Closing summary
What a week it’s been.
Last Friday, the UK chancellor, Kwasi Kwarteng, delivered his “growth plan” or mini-budget, heralding “a new approach for a new era” that left the Daily Mail cooing: “At last! A true Tory budget”.
However, the £45bn of unfunded tax cuts, which will probably mean much higher borrowing (and/or spending cuts), led to the pound plummeting and a selloff of UK government bonds, pushing their yields (or interest rates) to levels last seen during the financial crisis of 2008.
This meant a number of pension funds got into difficulty and might have gone under, had the Bank of England not launched an emergency intervention on Wednesday. It announced it would buy up to £65bn in longer-dated bonds until 14 October, to stabilise the market. Since then, the 10-year gilt yield has steadied around 4%. The mini-budget resulted in 30-year gilt yields rising from 3.6% to above 5% for the first time since 2002 on Wednesday, but they’ve since fallen to 3.8%.
The Bank said it bought £1.2bn of long-dated government bonds today at a daily operation designed to calm markets, compared with £1.4bn on Thursday, and well below the £5bn daily maximum it has announced.
The pound hit an all-time low of $1.0327 on Monday and has been on a rollercoaster all week. It is off its losses today and trading at $1.1107, still slightly down, while the euro has weakened 0.5% against the dollar, to $0.9761.
More than two fifths of mortgage deals have been withdrawn from the market over the last week and mortgage rates have soared, with lenders expecting the Bank of England’s base rate to go up to 6% by next summer. One young buyer was quoted a mortgage rate of 10.5%, compared with 4.5% before the mini-budget.
The City watchdog is now asking banks how they plan to step in and support struggling mortgage borrowers.
One of the reasons behind the financial market turmoil was the lack of an independent assessment of Kwarteng’s mini-budget. Normally fiscal statements are published alongside independent forecasts from the fiscal watchdog, the Office for Budget Responsibility, that explain the impact on borrowing and growth. It has emerged that the OBR had produced a draft forecast for the chancellor last week but he declined to release it.
Today, in an unusual move the prime minister, Liz Truss, joined Kwarteng in meeting with the OBS’s chair, Richard Hughes, and two other members of its budget responsibility committee to discuss the forecasts. The OBR said after the 48-minute meeting that it would deliver a forecast to the chancellor on 7 October.
However, the Treasury said it would only publish the independent forecasts on 23 November alongside the chancellor’s “medium-term” fiscal statement, despite calls for them to be published as soon as possible.
A weaker than expected recovery from the coronavirus pandemic has left the UK as the only G7 country with a smaller economy than in early 2020, according to official figures released on Friday. They are likely to further undermine the government’s tax-cutting measures, and overshadowed better-than-expected growth of 0.2% in the April to June quarter, revised from a 0.1% decline, which means the UK is not in a technical recession yet (which is defined as two quarters of contraction).
The FTSE 100 index has turned negative again, trading 0.16% lower at 6,868 while the German Dax has advanced 0.7%, France’s CAC is 0.8% ahead and Italy’s FTSE MiB has gained nearly 1% so far today.
Thank you for reading. Have a great weekend. We’ll be back on Monday. Bye! – JK
Updated
The City watchdog is asking banks how they plan to step in and support struggling mortgage borrowers, as lenders such as Virgin Money relaunch home loans at higher rates following a spate of withdrawals sparked by this week’s market meltdown.
Supervisors at the Financial Conduct Authority (FCA) have been holding talks with lenders to understand how their mortgage customers are faring and the kind of options that are on the table that would give struggling homeowners some breathing space.
Brokers estimate that about 1.9 million mortgage borrowers are due to come out of fixed-rate deals next year, raising fears that homeowners could struggle to afford higher monthly payments on new loans.
Chris Sykes, a mortgage broker at Private Finance, said rising rates would mean some customers “will have to make cutbacks” on their overall spending.
“I’ve quoted some clients on interest-only products [that are worth] three times their original mortgage payment moving forward,” he said. “I’ve quoted some clients thousands more than their current mortgage payment for a new product.”
First-time buyers with small deposits were facing interest rates upward of 6%. “It could be in some circumstances significantly more expensive than renting now,” Sykes said.
Updated
Ex-Harlequin boss jailed for 12 years
The former Harlequin Group boss, who duped more than 8,000 people into investing in luxury Caribbean holiday resorts in a £226m scam, has been jailed at Southwark Crown Court for 12 years.
An investigation by the Serious Fraud Office found that David Ames, 70, fraudulently abused his position as chairman of the Harlequin business between 2010 and 2015.
Many victims invested their pensions and life savings, believing that their money would be invested in holiday properties in St Vincent and the Grenadines, St Lucia, Barbados and other Caribbean nations. In reality, the scheme had no external funding and never delivered what was promised. Almost no properties were ever constructed and 99% of people who invested made no return.
Ames sold to a large number of people with self-invested personal pensions (SIPPs) before regulations were tightened in 2012. Many of them were older people with little investing experience.
Countless investors were forced to delay their retirement, having lost their pensions and life savings. Many victims continue to struggle financially, and some have remortgaged their homes and continue to repay outstanding debts.
SFO investigators found that Ames had enriched his family by £6.2m through the Harlequin Group. He and his family took frequent holidays to exotic destinations, travelled in business class and stayed in expensive hotels. Ames even employed a personal chauffeur.
Delivering the sentence, Judge Hehir said:
You were clearly far more interested in pocketing investors’ money than in ensuring those investors were getting what they were paying for.
You were a slick and plausible salesman and thoroughly dishonest with it ... You are a menace to anybody unfortunate enough to do business with you.
The judge went on to praise a “thorough and diligent investigation” by the SFO.
Ames was led from the dock and remanded in custody.
Updated
A stark reminder of the misery in the mortgage market right now, after Kwasi Kwarteng’s debt-funded tax cuts announcement last Friday led to financial market turmoil.
Scores of mortgage lenders pulled their deals from the market – more than two fifths of products were withdrawn within a week – and raised their mortgage rates, in the expectation that the Bank of England will have to hike its base rate sharply to to 6% by next summer.
This young buyer’s mortgage offer went from 4.5% interest to a crippling 10.5%. Imagine if she’d already been locked in to her debt, as millions of others are. This is a crisis. pic.twitter.com/SFQA6FlemM
— Paul Brand (@PaulBrandITV) September 30, 2022
Don’t usually do this but… my partner and I were very lucky to get our first-time buy mortgage offer in Autumn 2021, on a good rate. The monthly payment is currently about £930. If we took out the same mortgage with the same lender today, the monthly payment would be £1,700.
— Dan Bloom (@danbloom1) September 30, 2022
Meanwhile, the government’s claims on the benefits of its stamp duty cut and energy price freeze don’t stack up, several experts have pointed out.
Jon Stone, policy correspondent at the Independent, has tweeted:
mortgage lenders will typically let you borrow 4.5x your salary. So someone on £30k can borrow £135,000. an average terraced house in London costs £574,983 according to the land registry. so either this fictional first time buyer has a £440,000 deposit, or they do not exist https://t.co/kvorRoYopT
— Jon Stone (@joncstone) September 30, 2022
Updated
EU energy ministers have agreed to levy windfall taxes on energy companies’ profits, and to cut electricity use, but remain at loggerheads over proposals to cap the price of gas, reports Jennifer Rankin from Brussels.
Meeting in Brussels on Friday, the bloc’s 27 energy ministers signed off on proposals to levy a “solidarity contribution” on fossil fuel producers that have benefited from soaring energy prices.
Revenues of renewable energy and nuclear power companies will be capped in response to the “unexpectedly large financial gains” made in recent months, as a result of their profits being linked to the price of expensive gas and coal, according to an EU statement.
The measures, which together could raise €140bn (£123bn) to help lower consumer bills and fund the switch to green energy across the EU, contrast with the British government’s approach. Liz Truss, the UK prime minister, has ruled out extending the £5bn energy tax introduced by the former chancellor Rishi Sunak.
Here’s our full story on this morning’s GDP figures.
A weaker than expected recovery from the coronavirus pandemic has left the UK as the only G7 country with a smaller economy than in early 2020, according to official figures likely to further undermine the government’s tax-cutting measures, reports the Observer’s economics editor Phillip Inman.
Before the prime minister and chancellor’s meeting with the head of the government’s independent forecaster on Friday morning, the Office for National Statistics (ONS) released figures showing that rather than the economy being 0.6% larger than in February 2020, a combination of a deeper recession during the pandemic and a weak recovery had left it 0.2% smaller.
A better than expected performance in the second quarter of this year, overturning a previous estimate of a 0.1% fall to a 0.2% increase and reversing an assessment that the UK was in recession by June, was not enough to boost GDP growth sufficiently to recover from the first lockdowns in 2020 that brought large parts of the economy to a standstill.
Analysts said Richard Hughes, the head of the Treasury’s independent forecaster, the Office for Budget Responsibility, would be forced by the new figures to take a tough stance on assessing the impact of further borrowing on the public finances.
Updated
Liz Truss and Kwasi Kwarteng will refuse to release forecasts from the Office for Budget Responsibility (OBR) until more than six weeks after receiving them, despite calls for them to be published as soon as possible, reports our Whitehall editor Rowena Mason.
The prime minister and chancellor said they would publish the independent forecasts on 23 November alongside a fiscal statement, despite them being ready on 7 October.
The pair met Richard Hughes, the chief executive of the OBR, on Friday after a week of turmoil in the markets in response to Kwarteng’s mini-budget promising tax cuts funded by borrowing, without any accompanying independent growth forecasts.
After the mini-budget the pound plunged, mortgage rates soared and the Bank of England had to stage an emergency £65bn intervention to bail out pension funds.
Updated
Stock markets have pared earlier gains. The FTSE 100 index is now 28 points higher at 6,910, a 0.4% gain, while Germany’s Dax is 0.6% ahead, and the French and Italian indices have risen about 1%.
The government bond market is a lot calmer, after the Bank of England’s emergency intervention on Wednesday. It will buy up to £5bn longer-dated gilts every day until 14 October to stem the selloff seen in the days after last Friday’s mini-budget, which drove yields (or interest rates) to the highest levels since the financial crisis in 2008.
The 10-year yield is steady at 4.03% while the 30-year yield has fallen back to 3.8%, from 5.5% before the Bank’s move. The two-year yield has dropped to 4.1%. However, yields are twice as high as they were six months ago.
Updated
The Treasury has issued a readout of the meeting, an unusual move for something that’s fairly procedural and normal ahead of budgets. (The prime minister attending the meeting is also not normal.) It is clearly a sign they want to calm the markets, says our economics correspondent Richard Partington.
The Treasury says:
This morning the Prime Minister Liz Truss and Chancellor Kwasi Kwarteng met with the OBR’s Budget Responsibility Committee, including the chair Richard Hughes, at No 10 Downing Street.
They discussed the process for the upcoming economic and fiscal forecast, which will be published on 23 November, and the economic and fiscal outlook.
They agreed, as is usual, to work closely together throughout the forecast process and beyond.
The prime minister and chancellor reaffirmed their commitment to the independent OBR and made clear that they value its scrutiny.
Updated
Pound drops as Treasury says OBR forecast won't be published until 23 November
The pound has fallen even more, as it becomes clear that the fiscal watchdog’s independent assessment of the government’s tax cuts and other plans won’t be published until the medium-term fiscal policy statement on 23 November.
Sterling is now down 0.36% at $1.1075.
Our political editor, Pippa Crerar, has tweeted:
Treasury says Truss, Kwarteng and OBR discussed the "economic and fiscal outlook" as well as process for growth forecasts, which they *still* say won't be published until 23 Nov. Says they "value" the OBR's scrutiny (but obviously not so much they'd publish forecasts sooner).
— Pippa Crerar (@PippaCrerar) September 30, 2022
Updated
This was probably not the reassurance that financial markets were looking for.
The pound, which hit a one-week high of $1.1235 at 10am BST this morning, has dipped back into negative territory against the dollar. It is trading 0.1% lower at $1.1101.
Updated
The meeting lasted less than an hour.
PA Media reported that the OBR’s chairman Richard Hughes, Andy King and Professor David Miles left the building at 10.33am – just 48 minutes after they walked in.
UK's fiscal watchdog to deliver forecast on 7 October
Following a meeting with Prime Minister Liz Truss and Kwasi Kwarteng, the Office for Budget Responsibility has confirmed it will deliver an initial forecast to the chancellor on 7 October which “will, as always, be based on our independent judgment about economic and fiscal prospects and the impact of the government’s policies”.
The OBR said its budget responsibility committee had met with the prime minister and the chancellor this morning.
We discussed the economic and fiscal outlook and the forecast we are preparing for the chancellor’s medium-term fiscal plan.
We will deliver the first iteration of that forecast to the chancellor on Friday 7 October and will set out the full timetable up to 23 November next week. The forecast will, as always, be based on our independent judgment about economic and fiscal prospects and the impact of the government’s policies.
It doesn’t look like the OBR’s forecast will be published to the public that day. We’re trying to find out more…
Updated
Eurozone inflation hits record 10%
Inflation in the eurozone hit a record rate of 10% in September, cementing expectations for another big interest rate hike from the European Central Bank.
Price growth in the 19 countries sharing the euro jumped from August’s 9.1%, data from Eurostat showed. The figure was higher than the 9.7% forecast by economists.
Inflation in Germany jumped to 10.9% from 8.8% and price growth in Italy hit 9.5%, up from 9.1%, while French inflation slowed to 6.2% from 6.6%.
Meanwhile, the unemployment rate in the eurozone was 6.6% in August, stable compared with July and down from 7.5% in August 2021.
News just in that Britain’s independent fiscal watchdog, the Office for Budget Responsibility, will put out a statement soon. Its chairman, Richard Hughes, met with the prime minister and chancellor Kwasi Kwarteng to discuss the fallout after last week’s mini-budget, and the OBR’s fiscal forecasts.
Last night the OBR confirmed that it had done a draft forecast to be produced alongside last week’s mini-budget and had given it to the chancellor – who chose not to release it. The lack of an independent assessment of the tax cuts was one of the main reasons behind the financial market turmoil we’ve seen in recent days.
British lenders approved many more mortgages than expected in August, according to the latest Bank of England data.
Mortgage approvals rose to 74,340 last month, from 63,740 in July and the highest reading since January, “a notable rise following a downward trend over the previous several months,” said the Bank of England. City economists had expected 62,000 approvals.
The figures paint a picture of a buoyant housing market in the summer, before the chaos in the mortgage market sparked by last Friday’s mini-budget.
Independent housing analyst Anthony Codling says:
Mortgage approvals leapt by 17% in August to 74,340, once again showing how robust the housing market has been without the interference of the government. However, the meddling of the mini-budget is likely to hit the housing market for six and knock it off course as lenders rush to pull mortgages (the lifeblood of the housing market) off the shelves.
Consumers borrowed an additional £1.1bn on credit cards or through personal loans, a little below the £1.5bn borrowed in July.
Updated
Pound hits one-week high, stocks rebound
After briefly dipping into negative territory, sterling has extended gains and hit a fresh one-week high, of $1.1235, up 1% on the day. Trading is volatile, though, and it is now at $1.1193, a 0.7% gain.
Liz Truss and the chancellor, Kwasi Kwarteng, are meeting with the head of the Britain’s independent fiscal watchdog on Friday, after days of financial market turmoil triggered by the government’s package of unfunded tax cuts announced a week ago. This is clearly seen as as positive development by financial markets, along with the news that the UK economy grew by 0.2% in the April to June quarter, rather than shrinking by 0.2%.
Craig Erlam, senior market analyst at Oanda, says:
Though it really does not change anything, it does mean the economy is suddenly on a sounder footing and may not be in a technical recession.
However, revisions to past data mean GDP is still not back to pre-pandemic levels, and make the government’s fiscal plans “look even more untenable,” says Capital Economics’ chief UK economist Paul Dales. “It’s the only G7 economy in that situation.”
UK and European shares are heading higher, on the last day of what has been a turbulent month/quarter. The FTSE 100 index in London is 49 points, or 0.7%, ahead at 6,929 while the German, French and Italian main indices have each gained about 1.1%.
Housebuilders Barratt, Taylor Wimpey and Persimmon, and the retailer Next are leading the gains on the FTSE 100, after falling sharply yesterday. Lloyds Banking Group is also one of the main risers.
Erlam explains:
The financial stocks move along with risk appetite in the market. Any type of stabilisation will typically see financials perform well.
Here’s our full story on the City minister’s comments this morning:
A Treasury minister has contradicted the UK’s independent watchdog for public finances, saying it would not have been able to produce a forecast in time for the government’s disastrous mini-budget, writes the Guardian’s senior news reporter Jamie Grierson.
Andrew Griffith, the financial secretary to the Treasury, told broadcasters the growth plan put forward by the prime minister, Liz Truss, and the chancellor, Kwasi Kwarteng, contained “a lot of detail” and repeatedly asserted it was “40 pages long”, meaning it would have been impossible for the Office for Budget Responsibility (OBR) to have produced an accurate forecast in time.
On Thursday night the OBR confirmed in a letter to an MP that it could have produced an assessment in time but was not asked to do so by the chancellor.
Truss and Kwarteng’s decision not to engage with the OBR over a £45bn package of tax cuts and £60bn energy support package unveiled last Friday has been widely cited by financial experts as one of the key reasons behind market turmoil this week.
In an unusual move, it was revealed that Truss will join Kwarteng on Friday at a meeting with Richard Hughes, the OBR chair.
Former chancellor Darling: 'Not an orderly way to do business'
Alistair Darling, now a Labour peer who was chancellor of the exchequer during the financial crisis of 2008, has also been on the radio, speaking about the government’s loss of credibility and what it needs to do to regain trust.
Interviewer Justin Webb notes that Truss and Kwarteng had sacked the permanent secretary to the Treasury, who could have given expert advice on the mini-budget.
Lord Darling said:
They just appear to be complete novices, suddenly being presented with a new toy to play with and they didn’t understand what they were doing.
When you do a normal budget, it takes weeks of planning, not just what you want to do, how you present it and how you go out and explain it on the day.
The problems the government has got into now are entirely self-inflicted. This isn’t a global problem. They decided that one of the first things they wanted to do was to announce a huge amount of tax cuts, but they hadn’t gone through the obvious question how are you going to pay for this, is it borrowing, are you going to have to cut fiscal spending.
I know from my own experience: if you lose control, if you lose credibility, it takes a long, long time to get it back.
They really have damaged themselves.
Question: How do you get credibility back?
“With some difficulty,” Darling replies.
The first thing they’re going to have to do is to explain how they’re going to pay for this. And it turns out that the OBR actually had an analysis and the government chose to effectively suppress it. That suggests that what the OBR had to say wasn’t entirely complimentary or supportive. What they’ve got to is to publish a plan for paying for this and if it does mean that they’ve got in mind cutting public expenditure, they’ve got to say that’s what they are planning to do.
The government could reverse some measures, like scrapping the top rate of tax, which “was completely unnecessary and they need to explain how they’re going to pay for it”.
The real problem you’ve got here is that the fiscal policy, tax and spend side of it and the monetary policy, that’s interest rates and buying bonds, the two are not joined up. I wonder whether the chancellor ever spoke to the governor and told him what he was going to do.
This is not an orderly way to do business. If you’re going to do something like this you need to think it through, it needs to be orderly, you need to think about the consequences , you need to have answers to the questions that are being put, none of that seems to be evident at the moment.
City minister: 'Detail' of growth plan made OBR forecast impossible
Andrew Griffith, the new City minister and former senior media executive, has been quizzed by Justin Webb on BBC radio 4.
Asked about the mortgage market turmoil sparked by last Friday’s mini-budget – more than two-fifths of mortgage deals have been pulled from the market – Griffith sidestepped the questions, and said:
We understand the aspiration to buy your own home and we understand the concerns of course of every household in this country.
There’s a whole package of measures that we want to come forward with that’s going to help the housing market, that’s about building new homes.
We’ve seen a particular dynamic over the last week, that’s absolutely the case… the Bank of England has done its job in terms of stabilising the market but in fairness this all stems to the world changed on 24 February, the issue about the cost of energy, yesterday German inflation hit 11%, that’s higher than inflation in the UK.
He has defended the government’s decision not to publish the independent fiscal watchdog’s assessment of its mini-budget alongside it, suggesting that the detail of the 40-page growth plan made it impossible for the OBR to carry out an independent assessment before the government published it.
I’t’s important that we now go forward and get the independent forecasts. That’s the job of the OBR and the chancellor asked them to do that for the 23 November and the reason for that is there’s a lot of measures about how we’re going to grow the economy and the details have yet to come out.
There is a long silence after Webb presses him repeatedly on whether it was a mistake to publish a partial package of measures, pointing to the financial markets’ view that the package was “fiscally irresponsible”.
The City minister told Sky News:
That [OBR] forecast wouldn’t have had the growth measures in that plan. They were being finalised in the hours before the chancellor stood up.
Updated
Britain’s current account deficit fell to to £33.8bn in the second quarter, but economists are still concerned.
The UK current account deficit fell to £33.8bn (5.5 % of GDP) in Quarter 2 https://t.co/mTt4knrHoI
— Office for National Statistics (ONS) (@ONS) September 30, 2022
Due to improvements that will be introduced in the 2022 Pink Book, the current account deficit in Quarter 1 has been revised down to £43.9bn (7.2% of GDP). pic.twitter.com/G0haWE1XAE
Samuel Tombs at Pantheon Macroeconomics says:
The current account deficit remained extremely large in the second quarter, mainly due to the surge in the cost of energy imports. Natural gas futures prices suggest that the overall trade deficit likely will increase to about £40bn in Q4 and £45bn in Q1 2023, from £26.2bn in Q2.
This will counter the impact of sterling’s recent deprecation.
Accordingly, the current account deficit likely will increase to about 8% of GDP in Q4 and 9% in Q1, further increasing the sensitivity of sterling to changes in overseas investors’ willingness to provide finance.
It would be foolish to rule out sterling falling to parity against the US dollar, especially given that the pound’s current value relies on expectations of an implausibly sharp increase in Bank Rate. But we expect the government to announce spending cuts when it publishes its medium-term fiscal plan in November, providing some reassurance to overseas investors that have fled UK markets in the last week.
Accordingly, we see sterling at around the $1.05 mark at year end, with the further drop being driven by the monetary policy committee raising Bank Rate to 4%, rather than the 6% currently priced-in by investors.
Revisions by the Office for National Statistics to the last couple of years also paint a worse picture during the pandemic. GDP is estimated to have fallen by 11% in 2020, rather than 9.3%, and to have recovered by 7.5% in 2021, rather than 7.4%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says:
Accordingly, GDP in Q2 2022 was 0.2% below its Q4 2019 peak, rather than 0.6% above it, implying that the damage inflicted to the economy’s supply side by Covid and Brexit is even larger than previously thought.
These revisions will compel the OBR to revise down further its estimates for future potential GDP, though as they also imply that the tax-to-GDP ratio is higher than previously estimated, the impact on the public finances should be modest.
Updated
City economist: GDP figures make Kwarteng's fiscal plans look 'even more untenable'
Let’s return to the GDP figures, which showed the UK economy grew by 0.2% between April and June, rather than shrinking by 0.1% as previously estimated.
Paul Dales, chief UK economist at Capital Economics, says:
The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels. It’s the only G7 economy in that situation and it makes the chancellor’s fiscal plans look even more untenable.
So despite the better news on the performance of the economy in Q2, the overall picture is that the economy is in worse shape than we previously thought. And that’s before the full drag from the surge in inflation and leap in borrowing costs have been felt.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, has tweeted:
NEW: @ONS data implies UK isn’t in recession yet – GDP growth at 0.2% in Q2 (from previous estimate of -0.1%).
— Suren Thiru (@Suren_Thiru) September 30, 2022
Output should fall in Q3 amid Sept’s extra bank holiday, so focus now on whether energy support can prevent recession (two straight quarters of falling output) in Q4. pic.twitter.com/MVIJXbTI1u
Updated
We’ve spoken to people about how they are being affected by the chaos in the mortgage market, sparked by last Friday’s mini-budget.
“We will likely lose our dream house,” says one couple, writes Jedidajah Otte.
UK house price growth flatlined in September with a stronger slowdown expected as a combination of soaring inflation and mortgage rates stretches housing affordability.
A typical UK home cost £272,259 in September, zero increase on the previous month and the first time flat growth has been recorded month-on-month since July last year, Nationwide Building Society said this morning.
Treasury committee chair: 'rethink' on mini-budget needed to meet fiscal rules
Mel Stride, the Conservative MP who chairs the Treasury select committee which wants the OBR’s independent forecast scheduled for 23 November to be pulled forward, has been on BBC radio 4’s Today programme to talk about Truss’s and Kwarteng’s meeting with the fiscal watchdog. He said:
The good news is clearly this is being very taken seriously because confidence in the markets needs to be regained and critical to doing that will be to go to the markets and say the OBR has carried out an independent forecast of the proposals put forward by the government and measured against reasonable and credible fiscal rules. The OBR’s view is that those rules can be met.
That will be a very difficult conversation because of course the judgement so far of the markets and indeed myself and many others is that what was announced last Friday unfortunately doesn’t stack up fiscally and some changes are almost certainly going to need to be made…We can possibly have a major reset moment in which confidence can be regained.
It begs the big question to what the OBR will be saying to the prime minister and the chancellor in this meeting today. I suspect strongly that it will be that the circle cannot be squared. You can’t come forward with multiple billions of unfunded tax cuts in a high inflationary environment with a very tight labour market and expect that along with various supply side changes, to develop the growth that’s going to pay for those tax cuts. That’s just not feasible and isn’t going to work, so there needs to be a rethink, and that will be a very difficult conversation.
The Bank of England’s monetary policy committee meets on 3 November to decide on interest rates, and needs to have the OBR’s estimates, and so the publication of the OBR forecast should be brought forward from 23 November – and to “give the markets greater confidence,” Stride argued.
Updated
Introduction: Pound edges higher ahead of Liz Truss meeting with OBR – business live
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The pound has edged higher, ahead of a meeting between Liz Truss and the chancellor, Kwasi Kwarteng, with the head of the Britain’s independent fiscal watchdog on Friday, after days of financial market turmoil triggered by the government’s package of unfunded tax cuts.
Last night the Office for Budget Responsibility confirmed that it had done a draft forecast to be produced alongside last week’s mini-budget and had given it to the chancellor. However, Kwarteng chose not to publish it, which is one of the reasons why the market reacted so badly to his mini-budget.
The pound has recovered from its losses and hit a one-week high of $1.122 early in Asian trading. Following the GDP figures, sterling was trading at $1.1134, up 0.18%.
This means sterling could be on track for its biggest weekly gain since 2020, despite plummeting to a record low of $1.0327 on Monday.
The euro has also bounced back versus the dollar, and is trading slightly higher at $0.9821.
Sean Callow a strategist at Westpac in Sydney, has warned that the pound’s recovery may not last. He told Reuters:
The recovery in cable is very eye catching… But with the UK already running very large current account deficits, we doubt there is much more upside in sterling.
Britain’s economic picture was better than previously thought in the April to June quarter, but the economy continues to slow, warned the statistics office.
The UK economy grew by 0.2% in the second quarter, rather than shrinking by 0.1% as previously thought, according to final figures from the Office for National Statistics. But it added that the economy’s overall size is smaller than previously estimated, 0.2% below its pre-pandemic level.
We’ve published revised GDP data today including improved methods and sources https://t.co/7BFolSeRYr
— Office for National Statistics (ONS) (@ONS) September 30, 2022
GDP has been revised up from -0.1% to +0.2% in Q2.
However, the overall size of the economy is smaller than previously estimated, 0.2% below its pre #COVID19 pandemic level. pic.twitter.com/FjJVPEBNGb
“I’d never seen anything like it”: how market turmoil sparked a pension fund selloff. The Guardian’s banking correspondent Kalyeena Makortoff and Sarah Butler have looked into the chaos that prompted the Bank of England’s emergency intervention in the government bond market on Wednesday.
Asian stocks fell again, and are heading for their worst month since the onset of the Covid pandemic, amid worries about a global recession and other risks. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3%, taking its monthly loss to 13%. Japan’s Nikkei has lost 2.1% while the Australian market has shed 1.2%.
The Agenda
7.45am BST: France inflation for September (forecast: 5.9%)
8.55am BST: Germany unemployment rate for September (forecast: 5.5%)
9.30am BST: Bank of England mortgage approvals and consumer credit for August
10am BST: Eurozone inflation for September, flash estimate (forecast: 9.7%)
10am BST: Italy Inflation for September (forecast: 8.7%)
1.30pm BST: US PCE price index for August
3pm BST: US Michigan Consumer sentiment final for September (forecast 59.5)
Updated
