Closing post
Time to wrap up…
MPs have been told that Treasury officials may have broken the law when they failed to alert the Office for Budget Responsibility about £9.5bn of spending that should have appeared in the March Tory budget.
Richard Hughes, the head of the Office for Budget Responsibility, told MPs that the system in which the OBR and the Treasury shared information ahead of the budget had “very clearly broke down.”
That, he said, resulted in officials failing to disclose £9.5bn of spending pressures which the Treasury knew about, which “under the law and under the Act they should have”, Hughes said.
As a result, he said, the OBR is “moving from a system of trust, to a system of trust but verify” in its dealings with the Treasury.
The OBR chief also said the watchdog had expected the markets to react to the budget by pushing up UK bond yields, as indeed happened, as investors were being asked to buy more UK debt.
In other news…
UK borrowing costs have jumped, after an auction of British debt attracted the lowest demand in almost a year.
The US dollar has weakened against other currencies as the US heads to the polls, lifting the pound back over $1.30 for the first time in nearly a week.
Growth in the UK services sector has slowed, while in the US it has hit its highest in two years.
A planned strike by tube drivers that threatened to halt all London Underground services on Thursday has been called off, their union announced.
Shares in pharmaceuticals giant AstraZeneca have dropped over 8%, following a report that dozens of senior executives at its China unit could be implicated in the largest insurance fraud case in the country’s pharma sector in years.
AstraZeneca’s tumble has weighed on the London stock market, where the FTSE 100 index has just closed 11.85 points lower at 8172, a drop of 0.14%.
Shares are rallying in New York, though, where the S&P 500 index is up almost 1%.
Planned strikes by London Underground drivers over pay are suspended
A planned strike by tube drivers that threatened to halt all London Underground services on Thursday has been called off, the Aslef union has announced.
Talks between Aslef officials and Transport for London management on Tuesday led to a “significantly improved offer”, according to the union.
Aslef had called two 24-hour walkouts in the capital, for Thursday and Tuesday next week.
Finn Brennan, Aslef’s full-time organiser on London Underground, said:
“Following fresh talks, and an improved offer, ASLEF has agreed to suspend our planned industrial action on London Underground.
“Details of the offer will be discussed with our reps at a meeting on Thursday. We are pleased that this progress has been made and that strike action has been averted at this time. We are not able to reveal any further details until after that meeting with our reps on Thursday.”
Just to clarify that post, AstraZeneca’s shares are down about 8.5% now (I’ve fixed a typo in the initial version).
#AZN A rare sight for this FTSE100 giant:
— Baron Investments (@baroninvestment) November 5, 2024
*ASTRAZENECA SHARES HALTED FOR BREACH OF TOLERANCE LEVEL
Shares have crashed -8%
Apparently a probe by China into the company
Elsewhere in the City, shares in pharmaceuticals giant AstraZeneca have fallen by over 8% [CORRECTED] after a report that dozens of senior executives at its China unit could be implicated in an insurance fraud case.
Financial media company Yicai is reporting that the investigation by Chinese authorities has now expanded to include the public security bureau, supervisory commission and other relevant bodies.
Last week, AstraZeneca revealed that its China president Leon Wang is under investigation, and pledged to cooperate with Chinese authorities.
In early September, Chinese police reportedly detained five current and former AstraZeneca employees as part of an investigation into possible breaches related to data privacy and importing unlicensed medications.
Updated
UK gilt yields rising after weak debt auction
UK government borrowing costs are rising, after today’s debt auction drew fewer bids than normal (see 1.26pm).
The yield (or interest rate) on five-year UK government bonds has risen to 4.42% today, which would be the highest closing level since November 2023.
10-year bond yields have also risen towards the one-year highs seen after last week’s budget, at 4.51%.
This has pushed the gap between UK and German borrowing cost to its highest in a year (that also reflects forecasts that eurozone interest rates could fall faster than in the UK).
Updated
US service sector growth at two-year high
Newsflash: The US services sector grew at the fastest rate in over two years in October.
The closely watched Services Sector PMI report from the Institute of Supply Management shows that economic activity in the services sector expanded for the fourth consecutive month in October.
The Services PMI has risen to 56%, which is the highest reading since July 2022 and indicates the sector expanded for the 50th time in 53 months.
That’s up from 54.9% in September, indicating growth in the sector picked up. Perhaps a sign that Joe Biden will leave an economy in pretty good shape to his successor….
Firms reported a slowdown in new order growth, but firms also took on more staff last month.
Fourteen industries reported growth in October, up two from the 12 industries reporting growth in September.
The latest Services ISM® report indicated that economic activity in the services sector expanded for the fourth consecutive month in October. The Services PMI® registered 56.0, which is the highest reading since July 2022 and was above expectations. pic.twitter.com/guQNvJN6MR
— Dr Thomas Kevin Swift (@DrTKSwift) November 5, 2024
Some companies reported that recent hurricanes have affected supplier deliveries, but also lifted demand in the equipment sales and rental businesses.
Updated
Carson Group’s chief market strategist, Ryan Detrick, argues that a divided US government (where one party controls the White House, and the other Congress) could be the best result for the markets.
The resulting gridlock could prevent more radical policies from getting through, as agreement between Congress and the President is needed to spend more money.
Detrick says:
“The election is finally here and emotions are running high. Elections matter, but let’s not forget that an economy that continues to surprise to the upside, record earnings, and a dovish Fed likely matters more for this bull market than who is in the White House.”
“Things are close, we know that. But we also know this year will be the thirteenth year in a row that saw the S&P 500 close higher amid a split Congress. Gridlock can be a good thing and should we see this once again, this could be what investors should be rooting for.”
Dollar dips, but Bitcoin rallies
The US dollar is losing a little ground; it’s now down about 0.3% against a basket of other major currencies.
This has lifted the pound back over the $1.30 mark for the first time in nearly a week.
Bitcoin is rallying, though – it’s up over 4% today and just traded over the $70,000 mark.
Q: Is the OBR too pessimistic in its forecast about the impact of planning reforms?
Mike Brewer of Resolution Foundation says the OBR “didn’t do the government any favours” in its growth forecasts.
But that’s because we don’t yet have full details about the government’s growth plans.
About a third of the government’s investment spending is going on fixing hospitals, schools and prisons – that’s “vitally needed” but won’t immediately lift growth.
Brewer adds:
As the government says more about its growth strategy, I expect the OBR will respond to that, by revising up its trend rate of growth assumption.
Andy King of Flint Global, who is a former member of the Office for Budget Responsibility, has explained to MPs how the Treasury can attempt to game the system when drawing up budget measures.
King says:
Every time the OBR sets out a methodology… the Treasury can then ‘teach to the test’. You’ve seen that in the last couple of years.
He cites the example of personal tax measures – in his time at the OBR, the watchdog assumed they didn’t affect the supply side of the economy (because “the income gain and the substitution incentive” offset each other), just the demand side.
But now the OBR does factor in an impact on the supply side, and “all of a sudden there’s a raft of measures in that space, because they score” on the OBR’s forecasting table.
King explains that he used to run the costings process at the OBR, totalling up the fiscal cost of measures.
The Treasury is “very adept” at spotting what scores in the forecasts, and adjusting policy accordingly, he adds.
Updated
Wall Street opens higher on election day
Over in New York, stocks have opened a little higher as traders await the results of the US election.
The Dow Jones Industrial Average, which tracks 30 large US companies, rose 40.9 points, or 0.10%, at the open to 41835.49.
The broader S&P 500 index gained 9.7 points, or 0.17%, to 5722.43, while the tech-focused Nasdaq Composite picked up 70.7 points, or 0.39%, to 18250.707 at the opening bell.
The outcome of the US election will impact financial markets around the globe in two ways, says Kathleen Brooks, research director at XTB:
Short term: Global financial markets could be hit by volatility if there is a surprise outcome. As we have mentioned, we think that financial markets are pricing for a Trump victory. Thus, a win for Harris could lead to a short term sell off in the dollar, gold and potentially in US stocks. This could also boost global equities, as Harris is seen to be less tempted to slap tariffs on imports. Chinese stocks could rally sharply, along with key European and UK firms.
Longer term: A win for Trump, could see the dollar pop higher, but we think a win for the former President could have a long-term impact on global financial markets due his plans for tariffs. A US system of import tariffs would reorder global trade flows and hurt global growth.
Labour MP Yuan Yang returns to the problems with the UK’s employment data:
Q: Interest rate forecasts are very dependent on estimates of the output gap, so how confident are you about the quality of the UK’s labour market data?
Paul Johnson of the IFS (who is caught smiling during the question) agrees that the current labour market statistics are “not ideal”. But they’re only part of the data available.
Unemployment is still relatively low, he says, and vacancies are still high by historic standards (although falling).
So it seems likely that there isn’t a big output gap to be filled, Johnson argues, even if the precise numbers are uncertain.
Q: How unusual is the UK’s levels of economic inactivity compared to other countries, and how can it be aleviated?
Johnson says the UK is “very unusual” in terms of the number of people out of work due to sickness or disability, as those numbers have grown in a way they haven’t in almost any other country post-Covid.
He’s not sure why, though, or what can be done about it.
There is an “urgent need” to address the rise in mental health issues among younger people, he adds.
Q: Gilt yields rose by 10 basis points on Friday after the budget – is that a sign that the government’s fiscal room for manouvrer is limited?
KPMG’s Yael Selfin explains that the important question is what a government is borrowing for – if it is going to generate much stronger growth, it could pay for itself.
Compared to other countries, the UK doesn’t have the highest ratio of debt as a share of its economy, Selfin points out, and it doesn’t face sharply higher borrowing costs.
She says:
The confidence of the markets is very important in terms of the premium you’re paying on top of the base rate, but that base rate is also very important – we have higher rates than we had previously.
Harriett Baldwin MP asks about the £350bn increase of public spending outlined in the budget, which the OBR suspects will raise gilt yields and interest rates by a quarter of one percentage point.
Do any economists disagree with the OBR’s forecast?
Yael Selfin, vice chair and chief economist at KPMG, reckons it will have larger impact, meaning short-term interest rates will be half a point higher than would otherwise be the case, not just a quarter.
Updated
MPs quiz economists on the budget
The Treasury Committee are now holding a second hearing on the budget, with some leading UK economists.
They’ll hear from Mike Brewer, interim chief executive of Resolution Foundation; Paul Johnson, director of the Institute for Fiscal Studies; Yael Selfin, vice chair and chief economist at KPMG; and Andy King, specialist partner at Flint Global.
UK service sector growth slowed in run-up to the Budget
New economic data today has shown that the UK services sector slowed last month.
Data firm S&P Global reports that its UK service PMI, which measures activity in the sector, dipped to 52.0 in October, down from 52.4 in September.
That’s the weakest reading since last November; S&P Global says it shows “weaker growth momentum in October”, it says, with the PMI still above the 50-point mark.
New orders growth slowed, despite a solid rise in new work from abroad, and firms said they cut their workforces for the first time this year.
Some service firms said heightened business uncertainty ahead of the Autumn Budget was a factor delaying spending decisions among clients. Some firms also noted that geopolitical tensions had weighed on willingness-to-spend.
Tim Moore, economics director at S&P Global Market Intelligence, explains:
The wait for clarity on government policy ahead of the Autumn Budget was widely reported to have weighed on business confidence and spending. Broader geopolitical concerns and forthcoming US elections also added to a sense of wait-and-see on business investment decisions in October. At the same time, cost of living pressures remained a constraint on household spending.
With service providers grappling with softer new order growth and less upbeat business activity expectations for the year ahead, the latest survey pointed to a decline in staffing numbers for the first time since December 2023. A number of firms also noted budget constraints due to elevated salary pressures.
Updated
Back in the financial markets, a sale of UK government debt has attracted the lowest interest from investors this year.
The sale was still over-subscribed, but by less than usual.
UK bonds attracted the weakest demand in almost a year at an auction Tuesday, a sign of lingering investor anxiety over last week’s fiscally expansive budget and the US presidential election.
Bids for 10-year gilts totaled 2.81 times the £3.75bn ($4.9bn) on offer, the lowest ratio for a sale of that maturity since December. Last month, a similar auction attracted demand equivalent to 3.25 times the offer.
Did Treasury break law over March budget spending plans?
Treasury committee chair Meg Hillier takes the OBR back to its claim that the Treasury did not give you all the information should have done under the Act (see 11.27am).
Q: In your view, did think the Treasury broke the law when preparing the spending forecasts it passed to you in preparation for the March budget?
OBR chair Richard Hughes replies that “they didn’t provide all the information that we require to do our forecast”.
This was a “material amount of information” which would have led to a “materially different forecast” had the OBR had it.
Hughes adds that he thinks every public servant does their best to obey the law, and respect its spirit and letter.
But there was a “systemic failure” in putting together the March forecasts, and potentially a “misunderstanding of expectations on both sides about what needed to be provided”, Hughes suggests.
Q: So what went wrong? Did the Treasury break the law?
Hughes suggests there may have been a “misunderstanding” about how the law should be interpreted, regarding sharing information about departmental spending.
Updated
Q: Was the OBR asked to do any work around the changes to inheritance tax relief for farmers; did you model any different changes?
OBR member Tom Josephs says the watchdog can only cost policies that have been announced by the government. Obviously, if you raised the thresholds you’d raise less money, he adds.
Updated
The committee then turns to Rachel Reeves’s new fiscal rules.
Q: Is the new fiscal rule more, or less, responsible than the previous one?
OBR chief Richard Hughes says one difference is the change to measuring public sector net financial liabilities, “known in the trade as persnuffle”, Hughes grins, rather than net debt.
A second change is the timescale.
Initially, Reeves’s debt rule requires that debt is falling as a share of the economy by 2029-30 (five year’s time, the same as the old rule). That will change when 2029-30 becomes the third year of the forecast period. From that point, debt should then fall by the third year of the rolling forecast period.
The other fiscal rule is to show the current budget must be in surplus in 2029-30 (and then by the third year ahead).
Hughes says “both targets are more likely to be binding on more meaningful parts of our forecast than some previous fiscal targets have been”.
David Miles adds that the OBR’s forecast shows that the number of people in employment will be 50,000 lower than would otherwise be the case, due to the rise in employers’ NICs contributions.
That’s a “material number, it’s not trivial”, but a small proportion of the overall workforce of around 32 to 33m people.
Updated
OBR's Miles: Raising employers' NICs contributions will hit real wages
Liberal Democrat MP Bobby Dean then asks the OBR about the impact of raising employers’ national insurance contributions.
OBR member professor David Miles says the OBR’s analysis shows that in the long run, the majority of the impact is that real wages will be lower than they would otherwise of been.
[reminder: Rachel Reeves announced that the main rate of employers’ National Insurance contributions will increase from 13.8% to 15% from April 2025, and lowered the threshold at which an employer has to pay on a worker’s salary from £9,100 a year to £5,000.]
The OBR estimates that three-quarters of the impact of raising employers’ NICS payments falls on workers, with a quarter showing up in lower profits.
Miles says:
Nobody escapes completely, but more of it falls on workers in terms of lower real wages than in lower profits.
The impact in the short-run is a bit different, though, as employers aren’t going to hit workers with immediate pay cuts. Instead, it’s likely that pay rises will be lower in the next few years, to cushion the impact.
David Miles discusses at the @CommonsTreasury hearing how corporate profits are expected to continue falling as a share of GDP in the near term, before rising steadily from 2026 as firms rebuild margins and pass on more of the cost of the employer NICs rise. pic.twitter.com/d7u7TpTZqy
— Office for Budget Responsibility (@OBR_UK) November 5, 2024
OBR's Hughes: failure to disclose spending pressures in March 'is regrettable'
Richard Hughes adds that the OBR relies on the Treasury being forthcoming on their best estimates of the costs of government policies and the risks around them.
In this case [the March forecasts], that does not seem to have happened.
Conservative MP John Glen asks about the political row over the ‘black hole’:
Q: Isn’t it highly regrettable that you’ve been sucked into this political debate about a black hole; can that be avoided in future?
Hughes says “what happened” is regrettable.
There was a serious overspend against our forecasts, we’ve needed to make serious adjustments to that, governments had to make serious adjustments to policy.
The OBR doesn’t have the luxury of standing on the sidelines on these things, Hughes points out – it has to draw up forecasts for departmental spending. If there are errors, or undisclosed information, it has to correct for that and explain itself.
Q: Ministers relied on officials to provide whatever information the OBR requested – so how can information not be disclosed, given the integrity of Treasury officials?
Hughes replies that the OBR relies on the Treasury to disclose the information it has at the time about departmental spending, adding:
That information was not shared with us at the time of the March budget, and it was information that was available to the Treasury at the time.
OBR chief: We're moving to a system of 'trust but verify' with the Treasury
The Treasury committee then turns to the ‘black hole’ which Labour claims it found in the public finances when it took office.
OBR chief Richard Hughes explains that the OBR is changing the way it interacts with the Treasury when drawing up its economic and fiscal forecasts.
He tells MPs:
We are moving from a system of trust, to a system of trust but verify.
That will see the OBR ask more questions about the pressures on departmental budgets, and what decisions on, for example, pay, will mean for those budgets.
That, Hughes says, should mean that the “failure of oversight that very clearly happened in March doesn’t happen again.”
Hughes explains:
It will involve greater scrutiny on our part of departmental spending limits, and the preparations of departments’ budgets, to make sure that those kind of pressures do get disclosed to us, and we have a conversation about how they will be managed and offset, and what it means for departmental overspending or underspending.
Hughes outlines how the OBR had built up a way of working with the Treasury over the years, which was a “high trust relationship with the Treasury” that expenditure pressures on departments were being well managed and managed within the spending total allocated to departments.
He admits:
That system very clearly broke down.
Hughes explains that the OBR was not aware of the extra pressures on government departments when, in July, chancellor Rachel Reeves told MPs there was a £22bn black hole in the public finances.
After that happened, Hughes says the OBR asked the Treasury what they were aware of when the fiscal watchdog put its March forecasts together.
That uncovered “£9.5bn of net [spending] pressure which they did not declare to us, which under the law and under the Act they should have”, Hughes says.
Updated
OBR: cutting waiting lists won't end labour shortages
Labour MP Dr Jeevun Sandher then asks about the impact of the UK’s health crisis on the economy.
Q: Is it fair to say that potential output is limited by the state of our NHS, with the highest waiting lists in history?
OBR chief Richard Hughes says hundreds of thousands of people are out of work due to health reasons.
But most people on the waiting lists are not those people, Hughes adds: they’re people who are older, who weren’t working, or are still working even though they need healthcare.
So fixing the lengthy waiting lists might have some impact on the labour force.
Updated
Q: How confident are you in the picture you have on the UK’s jobs market, as the Office for National Statistics had problems getting responses to its labour market survey, forcing the Bank of England to use alternative sources?
“Not very”, sighs professor David Miles.
The reliability of the ONS’s labour force surveys has fallen a lot, he says, due to the drop in response rates. Fixing that is taking time.
Miles adds that the OBR has other surveys of the jobs market too.
And he’s fairly confident that the labour market is “relatively tight”, given vacancy levels are still high (although falling).
Labour MP Yuan Yang asks about the OBR’s assumption that there is very little spare capacity in the UK economy.
Q: Isn’t that pessimistic, given the scarring effect of the pandemic on the economy, the shrinking workforce since 2020? If that scarring is caused by a health crisis, can the government fix it?
OBR chair Richard Hughes responds, saying there’s a difference between untapped potential and spare capacity.
With unemployment at a low rate, around 4%, and high vacancies, that implies a small output gap, he says.
Many of the people who have left the workforce are out of work due to health reasons, Hughes points out, and will need help to get back into the labour force. That will take time, and those people may not return to full-time jobs.
Updated
OBR chief: We expected gilt market to be surprised by the budget
Liberal Democrat MP Chris Coghlan turns the OBR’s attention to the rise in government borrowing costs after the budget.
Q: How worried are you about the increase in gilt yields – they rose by 10 basis points on Friday, compared to 40 points after the 2022 mini-budget?
OBR chief Richard Hughes says the fiscal regulator had expected the budget to be “a surprise to the markets”, due to the volume of government debt (gilts) that are to be issued.
He tells MPs:
“To a large extent the gilt market response was just a response to higher volumes – if there are more gilts on the market that drives down the price.”
[Reminder: the yield (or interest rate) on a government bond measures the cost of borrowing, and rises when prices fall].
Hughes adds that “the front-loading of the expenditure” in Rachel Reeves’s budget was also a surprise.
The volume that the market was being asked to take down this year and next was more than they expected.
He explains that the OBR had expected the gilt market to be a bit surprised – that’s why the OBR raised its forecasts for UK interest rates by a quarter of one percentage point.
We expect Bank Rate to fall from 5% now to 3½% by the end of the forecast. We have raised Bank Rate and gilt rates ¼ percentage point above pre-measures market data, as the fiscal easing in this Budget was unlikely to have been fully anticipated when we finalised our forecast. pic.twitter.com/GQ1ntgmETH
— Office for Budget Responsibility (@OBR_UK) November 5, 2024
Hughes adds that gilt yields have now settled broadly in line with its forecasts, tho “maybe a little bit above, but not significantly”.
Today, UK 10-year gilts are yielding 4.48%, up from 4.31% the day before the Budget, but below the 4.53% they hit after the fiscal event.
Updated
Harriett Baldwin, Conservative MP,
Q: Your report says that the economic and fiscal outlook is broadly unchanged since March, while the budget creates a £350bn increase in public spending – is that responsible?
OBR chief Richard Hughes says there is a “loosening” of fiscal policy in last week’s budget.
About half the tax rises announced last week are “relatively certain and reliable”, such as the rise in employers’ national insurance contributions, Hughes says.
The other half, focused on raising taxes on a small number of people, are less certain, though.
Q: What is the impact on interest rates, and how sensitive are we to further shocks?
OBR member Tom Josephs says a 1% rise in interest rates would add about £16bn to borrowing, while it would only take a 0.3% increase to wipe out the government’s headroom to hit its fiscal targets (tho there are different estimates within the OBR’s work).
Updated
Labour MP Rachel Blake asks the OBR about the impact that the government’s proposed planning reforms will have on growth…
Q: has the OBR factored in the “deliverability” and the market’s response to those reforms?
David Miles says the OBR hasn’t made a direct estimate of the impact on growth, as it is waiting for more detail on the plans.
The chance are, he adds, that the plans will create some upside on residential construction (housebuilding).
Miles also reminds MPs that previous governments have also promised to tweak the planning system to improve housebuilding, but found it hard to “move the dial”.
He says:
It’s hard to know quite how effective measures will be.
The Treasury Committee turn to household spending and saving…
Q: Savings patterns changed after Covid – what do you think will happen with savings levels going forward, if people feel insecure?
The OBR’s David Miles says the household savings ratio was very high in Covid as people couldn’t go out and spend. That’s not surprising – but what is surprising, he adds, is that savings rates haven’t fallen back to pre-Covid levels, as expected.
One minor factor is the rise in interest rates, making saving more lucrative.
A stronger factor, though, is “heightened uncertainty” after the shock of Covid, and rising energy prices.
Professor Miles says:
Our best guess…. is that the savings rate does drop a little bit from its [current] level, but it doesn’t get back as low as it was pre-Covid.
And that could have an impact on demand in the economy, given the importance of consumer spending.
OBR: Budget gives temporary growth boost
The Treasury Committee kicks off its hearing with the OBR by asking about its forecasts for GDP growth, which are “typically more optimistic” than the Bank of England’s.
Richard Hughes says the OBR has revised its forecast for growth this year up to 1.1%, after the “relatively disappointing” growth of almost 0% last year.
He tells MPs:
We do think that the combination of the momentum coming into this year plus the boost given to GDP by government policies boosts that growth rate up to 2% going into next year.
But, Hughes then cautions that this is mostly a “temporary boost to output”, due to the government increasing spending by more than taxation in this budget.
That raises GDP by half a percentage point at its peak, but it’s a temporary effect, with growth expected to dip back to 1.5% at the end of the forecast horizon (to 2029-30). That, Hughes points out, is below its estimated long-run potential growth of the UK, of around 1.66% per year.
Richard Hughes explains to the Treasury Committee that the economy stagnated last year but is expected to grow by 1.1% this year.
— Office for Budget Responsibility (@OBR_UK) November 5, 2024
Growth is set to rise to 2% in 2025, before returning to slightly below the economy’s estimated potential growth rate of 1⅔% over the rest of the… pic.twitter.com/denQGVrXb5
Conservative MP John Glen probes the OBR on this….
Q: Your assessment over the forecast period is that growth will be 0.7% lower than expected at the March budget. The government, though, would argue that their supply-side reforms would have a positive effect on growth – why have you not factored that in?
OBR member David Miles says the substantial investment in public investment will lift growth, but that takes time to come though – so most of the impact on growth will arrive beyond the five-year horizon.
But on the downside, Miles says the increase in employers’ national insurance contributions will dampen labour market growth, which hurts the UK’s productivity in the long term.
Miles adds that productivity growth has been “absymal” in the last 12 years, for various reasons (such as Covid, and the invasion of Ukraine). The OBR takes the view that the next 10 years will be more positive – and roughly halfway between the dismal last decade and the brighter 40 years before that.
MPs prepare to question OBR about the budget
Over in parliament, MPs on the Treasury committee are taking evidence from the Office for Budget Responsibility about last week’s budget.
They’ll hearing from Richard Hughes, Chair of the OBR, along with professor David Miles and Tom Josephs, who are both members of the Budget Responsibility Committee.
The committee says its scrutiny is “likely to examine whether the Chancellor’s new fiscal rules are right for the health of the UK economy and changes to spending, taxation and debt”.
You can watch it live here:
Updated
The US dollar has dipped very slightly this morning, and is down by 0.12% against other major currencies.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, says:
“There is a ‘wait and see mood’ on the markets as uncertainty weighs about the outcome of what appears to be a deadlocked US Presidential election.
Campaigning is converging on the crucial swing state of Pennsylvania and the extent to which voters can be galvanised to join queues at polling booths could make all the difference. The dollar has been fluctuating but is still lower on the week, as Kamala Harris’ chances have appeared to have improved. A pro-tariff Trump presidency could see the dollar strengthen amid concerns higher inflation will prompt the Fed to keep interest rates higher.
Pimco on the economic impact of Trump vs. Harris
Looking back at the US election, bond trading giant Pimco suggests that the potential economic impact of the candidates’ policies could be less than the market assumes.
Libby Cantrill, Pimco’s head of U.S. public policy, points to four areas where the choice between the Republican and Democratic candidate won’t make a difference:
Specifically, 1) deficits will be higher under either Kamala Harris or Donald Trump – and the differences between the two are not likely to be that much different due to the narrow Congressional majorities that either will likely have to contend with);
2) both candidates will have to deal with taxes in 2025 due to the expiring tax cuts under the Trump Tax Cuts and Jobs Act, and in either case, we are likely to see most, if not all of the tax cuts be extended;
3) both candidates will continue to be hawkish on China; and
4) the Fed will remain independent due to institutional guardrails and no current vacancies (and despite some jawboning that we can expect if Trump wins in particular).
But there are (clearly!) also large differences between the two candidates.
And on economic issues, Cantrill identifies three:
1) tariffs, which are likely to stay high under Harris on China but will likely go higher under Trump and other countries are likely to be subject to increased tariff pressure as well
2) immigration, although we would note that for Trump to do some of what he is said he will do would largely require Congress, and:
3) regulation, where we would expect Trump to have a lighter touch (we would note that reversing regulation is hard, although there would undoubtedly be more regulatory certainty under Trump from the absence of new regulation as well as rolling back Biden executive orders).
Updated
UK car sales fall despite rise in electric vehicle registrations
Just in: Car sales in the UK fell last month, despite a pick-up in registrations of electric vehicles.
Industry group the SMMT reports that businesses, fleets and private buyers registered 9,241 fewer vehicles last month than in October 2023, bringing total new registrations down to 144,288.
Sales of diesel-powered cars fell by 20%, with petrol down 14% year-on-year.
But…. sales of battery electric vehicles (BEVs) rose by 24.5% year-on-year, helped by “a raft of new models driving the strongest growth this year”. That lifted Bev’s share of the market to 20.7%.
⚡️Battery electric the only powertrain to see uptake rise as manufacturers continue to subsidise transition with billions in unsustainable discounting.https://t.co/njGDUQCh41 pic.twitter.com/BhoV1ONluu
— SMMT (@SMMT) November 5, 2024
The SMMT warns, though, that manufacturers are subsidising the transition to electric cars with “billions in unsustainable discounting”, adding:
One in five BEV models now retailing for less than the average petrol or diesel but consumer support still needed for fast and fair transition.
Updated
Online fast fashion chain ASOS has tumbled deeper in the red, as it tries to implement its turnaround plan.
ASOS has reported a pre-tax loss of £379m for the year to 3rd September, up from a £296m loss in the previous year.
The company says it hit its targets in its “Back to Fashion” push, having completed its stock clearance process and embedded a new commercial model.
Group revenues fell 18% in the year, as ASOS focused on cutting its clothing inventory in half, through “disciplined stock management” and writing off around £100m of products.
ASOS insists it is focused on delivering “sustainable, profitable growth”, and points out that sales of new ranges were up 24% last year.
CEO José Antonio Ramos Calamonte says ASOS is now in the strongest position it has been in years, with “the right level of newness to excite customers”, and improved operational efficiency.
Calamonte adds:
With these solid foundations in place, we can focus on delivering experiences that delight our 20 million customers. There is much work to do, but we have already seen our efforts rewarded with new product sales increasing 24% YoY over the last three months. I am energised by the progress we have made so far and excited for the next phase of our journey.”
Shares in ASIS have dropped by 6.5% this morning, though, hitting 345p, the lowest since the end of August. Back in March 2021 they were worth almost £60.
Associated British Foods, the owner of discount clothing chain Primark, has posted a 43% rise in pre-tax profits for the last year.
ABF’s CEO, George Weston, says Primark achieved “good sales growth this year” (up 6%, or 1.2% on a like-for-like basis) and managed to increase its profit margin (it rose to 11.7% in the last year, up from 8.2% in 2023).
Primark grew its sales by 2% in the UK and Ireland, and also expanded in its “key growth markets”, including the US, France, Spain, Italy and Central and Eastern Europe.
Weston has told Reuters this morning that Primark is expecting strong trading this Christmas, saying:
“We think that Christmas is going to be good.”
ABF’s grocery sales grew 4%, despite a “mixed” performance by Ovaltine, while operating profits at its sugar business jumped by 52%
But revenues at ABF’s agriculture revenue decreased by 9%.
It says:
Lower sales in our compound feed businesses reflected reduced commodity prices and continued soft demand in the UK and China.
Market conditions in the UK remained challenging due to reduced herd sizes and excess feed production capacity and in China the market was depressed by the economic environment and low farm profitability.
Updated
The results of today’s Congressional elections will have a massive influence on the next president’s ability to get their policy goals into law.
A divided government (where one party controls the White House, and the other controls Congress) means less can be done.
Brian Gardner, chief Washington policy strategist at investment bank Stifel, predicts that Republicans will win enough seats to retake the Senate.
He tells clients:
Democrats currently hold a 51-49 advantage in the Senate. Thirty-four seats are being contested this year and Democrats hold 23 of those seats while Republicans hold 11 which gives the GOP a numerical advantage in the ability to gain seats.
With the retirement of Sen. Joe Manchin (D-WV), Republicans are likely to gain that seat and are well positioned to flip Sen. Jon Tester’s seat (D-MT). This would give the GOP 51 seats and the majority. Ohio is the GOP’s next best pick-up opportunity and while there are several other close races (Michigan, Pennsylvania, and Wisconsin). We think Democrats will likely (but not definitely) retain those seats.
But, the race for the House of Representatives is “even tougher to forecast than the presidential race”, Gardner says, adding:
Regardless of which party wins the House, we think the majority will be less than 10 seats which will make governing challenging (again)
Michael Brown, senior research strategist at brokerage Pepperstone, has predicted the likely impact on the markets for a Donald Trump, or Kamala Harris, victory.
He says:
A TRUMP victory would likely see markets focus on a theme of reflation, with tax cuts likely to provide a fillip to growth, and the imposition of tariffs giving rise to a potential resurgence in inflationary pressures. In terms of initial market reactions, one would expect:
US dollar upside, particularly against those currencies which could find themselves subject to tariffs, such as the MXN [Mexican peso], CNH [the Chinese Yuan] and EUR [the euro]
Treasury [US government debt] downside, most notably at the long-end of the curve, as growth and inflation expectations rerate higher
Upside for equities, broadly speaking, amid expectations for a lower regulatory burden, with the Energy and Defence sectors likely to outperform
Meanwhile, a HARRIS victory would represent a theme of continuity. In terms of initial market reactions, one would likely see:
US dollar weakness, as Trump-linked hedges are unwound, and trade-sensitive currencies breathe a sigh of relief
Treasury downside, albeit not to the same degree as in a Trump win, on bets that fiscal policy will become more expansionary
Knee-jerk equity downside, on concerns over potential for tighter regulation, though any dips are likely to be bought in short order, while sectors such as Clean Energy and Technology could outperform
European stock markets have opened cautiously, with investors eying events in the US.
The UK’s FTSE 100 share index is down 4 points in early trading, at 8179 points. Defensive stocks are in demand, with Severn Trent (+2.4%) and United Utilities (+2.5%) among the top Footsie risers.
At the other end of the table, Schroders are down 11% after reporting that its client funds saw a net outflow of £2.3bn in July-September. Schroders says it was hit by “continued market volatility in China” in the last quarter.
France’s CAC and Germany’s DAX indices rose 0.1% at the open, while Spain’s IBEX dipped by 0.2%.
Vodafone and Three: we see a path to final clearance
Vodafone and Three have welcomed the CMA’s new Remedies Working Paper on their merger.
In a statement, the two (soon to become one?) mobile operators say they believe the Paper “provides a path to final clearance”.
They say:
The Parties welcome the CMA’s recognition that the significant improvements in network quality delivered by their Joint Network Plan will “boost competition between mobile network operators in the long term and benefit millions of people who rely on mobile services.”
The merger is a once-in-a-generation opportunity to transform the UK’s digital infrastructure – which lags significantly behind its European peers – and for more than 50 million UK customers to benefit from a vastly better mobile experience.
Updated
UK regulator indicates £15bn Vodafone-Three merger likely to proceed
Back in the UK, the £15bn merger between Vodafone and Hutchison’s Three UK has moved closer to being cleared.
The UK’s competition authority has declared today that the merger could proceed “if appropriate remedies are implemented,” including upgrading the merged company’s network to speed up the roll-out of 5G services.
The Competition and Markets Authority says:
The CMA has today set out a Remedies Working Paper to seek views on the effectiveness of a proposed remedy package.
It provisionally finds that a legally binding commitment to undertake the network integration and investment programme proposed by Vodafone and Three would significantly improve the quality of the merged company’s mobile network, boosting competition between mobile network operators in the long term and benefiting millions of people who rely on mobile services.
Previously, the CMA had sounded more concerned about the deal – saying it could hurt competition and push up bills.
Back in July, Vodafone CEO Margherita Della Valle told the Guardian that the Labour government will fail to achieve its promise of nationwide access to 5G if the deal was blocked.
Updated
The first results in the US presidential race are in, and it’s a tie!
Fittingly (given the closeness of the polls) Kamala Harris and Donald Trump have won three votes each in Dixville Notch, a tiny New Hampshire town which traditionally kicks off voting on election day.
According to CNN, four Republicans and two undeclared voters participated in the poll – in which all eligible voters gather at the now-dormant Balsams Hotel in Dixville Notch to cast their secret ballots once polls open at midnight.
And the first ballots actually cast on #ElectionDay in person have been cast in Dixville Notch, New Hampshire.
— Andrew Havranek 📺 (@Andrew_Havranek) November 5, 2024
It’s a precinct of 6 people.
4 registered GOP, 2 undeclared, CNN reports.
Donald Trump and Kamala Harris tie with 3 votes each. https://t.co/zeGHfqpoDU pic.twitter.com/NIilzC7CiV
Updated
Investors brace for uncertainty over US election
With Americans heading to the polls today, the financial markets are in a state of high excitement over the race to the White House.
Market volatility has been picking up in recent days, as investors have tried to assess the likely winner of today’s presidential election, and how congressional elections may play out too.
Yesterday, the US dollar dipped to a two-week low, after a poll showed Kamala Harris with a surprise three-point lead over Donald Trump in Iowa. The greenback is flat this morning.
Stocks fell on Wall Street last night too, with the Dow Jones industrial average losing 257 points or 0.6% to 41,794 points.
🇺🇸 StockMarket close lower ahead of residential election results
— Nigel D'Souza (@Nigel__DSouza) November 5, 2024
👉 Latest poll from NBC News shows a “deadlocked race” between former President Donald Trump & Vice President Kamala Harris
🇺🇸 Markets on Monday#Dowjones -0.6%#Nasdaq -0.33%
S&P500 -0.28%
Dow Jones dragged by
👎…
As the polls have been so tight, traders are concerned we will not know the result for several days or even longer.
Erik Knutzen and Jeff Blazek, co-CIOs of multi-asset strategies at Neuberger Berman, told clients that the uncertainty could last days, or even weeks:
Uncertainty around control of Congress, particularly the House, could also extend longer than uncertainty over who is in the White House. And a contested result could add still more days or weeks of market volatility.
We have been anticipating a pick-up in volatility as the election nears, and this week is likely to see a peak in that volatility, lasting until we have an unambiguous outcome. This is a key reason why we have been counselling against taking substantial active positions—particularly active positions tilted to one or other election result.
The exception would be in assets that can help to diversify portfolios and dampen their volatility, such as gold and other commodities.
Anxiety over the election has already contributed to US government bonds suffering their worst month in two years in October.
Betting markets have narrowed significantly on the eve of Tuesday’s presidential election, eroding Trump’s lead over Harris as Americans cast their votes.
Last night, Trump and Harris have held their final election rallies.
Harris ended with a message of unity, telling supporters in Philadelphia that her campaign was ending “with energy, with joy,” adding:
“Instead of stewing on an enemies list I will work on my to-do list.”
Trump has just wrapped up in Michigan, where he insulted President Joe Biden, former House Speaker Nancy Pelosi, representative Adam Schiff, California governor Gavin Newsom and Harris, and also promised action on immigration, saying:
“The day I take office the migrant invasion ends.”
You can track all the action in our US election liveblog:
Boeing CEO: Much work ahead to return Boeing to excellence
Boeing’s CEO Kelly Ortberg has said he was pleased the plane-maker’s union had ratified the latest pay deal.
In a message to staff, Ortberg said:
“While the past few months have been difficult for all of us, we are all part of the same team.
There is much work ahead to return to the excellence that made Boeing an iconic company.”
Boeing strike ends as workers accept new contract
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Boeing’s management, and airline operators across the world, will be letting out a large sign of relief today, after its factory workers agreed to end their strike after 53 days.
West Coast factory workers have accepted a pay deal, ending the walkout that began in mid-September and halted much of the company’s jet production.
Boeing’s union said members voted 59% in favor of the new contract, which offers a 43.65% compounded wage increase over four years – 13%, 9%, 9%, and 7%.
Jon Holden, the union’s lead negotiator, told members:
“This is a victory. We can hold our heads high.
Now it’s our job to get back to work.”
Holden has also said that the new contract can “create a new foundation”, to help Boeing return to building the highest quality and safest airplanes in the world.
He says:
“Working people know what it’s like when a company overreaches and takes away more than is fair. Through this strike and the resulting victory, frontline workers at Boeing have done their part to begin rebalancing the scales in favor of the middle class – and in doing so, we hope to inspire other workers in our industry and beyond to continue standing up for justice at work.
Through this victory and the strike that made it possible, IAM members have taken a stand for respect and fair wages in the workplace. Our members perform high quality and flight critical work for the airplanes we build and deserve a return on their labor investment that provides for the quality of life worthy of that labor.
The breakthrough eases the pressure on new Boeing CEO Kelly Ortberg after two previous offers were voted down in recent weeks.
Airlines will also be relieved, after being hit by delays to Boeing’s shipments.
Yesterday, Ryanair said continued problems at Boeing meant it wouldcut its growth plans for next year.
The agenda
9am GMT: UK new car sales for October
9.30am GMT: UK Service sector PMI
10am GMT: Treasury committee hearing with Richard Hughes, chair of the Office for Budget Responsibility, on its economic and fiscal forecast.
2pm GMT: Treasury committee hearing with independent economists about the budget
