1.1619 and traded 0.8% higher at $1.1553 on Wednesday afternoon. It was also given a leg up by a weaker dollar, amid expectations that the Federal Reserve may be less aggressive in hiking interest rates given the slowdown in the housing market, where mortgage rates hit a 21-year high.

UK borrowing costs have fallen sharply since Jeremy Hunt was appointed chancellor and reversed most of Liz Truss’s unfunded tax cuts. The yield, or interest rate, on 10-year government bonds fell just below 3.6% today, while the 20-year bond yield declined to 3.8% and the 30-year yield dropped to 3.6%. After the mini-budget on 23 September, the 10-year yield jumped to 4.5% while the 20- and 30-year yields surged beyond 5%.

Hargreaves Lansdown analyst Susannah Streeter said:

Sunak’s new cast for the cabinet, including the continuity chancellor Jeremy Hunt, was aimed at demonstrating to the markets that financial stability is top priority for the government and for now it doing the trick. His choice of words in his maiden speech were also reassuring, with a promise to set limits on borrowing.

Investors are mindful that it was the unnecessary rush to announce big tax cuts which caused such tumultuous times for the Truss administration and what they crave now is caution and stability. The premium slammed on UK assets by reckless policies of his predecessor appears to be slowly lifting, but hefty challenges for team Sunak remain, as the economy heads into recession and the productivity puzzle remains as cryptic as ever to solve.

Meanwhile, Viraj Patel, senior currency and macro global strategist at Vanda Research, tweeted:

This doesn’t change anything. Probably buys Sunak & Hunt time to get a proper plan together that restores fiscal credibility. But this makes the Bank of England’s job a lot harder next week. They may choose caution over aggression.

The Bank of England is due to announce its interest rate decision on 3 November and is expected to raise rates by 75bps to 3%.

Our main stories today:

Ministers are to re-examine the pensions triple lock and increasing benefits in line with inflation over the next fortnight, according to No 10, after Rishi Sunak delayed the announcement of the government’s fiscal plans from 31 October to 17 November.

The Bank of England will next week consider how much to raise interest rates without having received any guidance from the government about its tax and spending policies, after Jeremy Hunt pushed back the date for this year’s “autumn statement”.

Fracking will in effect remain banned under Rishi Sunak’s government, his spokesperson confirmed on Wednesday, saying the new prime minister was committed to the policy in the 2019 manifesto.

The confirmation came after the prime minister told the Commons that he “stands by” the manifesto, which put a moratorium on shale gas extraction.

Heathrow has said passengers may have to fly outside peak times on some days in the run-up to Christmas to avoid further travel chaos, as Europe’s busiest airport admitted it was still short of 25,000 staff to meet high demand.

Barclays has become the second big bank to breeze past profit forecasts this week after an increase in borrowing costs and bond trading during the UK’s market meltdown pushed earnings to £2bn this quarter.

A charity founded by the chancellor, Jeremy Hunt, paid more than £110,000 – two-thirds of its income – to his former political adviser Adam Smith, who lost his job over a lobbying scandal.

Patient Safety Watch, which was set up to research preventable harm in healthcare, paid Smith as its sole employee and chief executive about 66% of its income in the year ending January 2022.

Staff at a therapists’ trade union are threatening to strike over plans to make one in 10 of them redundant which have driven many to seek therapy themselves.

Workers at the Royal College of Occupational Therapists (RCOT) said they were given just three days to decide whether to accept redundancy or reapply for other jobs on worse terms in a process criticised as “fire and rehire”.

Nova Scotia touted its huge ‘green’ energy plant. Turns out it’s powered by coal

A peanut butter, dried thyme and garlic pasta dish is Nigella Lawson’s answer to money-saving as part of a suite of £1.25-a-portion recipes she has created under a partnership with online grocer Ocado.

Thank you for reading. We’ll be back tomorrow bright and early. Good-bye! -JK

The Bank of Canada has increased its policy interest rate by 50 basis points to 3.75%, less than the 75bp move expected by analysts.

It said in a statement:

Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further. Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate.

Lisa Abramowicz of Bloomberg TV and radio tweeted:

Southampton Airport faces shutdown as workers prepare to strike after a three-year pay freeze.

The Unite union said workers at the airport who haven’t had a pay increase since 2019 will carry out a series of one-day strikes beginning on 5 November after months of delays by airport bosses.

Airside operations controllers, firefighters, technicians and engineering workers intend to go on strike on 5 November, 12 November and 19 November.

Unite general secretary Sharon Graham said:

During the pandemic workers at Southampton Airport made huge sacrifices, accepting reductions in pay and conditions while working around the clock to keep the airport safe and running.

Inflation is now at a 40 year high. It’s completely wrong for the employers, AGS, to refuse these safety critical workers a decent pay increase after a three year freeze. The workers have had enough. The airport bosses need to make a realistic pay offer to the staff if they are to avoid an escalation of the dispute. They should do that now.

Annual consumer price inflation was 10.1% in September. The union says AGS airports, which also owns Aberdeen and Glasgow airports, is offering workers a real terms pay cut between 4% and 6% depending on when the workers began employment. It also says workers doing the same jobs are being paid different rates because the pay structure “is a complete mess”.

Unite regional officer, Ian Woodland said:

Southampton Airport has a good future ahead. Not only did the workers go beyond the call of duty during the pandemic but they campaigned to help secure the runway extension. It’s time to recognise the workers’ contribution with a fair pay deal.

AGS, whic is owned by Australia’s Macquarie and Spain’s Ferrovial, has been contacted for comment.

Professor Costas Milas of Liverpool university’s Management School, said:

Rising sterling and declining costs of UK borrowing over the past few days is a welcome economic development after the disastrous “Trussonomics”. Nevertheless, the government’s decision to postpone the fiscal event until November the 17^th reversed, somewhat, this trend.

The best way forward is for the Bank of England to also delay its interest rate decision until November the 17th! This has two advantages.

First, assuming that the Bank’s officials are updated by the Treasury prior to that very date, the Bank’s Monetary Policy Report (and its forecasts) will be fully up to date in terms of government policy. Second, the government’s fiscal plan will therefore be accompanied by OBR forecasts as well as the Bank of England’s forecasts. That is, investors will appreciate the very fact that two forecasting bodies (OBR and the Bank of England) will comment on government policy.

Viraj Patel, senior currency and macro global strategist at Vanda Research, was more sceptical.

Ben Zaranko, economist at the Institute for Fiscal Studies, said:

A delay is sensible. There’s a lot riding on this, so important to get the details right. But the challenge remains the same: find a way to somehow reconcile 2019 manifesto public service objectives (which Sunak has recommitted to) with likely cuts to public spending.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said about the postponed of the government’s fiscal plans:

The two-week delay of plans to reveal detail of the UK government’s spending plans on Halloween hasn’t caused investors to take fright, with the markets cutting prime minister Rishi Sunak some slack, given that he’s just a day into the new job. The pound has remained above $1.15, retreating only a little from the mornings highs, but sterling is still up overall.

UK borrowing costs remain significantly lower with 10-year gilt yields hovering around 3.6%. Rishi Sunak’s new cast for the cabinet, including the continuity chancellor Jeremy Hunt, was aimed at demonstrating to the markets that financial stability is top priority for the government and for now it doing the trick. His choice of words in his maiden speech were also reassuring, with a promise to set limits on borrowing.

Early rewards have come with the sharp rise in the pound, back up to six-week highs earlier today, but sterling was also given a leg-up by a slightly weaker dollar, amid expectations that the Fed won’t go so hard and fast with rate rises with given the record slowdown in house prices.

Investors are mindful that it was the unnecessary rush to announce big tax cuts which caused such tumultuous times for the Truss administration and what they crave now is caution and stability. The premium slammed on UK assets by reckless policies of his predecessor appears to be slowly lifting, but hefty challenges for team Sunak remain, as the economy heads into recession and the productivity puzzle remains as cryptic as ever to solve.

26 Oct 202207.22 EDT

New Treasury committee chair to be announced on 9 November

Kalyeena Makortoff

The hunt for a new chair of the Treasury committee is underway. It comes after the Tory MP Mel Stride, a staunch supporter of Rishi Sunak, was appointed as work and pensions secretary in Sunak’s new cabinet.

The position comes with the power to haul in ministers, central bank officials, regulators, and City executives in front of MPs to answer questions on the economy and issues affecting banking and financial services. The committee is currently scrutinising a number of issues including Russian sanctions, venture capital markets, risks surrounding cryptocurrencies, as well as the wider impacts of the pending Financial Services and Markets Bill.

Stride’s successor will have an opportunity to ratchet up the pressure on City officials, who some believe have been given an easier run than under his predecessors, which have included now-Baroness Nicky Morgan and the former Competition and Markets Authority boss, Lord Andrew Tyrie.

The chairing role is only open to MPs from the Tory party which holds a majority in the House of Commons, and hopefuls will have to secure 15 signatures from their own party to qualify before nominations close on 8 November. The results will be announced the same day, unless there are multiple candidates, in which case it will go to a vote on 9 November.

View image in fullscreen

Over in the US, the average interest rate on the most popular US home loan has risen to its highest level since 2001.

Data from the Mortgage Bankers Association showed the average rate on a 30-year fixed-rate mortgage rose by 22 basis points to 7.16% for the week ended 21 October. Mortgage applications fell by 1.7% from the previous week.

Joel Kan, MBA vice-president and deputy chief economist, said:

The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997.

Mortgage rates have more than doubled since the start of the year, as the Federal Reserve hiked interest rates aggressively to try and tame high inflation. The central bank is expected to raise borrowing costs by a further 75 basis points at its next meeting on 1-2 November.

The yield on the 10-year Treasury bond acts as a benchmark for mortgage rates. It fell slightly to 4.05% today.

Markets will no doubt be reassured by the announcement that the government’s autumn statement – a full budget – will be published alongside full forecasts from the Office for Budget Responsibility, the fiscal watchdog.

The lack of an independent assessment by the OBR was one of the main reasons why Kwasi Kwarteng’s mini-budget of unfunded tax cuts on 23 September caused market turmoil.

Ed Conway, Sky’s economics editor, has tweeted:

The Treasury spokesperson for the Liberal Democrats, Sarah Olney, said:

This delay risks leaving mortgage borrowers, pensioners and struggling families under a damaging cloud of uncertainty.

Rishi Sunak must confirm now that benefits and pensions will be up-rated in line with inflation, and there will be no cuts to our NHS and other crucial public services.

Sunak was installed by Conservative MPs into Number 10 without anyone voting for him, and without telling anyone about his plans for the country.

The public deserve to know immediately what lies in store, and that they will not be made to pay for the Conservative Party trashing our economy.

ITV’s political editor Robert Peston says the uncertainty is “unhelpful” for the Bank of England, which will make its interest rate decision on 3 November.

Markets have taken the news in their stride.

Sterling is still 0.8% ahead at $1.1562, and up 0.3% versus the euro at €1.1541. The FTSE 100 index has sold off 27 points, or 0.4%, to 6,986.

There has also been little impact on the government bond markets, which determine the long-term cost of government borrowing. UK borrowing costs remain significantly lower than under Liz Truss, with 10-year gilt yields hovering around 3.6%.

The yield (or interest rate) on the 30-year gilt has edged up 7 basis points today to 3.75% while the 20-year is yielding 3.9%, up 6bps. The two-year gilt yield has dropped slightly to 3.36%.

Britain’s fiscal plan has been moved (again), from 31 October to 17 November and will be a full budget.

The chancellor, Jeremy Hunt, told reporters:

Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way and for that reason, the medium-term fiscal plan is extremely important.

It’s also extremely important that statement is based on the most accurate possible economic forecasts and forecasts of public finances, and for that reason the prime minister and I have decided that it is prudent to make that statement on 17th of November when it will be upgraded to a full autumn statement.

I’ve discussed this last night with the governor of the Bank of England. He understands the reasons for doing that, and I’ll continue to work very closely with him.

Germany’s Mercedes-Benz is to sell its Russian assets to a local investor, becoming the latest carmaker to pull out of the country since Moscow sent troops to Ukraine in late February.

The Russian ministry of industry and trade said in a Telegram statement:

Mercedes-Benz intends to sell its shares in Russian subsidiaries to a local investor.

The new owner of the Russian divisions of Mercedes-Benz, Avtodom, will be able to attract other companies as partners for joint productions.

Mercedes-Benz confirmed it intended to sell in a separate statement. The general director of Mercedes-Benz Russia, Natalya Koroleva, said:

The fulfilment of obligations to customers in Russia... as well as the preservation of jobs for employees of the Russian divisions of the company

were the main priority in concluding the deal with Avtodom. No financial details of the transaction were provided by either side, but the German carmaker estimated the value of its Russian assets at €2bn.

Many foreign companies left Russia for ethical or logistical reasons in recent months, including carmakers Renault and Nissan. Western sanctions imposed on Russia since the beginning of the Ukraine offensive have heavily disrupted supply chains, with the technology and automotive sectors badly hit.

View image in fullscreen

The head of the World Bank has warned that Covid debt will take decades to pay off, and that governments can’t afford to help everyone with their soaring energy bills.

The bank’s president David Malpass said Covid support schemes had not been targeted enough at the most vulnerable and that governments were making the same mistake with energy support measures. He told the BBC’s World Service:

They went to everyone... and now the consequences are coming home.

People will be left for years and even decades paying for that debt.

He said the same approach was being adopted to help people cope with rising energy bills.

Governments are saying we will take care of everyone, which is just too expensive.

This is pushing global debt to record levels and people at the bottom will be hardest hit, he said.

View image in fullscreen

While times are tough, Virgin Wines, one of the UK’s largest wine retailers, expects a boost from people ditching the pub and staying at home to save money.

Trading was positive in August but softer than anticipated in September, impacted by the national period of mourning in light of the death of Her Majesty the Queen and the Group’s decision to desist from any marketing and promotional activity during this period.

Looking ahead, there will continue to be pressure on consumers’ disposable income and as such we are mindful of the potential impact on frequency of order and average order values.

However, as consumer spending comes under pressure, we are also aware that people are more likely to stay in and socialise at home rather than taking the more expensive option of going out. We expect top line performance will be relatively resilient and therefore now expect revenue growth to be broadly flat for the financial year 2023.

The company’s profit before tax, excluding exceptional costs, was little changed from last year at £5.1m (2021: £5.2m), and up £2.3m (+83%) from 2020. Revenues fell to £69m from nearly £74m in 2021.

Mark Brumby, leisure analyst at Langton Capital, has tweeted:

View image in fullscreen