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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound at two-week high as FTSE 100 posts best day since June – as it happened

Kwasi Kwarteng United States Mel Stride Bank of England Inflation
People outside the Bank of England in the City of London’s financial district in London.
People outside the Bank of England in the City of London’s financial district in London. Photograph: Henry Nicholls/Reuters

Closing post

With the pound continuing to strengthen against the US dollar, up a cent to $1.143, it’s time to wrap up.

Here are today’s main stories:

FTSE 100 posts best day since June despite latest government confusion

Britain’s stock market has just posted its best day in over three months.

The FTSE 100 index, which contains the largest blue-chip shares in London, has just closed over 2.5% higher tonight. That’s the biggest percentage gain since 24th June, despite the confusion over the date of Kwasi Kwarteng’s debt-reduction plan.

The Footsie rallied by 178 points to finish at 7086 points, on a day of large gains across the markets.

Gambling group Flutter (+9.2%) and online grocery business Ocado (+8.8%) were the top risers, with British Airways’ parent company IAG (+7.9%), and several financial services companies, also having strong days.

Victoria Scholar, head of investment at Interactive Investor, sums up the day:

It was understood the government was considering bringing the date of the Medium-Term Fiscal Plan forward but now both the Chancellor and the Prime Minister have confirmed it will take place on 23rd November after all. That is also when the Office for Budget Responsibility (OBR) will publish its updated forecasts as well.

This week the Chancellor staged a U-turn by undoing plans to abolish the 45p top rate of tax. It was also expected that he was also going to announce the medium-term fiscal plan sooner in the coming days or weeks in an attempt to reassure the markets after last week’s turmoil. However it seems like that is no longer the case.

There seems to be a lot of confusion, but the markets are in a very positive mood nonetheless, lifted by broader momentum from a strong rally on Wall Street yesterday to kick off the fourth quarter after US treasury yields pulled back. Most markets in Asia closed sharply higher with positive momentum carrying forward to the European session with the CAC 40 in France surging by almost 4%.

Investors will be hoping that this marks the start of a Santa rally in the final months of the year to offset some of this year’s pain for long equity holders.

In another sign that the US economy is slowing, orders for manufactured goods were flat in August.

A Wall Street sign outside the New York Stock Exchange.

Back in the markets, Wall Street has opened sharply higher as investors drive up shares for the second day in a row.

The Dow Jones industrial average has jumped by around 700 points, or 2.3%, taking it back over the 30,000-point mark.

Investors seem to be hopeful that the slump in stocks this year is abating.

Today’s JOLTS report showing a fall in job openings, and yesterday’s manufacturing PMI data showing a slowdown, could – perhaps – mean interest rate rises could slow…..

City Index explains:

There’s hope that central banks will soon start to pivot towards a more dovish stance, which investors presumably expect will alleviate some of the pressure on risk assets. Paradoxically, bad news is good news for stocks. Or so it seems, after the markets rallied on the back of a poor PMI data on Monday, which revealed US manufacturing activity barely grew in September, with the purchasing managers also reporting a sizeable fall in the sector’s employment.

Hopes over a dovish pivot were boosted further by the Reserve Bank of Australia, which raised interest rates by only 0.25 percentage points instead of 0.5% expected.

On top of this, the Bank of England has temporarily restarted QE to help depress long-term bond yields to lower the borrowing costs in the UK, where inflation has soared to double digits. So far, the magic has worked.

With the markets having been nearly one-sided – namely long dollar, short everything else – the liquidation of those positions is undoubtedly a big reason why the markets have squeezed in the other direction so viciously.

Bloomberg: Odey’s hedge fund gains surge to 193% on UK market turmoil

Multimillionaire and Tory donor Crispin Odey has racked up some huge gains this year, helped by the volatility in the markets last month.

Bloomberg is reporting that Odey’s best year ever has risen to a new level, with his hedge fund soaring about 25% in September as it benefited from his long-running short bets against UK government bonds and the pound.

Those bets paid off as the mini-budget triggered heavy losses on sterling, and in the gilt markets (although both have recovered since).

The surge boosted Odey’s year-to-date gains to 193%, a person with knowledge of the matter told Bloomberg.

Bloomberg adds:

His previous best yearly performance was almost three decades ago, when he returned 60% in 1993. A spokesman for the London-based Odey Asset Management declined to comment.

The fund’s short exposure to bond trades was worth about 111% of its net asset value going into September, mostly related to two UK government securities maturing in 2050 and 2061, according to a separate investor note seen by Bloomberg. The government’s plans for unfunded tax cuts caused a stampede out of UK government bonds and forced the Bank of England to intervene to calm markets.

Here’s the full story: Odey’s Hedge Fund Gains Surge to 193% on UK Market Turmoil

As covered last week, Odey has said that his bets against Britain’s government bonds were “the gifts that keep on giving”, while a position against the pound had “been helpful”.

Over in the US, the number of job openings has fallen more than expected, to the lowest in over a year.

There were 10.1m vacancies in August, down from 11.2m in July, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed.

That may suggest demand for labour has moderated as the US Federal Reserve hiked interest rates sharply to cool inflation.

The US dollar has dipped lower in response.

The Bank of England declined to buy any long-dated UK government debt from investors today, through its market backstop operation, Reuters reports.

The Bank received £2.2256bn worth of offers to buy gilts in its daily reverse auction, but decided not to take any of the offers up.

That could be another sign to the markets that it will not buy gilts at any price, and is focused on financial stability not financing government borrowing.

Under the emergency plan last week, it could buy up to £5bn of long-dated gilts per day.

Some of Britain’s top open-ended property funds are rolling out new measures to manage investor exit requests, following the slump in UK assets last week.

Columbia Threadneedle, for example, said on Monday it was switching to monthly rather than daily exit requests from its £2.3bn Threadneedle Pensions Pooled Property Fund.

It citied liquidity constraints, market volatility and “a subsequent increase in redemption requests”

Columbia Threadneedle explained that:

“We believe introducing this procedure is in the best interest of investors in the fund, allowing for an orderly sale of assets to meet redemption requests.”

More here: Some UK property funds defer investor withdrawals

Meeting a rise in redemption requests can be difficult for property funds, as it takes time to sell real estate assets, especially during market turbulence (which is often when investors try to pull money out…)

Kwarteng blames ‘pressure’ of Queen’s death for mini-budget woes

Kwasi Kwarteng has also blamed the “pressure” caused by the death of Queen Elizabeth for the dramatic market reaction to his mini-budget.

Asked what he could have done differently, the chancellor told GB News that his plans were drawn up at an extraordinary time, with a new government taking over and the death of the sovereign.

Kwarteng said this hampered the preparation, saying:

We had a nation in mourning, and then literally four days after the funeral we had the mini-budget.

It was a high-speed, high pressure environment, and we could have, as David Cameron used to say, prepared the pitch a bit better.

As it was, the pound – and Kwarteng’s reputation – were both hit for 6.

IMF: Bank of England acted quickly to calm markets

The head of the International Monetary Fund has hailed the Bank of England’s move to head off chaos in the bond market last week.

IMF managin director Kristalina Georgieva said the BoE had acted “very appropriately, quickly” to respond after British finance minister Kwasi Kwarteng roiled markets with the mini-budget.

In an interview with Al Arabiya television, Georgieva said Britain was a mature country with strong institutions that were taking action to ensure consistency between fiscal and monetary policy.

“The Bank of England acted very appropriately quickly. Now there are changes in how the package is going to be pursued.

And very important(ly), the office for Budget Responsibility is engaged to provide valuable independent views.

Last week the IMF criticised the mini-budget, saying the plans for tax cuts and spending would increase inequality and counteract the Bank of England’s monetary policy.

Here’s one for fans of football and fiscal forecasts, from Dr Alice Lilly of the Institute for Government:

And the longer we wait without getting the Office for Budget Responsibility’s verdict, the greater the risk that investors bump the UK down the league table of countries they have confidence in….

Broadcaster and journalist Andrew Neil says Team Truss are in farcical disarray:

Analyst: What a mess!

This latest confusion over the date of the government’s medium-term fiscal plan is ‘another cock-up’, says Mujtaba Rahman, managing director for Europe at Eurasia Group.

He insists that the plan must still be brought forward, as government sources had been briefing:

Full story: Kwasi Kwarteng fiscal plan date thrown into confusion

Kwasi Kwarteng’s medium-term fiscal plan has been thrown into confusion after he said it would still happen on 23 November, despite government sources having briefed that it would be brought forward to try to reassure the markets.

In a new twist, the chancellor told GB News on Tuesday that he was sticking to the original date.

Asked what he had meant by saying the fiscal plan would be published shortly, he said: “Shortly is the 23rd. People reading the runes … it’s going to be the 23rd.”

Liz Truss, the prime minister, also repeated that the fiscal plan would be published on that date when speaking to GB News.

“We’ve got the date of November 23. This is when we are going to set out the OBR [Office for Budget Responsibility] forecast, but also the medium-term fiscal plan.

“What we’ve done is we’ve had to take very urgent action to deal with the issues we face … energy plan, inflation and the slowing global economy. We’ve dealt with that … now we want to set out our plans to bring down debt as a proportion of GDP in the medium term.”

Government sources, however, continued to brief that No 10 and No 11 were considering bringing the date forward.

Here’s the full story by our Whitehall editor, Rowena Mason:

Updated

Kwasi Kwarteng also doesn’t deny that there was “some market reaction” to the mini-budget, telling GB News it was a “bold offer”.

But he also points to the ‘global picture’ in the financial markets, with the Bank of Japan intervening to prop up the yen last month and the dollar at a 20-year high versus the euro.

And he denies the mini-budget was ‘extreme’, arguing that the UK economy was on an unsustainable path.

Kwarteng: fiscal plan still due on November 23rd

The pound has slipped back from this morning’s two-week high above $1.14, as Kwasi Kwarteng insists that he will deliver his medium-term debt reduction plan towards the end of next month, not earlier as had been expected.

Chancellor Kwasi Kwarteng has told GB News in an interview that his medium-term fiscal plan will be published on November 23rd as planned, not being brought forward.

Q: You said that you are going to bring forward the fiscal assessment in conjunction with the Office for Budget Responsibility. You said in your speech yesterday that will happen shortly – is shortly before the 23rd of November?

Kwarteng replies that shortly means the 23rd – and that people have been ‘reading the runes’.

Q: So you’re not bringing that fiscal plan forward?

It’s going to be the 23rd of November.

Sterling has now eased back to around $1.134, slightly higher on the day, with investors disappointed that they could be waiting weeks to hear Kwarteng’s plan to cut debt.

Updated

Kwarteng gave Bank of England permission for £100bn of bond buying

Kwasi Kwarteng gave the Bank of England permission for an even larger intervention in the bond market than the £65bn launched last week, it has emerged.

The chancellor signed off on £100bn of bond buying by the Bank of England as the market fell into turmoil last week, according to a letter sent to Treasury committee chair Mel Stride.

Kwarteng explained:

“The Bank has requested an extension to the maximum size of the APF by £100 billion to £966 billion.

“There was a special urgency to incur this liability.”

[The AFP is the Bank’s Asset Purchase Facility]

That shows the level of concern among officials about volatility in the gilt markets, and the size of the intervention that they thought might be needed.

But as flagged in the previous post, the Bank has actually only bought less than £4bn of long-dated yilts so far, shy of its maximum of £5bn per day – which was still enough to have brought yields down.

The Bank of England’s emergency intervention last week appears to be working.

The yield (interest rate) on UK 30-year bonds is hovering around 3.9% today, close to its levels just before the mini-budget.

They had surged to 5.1% last week, prompting the BoE to pledge to buy £5bn of long-dated gilts each day until the end of next week.

The BoE’s move has pushed up prices, lowering yields. And best of all, the Bank hasn’t had to spend all its firepower at all, meaning it shouldn’t hit the maximum of £65bn of gilt purchases.

This shows the power of such interventions – investors can be wary of fighting central bankers once they pledge to take action, meaning less action is actually required.

It also shows that the Bank certainly won’t be losing £65bn on these purchases. In fact, the bonds it bought last week have risen in value since…

Updated

Bloomberg: Shell CEO says governments need to tax energy firms to help poor

The boss of Shell has said that governments need to tax energy producers to help the poorest people deal with the soaring cost of fuel, Bloomberg reports.

“One way or another there needs to be government intervention,” Shell Chief Executive Officer Ben van Beurden said at the Energy Intelligence Forum, a major conference for oil and gas producers in London on Tuesday.

Van Beurden explained:

“Protecting the poorest, that probably may then mean that governments need to tax people in this room to pay for it.”

Here’s the full story.

Van Beurden, who steps down as Shell boss at the end of the year, also argued that European governments should not intervene in gas markets to cap prices, but should focus on protecting the weaker parts of society from high energy costs.

He argued that capping wholesale gas prices, as many EU countries are pushing for, would deter producers from bringing more supplies to Europe.

“Can we make a meaningful intervention in gas markets here in Europe? That is a much more challenging prospect.”

In the UK, Liz Truss has resisted calls for new windfall taxes on energy companies to fund her two-year freeze on the unit cost of energy which began this month.

Labour, though, proposed a beefed-up £8bn tax on excess profits made due to soaring oil and gas prices.

Producer prices across the eurozone rose at a record pace in August, as the inflationary squeeze in Europe worsened.

Producer prices, which measures the costs of goods and raw materials, soared by 43.3% year-on-year in August, up from 38% in July.

The surge in PPI was primarily driven by higher energy costs, which jumped by 116% year-on-year.

But that wasn’t the only factor. Intermediate goods, used to make final products for sale, cost 19.9% more than a year ago, while non-durable consumer goods cost 14.4% more.

These price increases are likely to feed through to retailers, pushing up eurozone consumer price inflation even higher.

Sterling is on track for its sixth daily rise in a row, as it continues to recover from last Monday’s record lows.

Harry Adams, chief executive officer at Argentex Group, says the pound is “beginning to find a secure footing after a week of volatility” provoked by Kwasi Kwarteng’s mini-budget.

But Adams also warns this week’s Conservative Party conference could drive further volatility in the pound.

“We anticipate sterling to remain highly responsive to the notion of any further changes in government policy.

There is no realistic scenario whereby sterling enjoys a straightforward recovery.”

Market expectations for UK interest rates drop

The markets have dialled down their forecast for how high UK interest rates will surge by next year.

The Bank of England is now expected to lift base rate to around 5.35% by next May.

That’s still a very shap increase (Bank Rate is currently 2.25%), but less steep than feared last week.

Updated

The UK has successfully raised money in the bond markets today, but demand was soft and investors demanded a higher interest rate, as Reuters explains:

Britain sold £2.5bn of a 40-year benchmark gilt maturing in 2061 at an average yield of 3.371% on Tuesday, the highest yield for any gilt sold at auction since 2014, though below the yield for a 30-year green bond syndicated last week.

Tuesday’s auction for the 0.5% 2061 gilt drew bids worth 1.97 times the volume on offer - the lowest bid-to-cover ratio since March - and had a 4 basis point yield tail, the longest since November 2018.

The bid-to-cover ratio measures how much demand there was in the auction. If demand is weak, the government can end up accepting higher yields to get the bond sold.

Andy Bruce of Reuters has some good insights here:

Updated

Politics Live: Liz Truss refuses to say if benefits will rise in line with inflation

Liz Truss has refused to rule out real-terms benefit cuts to help pay for her government’s plans, despite warnings that this would hurt struggling households.

She told BBC Radio 4’s Today programme that there is a need to be “fiscally responsible” amid suggestions benefits will not rise in line with inflation.

She said:

We are going to have to make decisions about how we bring down debt as a proportion of GDP in the medium term.

I am very committed to supporting the most vulnerable, in fact in addition to the energy price guarantee we’re also providing an extra £1,200 to the poorest households. So we have to look at these issues in the round, we have to be fiscally responsible.

As flagged earlier, though, some MPs are threatening of further rebellions over reductions in public spending.

Our Politics Live blog has all the latest developments:

But as Sarah O’Connor of the FT shows here, most of Britain’s welfare spending for working age people is spent on topping up low pay, or housing benefit (for those on low pay), or help for those unable to work due to illness or disability.

Updated

Sterling rally may not be vote of confidence in Truss and Kwarteng

Sterling’s rally today is not necessarily a vote of confidence in government, says Seema Shah, chief global strategist at Principal Global Investors:

“A number of Trussenomics enthusiasts within the Conservative party have pointed to the fact that the pound has risen against the dollar to the levels it was before the “fiscal event” as evidence that financial markets will warm to the Government’s strategy.

It is true that sterling has had a mini-rally but, firstly, this was from historically weak levels to begin with and, secondly, the new value of sterling prices in steep rate rises which have been made necessary by the chaotic market response to the Chancellor’s growth plan. To be back where we were - but with a potential mortgage crisis now baked into the cake - is hardly a triumph.

Shah suggests that the markets may be pricing in further changes of policy, or even a shake-up in Downing Street….

“Indeed, in light of the humiliating and rapid U-turn on the decision to scrap the 45pc highest tax rate, further sterling rises might in fact be telling us that investors believe that the Truss/Kwarteng axis can be brought in line with more orthodox economic thinking by MPs who have not been shy to make their scepticism public and threatened to vote against their own party – quite the opposite of markets “believing” the Government’s vision.

It could even indicate investor opinion that the odds of either – or both - the PM and Chancellor leaving their respective posts earlier than planned are rising.

What looks on the surface like a cautious vote of confidence in the currency markets could, in fact, be anything but.”

A YouGov poll published last Friday (so before the 45p tax rate u-turn) showed considerable dissatisfaction with Liz Truss and Kwasi Kwarteng:

We still face the risk of more financial market turbulence, even though investors now expect interest rates to rise less sharply than they did last week.

Economist Richard Ramsay explains:

Shares rally as calm returns to markets

London’s stock market is firmly higher this morning, as shares recover a little of their recent slump.

The blue-chip FTSE 100 index has clambered back over the 7,000 point mark, up 1.5 % or 105 points at 7,014. Yesterday it hit the lowest level since March, as anxiety over a global downturn continued to hit markets.

After gains in Asia-Pacific markets overnight, a risk-on mood has returned to the City.

It’s helped by Legal & General (now up 5%) reassuring investors over its financial health following the pensions panic last week (see earlier post). Australia’s smaller-than-expected interest rate rise could also be calming the bond markets.

European markets are also pushing higher, with Germany’s DAX and France’s CAC both up over 2%.

Danni Hewson, financial analyst at AJ Bell, says:

“Stocks are up, the Vix volatility index is easing back, and US and UK government bond yields are falling. It’s as if everyone has forgotten about the gloomy outlook and instead regained an appetite for risk.

How long this party lasts is another matter as we’re about to enter the next earnings season and there is a fear that market expectations for sales and profits are too high, which means many companies could shock when they report.

The smaller FTSE 250 index, which tracks the UK economy, has jumped 2% – away from the 22-month low hit last week.

High street bakery chain Greggs is leading the FTSE 250 risers, up over 9% after its latest results reassured the City.

Greggs, known for its sausage rolls, steak bakes, vegan snacks and sweet treats, grew total sales by 14.6% in the last 13 weeks despite the cost of living squeeze.

It reported:

“Greggs continues to trade well in an environment where cost pressures are significant.

Speaking of central banks…. Australia’s policymakers surprised markets by lifting interest rates by less than expected today, just a quarter of one percent.

Analysts had expected the Reserve Bank of Australia (RBA) to hike by half a percent agaon, but in the event they only plumped for a 25 basis-point rise.

It’s still the sixth hike in as many months, which included four outsized moves of 50 basis points.

It might just be a sign that central bankers are slowing the pace of rate rises, which risk driving the world economy into recession.

RBA Governor Philip Lowe said the bank had assessed the outlook for inflation and economic growth in Australia, adding:

“The Board expects to increase interest rates further over the period ahead.”

Updated

UK government bonds are stronger today as well.

The yield, or interest rate, on 10-year gilts has dipped to 3.87% this morning, continuing its recent recovery.

(yields, which measure the cost of borrowing, fall when bond prices rise, and vice versa)

The UK’s short-term borrowing costs have dropped too.

The yield on two-year gilts has dropped below 4%, to 3.93%. That’s the lowest level since the day of the mini-budget, when Kwasi Kwarteng’s plans for £45bn (now £43bn after the 45p tax rate u-turn) alarmed investors.

Updated

Pound hits $1.14 as rally continues

Sterling is continuing to rally, and has now hit $1.142 for the first time in two weeks.

That’s a gain of around a cent this morning, taking the pound back to levels a few days before the mini-budget.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

Yesterday’s decision not to scrap the 45p tax rate, the bringing forward of Kwasi Kwarteng’s medium-term plan for the public finances, and the Bank of England’s emergency invervention in the bond market last week are all calming nerves.

The dollar is also weaker generally, which is helping other currencies climb back off the mat.

But the pound’s weakness may not be over, warns Matt Britzman, Equity Analyst at Hargreaves Lansdown:

Sterling strengthened on Monday as the UK government agreed to abandon the plan to axe the top rate of tax.

However, this mini reversal is likely to be short-lived in its nature as sterling remains under significant pressure in the face of a looming recession and a US Fed that looks likely to continue aggressive rate rises.

Updated

Legal & General reassures investors over pension fund turmoil

FILE PHOTO: The logo of Legal & General insurance company is seen at their office in central London

In the City, Legal & General has reassured investors about its financial health following the turmoil in the pension fund sector last week.

Shares in L&G have jumped over 3% in early trading, after it said it had not had problems meeting meeting collateral calls and has not been a forced seller of gilts or bonds.

L&G told investors that its expectations for this year were unchanged despite recent volatility, explaining:

One of the strengths of the UK insurance regime is that we regularly monitor and stress our capital and liquidity requirements to a 1 in 200 stress level so that we can withstand shocks like we have seen in the past few days.

That shock was riven by a strategy called liability-driven investing, or LDI, which blew up in last week’s bond market turmoil.

The idea of LDI is to help pension funds to offset liabilities and risks on their books, by mirroring movements in their liabilities.

But the slump in UK gilt prices forced pension funds to post more collateral to offset rising liabilities, leading some to dump assets and raise cash at short notice.

The crisis raised fears of a ‘doom loop’, in which falling asset prices led to more forced selling, which drove prices even lower.

Torsten Bell, the head of Resolution Foundation, has demolished the suggestion that it’s somehow unfair for benefits to rise in line with inflation:

As Bell points out, benefits are far from generous, and much of the money goes to people who are also working (but being poorly paid), or unable to work due to disability or caring responsibilities.

Plus, the cost of living crisis hits the poorest in our society the hardest. This winter will be toughest for them.

The cost of living crisis means many consumers will be spending less than usual as we head towards Christmas.

British shoppers are expected to spend £4.4bn less on non-essentials – a fall of 22% – in the last three months of the year, our retail correspondent Sarah Butler reports.

Almost 60% of shoppers expect to cut back on non-food spending in the so-called “golden quarter”, when most retailers book the majority of profits, according to research by Retail Economics with retail technology firm Metapack.

The outlook piles further pressure on businesses which are already facing higher energy bills and labour costs as well as an increase in the cost of goods forcing many to cut back on trading hours.

Richard Lim, the chief executive of Retail Economics, said:

“Inflation is set to peak at exactly the wrong time for retailers. Shoppers’ budgets are already under intense pressure with inflation reaching decade-highs across international markets.

Consumers are concerned, budgets are under pressure, and households are intending to cut back this year as they struggle to make ends meet.

Mortgage rates rise sharply as squeeze tightens

People looking to enter the housing market, or to remorgage their loans, are already facing the consequences of the mini-budget market mayhem.

After pulling mortgage deals off the market last week, British banks are re-entering the mortgage market with interest rates approaching 6% .

The FT has more details:

Barclays, Skipton Building Society, NatWest, Virgin Money and Nationwide are among the lenders to increase rates on new mortgage deals in the wake of chancellor Kwasi Kwarteng’s “mini” Budget just over a week ago, which sent gilt yields soaring.

The average rate on two-year fixed deals jumped to 5.75 per cent on Monday, up from 4.74 per cent on the day of Kwarteng’s announcement on September 23, according to data provider Moneyfacts.

The move will protect lenders from higher interest rate, with the money markets currently predicting the Bank of England’s base rate could hit almost 5.5% by next summer.

But it makes mortgages less affordable, and some unlucky people will find they are now priced out of the market through no fault of their own.

Mel Stride also said he would have to “think long and hard” if asked to vote to increase benefits in line with earnings rather than inflation (which would mean real terms cuts in benefits).

The Treasury Select Committee chairman told BBC Radio 4’s Today programme:

“I’d need to see all the details, I’d need to see it in the round, but I’d have to think long and hard about that.

“Because the last time the benefits were uprated, because of the way the mechanism works they’re uprated in April but they’re pegged against the previous September’s inflation, and the way it worked last time was the uprating was just 3.1% because inflation was low the previous September, but of course inflation was much higher than that (in April).

“So we’re coming off the back actually of a kind of quite a strong real-terms squeeze on those benefits already so I think that will be a really tough call to make.”

Mel Stride: This could mean smaller interest rate rise in November

Kwasi Kwarteng’s decision to accelerate the publication of his plan to cut Britain’s debt could lead the Bank of England to raise interest rates less sharply next month.

That’s the view of Conservative MP Mel Stride, the chair of the Treasury Committee, who argues:

Provided the OBR forecast and new fiscal targets provide reassurance then bringing these forward should calm markets more quickly and reduce the upward pressure on interest rates to the benefit of millions of people up and down the country.

“In particular getting the forecast out ahead of the MPC meeting on 3rd November might help to reassure our rate setters that they can go with a smaller base rate increase than would otherwise be the case.”

The Bank is due to set interest rates on November 3rd, and chief economist Huw Pill has already indicated there could be a ‘significant’ rise. The money markets are currently pricing in a rise of at least 1%.

Introduction: Sterling keeps recovering as Kwarteng brings forward debt cutting plan

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

The pound continues to recover from its mini-budget shock, thanks to a pair of u-turns from Kwasi Kwarteng.

The chancellor is bringing forward the announcement of his plan to bring down UK debts in the medium term, following pressure from the financial markets, economists and some MPs desperate to see how the ‘growth plan’, and large tax cuts, will be paid for.

Kwarteng, who was previously set to publish his medium-term fiscal plan alongside a set of economic forecasts on 23rd November , will now announce it sooner – likely by the end of the month.

Crucially for investors, we should also finally get full forecasts from Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).

News of the plan broke last night, just hours after Kwarteng ripped up the plan to scrap the 45p top tax rate for the highest earnings.

As one government source put it to Reuters: “OBR can move quicker, so can we”.

And so can the pound. And after hitting a record low last week around $1.035, it has now climbed above its mini-budget levels to around $1.135, the highest in almost two week.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

The recovery for sterling has settled some nerves in the currency market.

NatWest Markets’ head of economics and markets strategy John Briggs said dropping the 45p tax band had been well-received by investors.

“The about-face ... will not have a huge impact on the overall UK fiscal situation in our view.

“[but] Investors took it as a signal that the UK government could and is at least partially willing to walk back from its intentions that so disrupted markets over the past week.”

The Bank of England’s emergency intervention in the long-term borrowing gilt market is also helping calm nerves, although yesterday it only bought £22m of 30-year gilts and rejected £1.8bn of offers.

That looked like a signal to the markets that while the BoE was determined to maintain stability, they would not buy gilts at any price to keep borrowing costs low

Yeterday, the IFS thinktank warned that mammoth spending cuts would be needed to get borrowing back on track, if Kwarteng presses on with the rest of his tax-cutting mini-budget.

And a new political row is brewing, over whether the government will lift universal credit and other working age benefits in line with inflation.

Failure to do so would be ‘hostile and harmful’, the Joseph Rowntree Foundation warned last weekend, and deliver a devastating blow to millions of families on low incomes.

The agenda

  • 10am BST: Eurozone PPI index (showing how fast factory prices rose in August)

  • 2pm BST: IMF to release October 2022 Global Financial Stability Report Analytical Chapters 3

  • 3pm BST: US factory orders for August

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Martha Stewart's 'homekeeping room' is a sophisticated twist on a classic garage – it's changed how I think about essential storage solutions
Martha transforms a room in her home into a storage space that is both highly functional and elevated thanks to its layout and accessories
Homes & Gardens
Homes & Gardens
Carnival Cruise Lines adds new ban families won't like
Carnival's rules just went affect while Royal Caribbean's ban has been in place longer but has some exceptions.
The Street
The Street
“All anyone wanted to hear was awful new wave garbage like Elvis Costello and The Police. Rock groups like ours were strangled us to death”: The rise and fall of Starz, the 70s rockers who should been the next Kiss
Starz were one of 70s rock’s greatest near misses
Louder
Louder
Mother of Dave Grohl’s new baby ‘revealed’ after months of secrecy
Musician shocked fans when he announced he had fathered a baby outside of his 21-year marriage
The Independent UK
The Independent UK
Diane Keaton's kitchen sink is the most unique I've ever seen – she's created a bespoke nook in a Spanish Colonial Revival space
The '90s kitchen uses metallic accents for a practical space with European-inspired undertones – and the sink makes an unexpected statement
Homes & Gardens
Homes & Gardens
My boiler has broken and I’m finding solace in a slice (or several) of toast
There are whole chapters in cookbooks dedicated to it and now an endless variety of new things to spread on top, including butters with a waiting list
The Guardian - UK
The Guardian - UK
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