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Ben Zanako, economist at the Institute for Fiscal Studies, said:
A delay is sensible. There’s a lot riding on this, so important to get the details right. But the challenge remains the same: find a way to somehow reconcile 2019 manifesto public service objectives (which Sunak has recommitted to) with likely cuts to public spending.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said about the postponed of the government’s fiscal plans:
The two-week delay of plans to reveal detail of the UK government’s spending plans on Halloween hasn’t caused investors to take fright, with the markets cutting prime minister Rishi Sunak some slack, given that he’s just a day into the new job. The pound has remained above $1.15, retreating only a little from the mornings highs, but sterling is still up overall.
UK borrowing costs remain significantly lower with 10-year gilt yields hovering around 3.6%. Rishi Sunak’s new cast for the cabinet, including the continuity chancellor Jeremy Hunt, was aimed at demonstrating to the markets that financial stability is top priority for the government and for now it doing the trick. His choice of words in his maiden speech were also reassuring, with a promise to set limits on borrowing.
Early rewards have come with the sharp rise in the pound, back up to six-week highs earlier today, but sterling was also given a leg-up by a slightly weaker dollar, amid expectations that the Fed won’t go so hard and fast with rate rises with given the record slowdown in house prices.
Investors are mindful that it was the unnecessary rush to announce big tax cuts which caused such tumultuous times for the Truss administration and what they crave now is caution and stability. The premium slammed on UK assets by reckless policies of his predecessor appears to be slowly lifting, but hefty challenges for team Sunak remain, as the economy heads into recession and the productivity puzzle remains as cryptic as ever to solve.
New Treasury committee chair to be announced on 9 November
Kalyeena Makortoff
The hunt for a new chair of the Treasury committee is underway. It comes after the Tory MP Mel Stride, a staunch supporter of Rishi Sunak, was appointed as work and pensions secretary in Sunak’s new cabinet.
The position comes with the power to haul in ministers, central bank officials, regulators, and City executives in front of MPs to answer questions on the economy and issues affecting banking and financial services. The committee is currently scrutinising a number of issues including Russian sanctions, venture capital markets, risks surrounding cryptocurrencies, as well as the wider impacts of the pending Financial Services and Markets Bill.
Stride’s successor will have an opportunity to ratchet up the pressure on City officials, who some believe have been given an easier run than under his predecessors, which have included now-Baroness Nicky Morgan and the former Competition and Markets Authority boss, Lord Andrew Tyrie.
The chairing role is only open to MPs from the Tory party which holds a majority in the House of Commons, and hopefuls will have to secure 15 signatures from their own party to qualify before nominations close on 8 November. The results will be announced the same day, unless there are multiple candidates, in which case it will go to a vote on 9 November.
US average mortgage interest rate jumps to 7.16%, highest since 2001
Over in the US, the average interest rate on the most popular US home loan has risen to its highest level since 2001.
Data from the Mortgage Bankers Association showed the average rate on a 30-year fixed-rate mortgage rose by 22 basis points to 7.16% for the week ended 21 October. Mortgage applications growth is the slowest since 1997.
Mortgage rates have more than doubled since the start of the year, as the Federal Reserve hiked interest rates aggressively to try and tame high inflation. The central bank is expected to raise borrowing costs by a further 75 basis points at its next meeting on 1-2 November.
The yield on the 10-year Treasury bond acts as a benchmark for mortgage rates. It fell slightly to 4.05% today.
Markets will no doubt be reassured by the announcement that the government’s autumn statement – a full budget – will be published alongside full forecasts from the Office for Budget Responsibility, the fiscal watchdog.
The lack of an independent assessment by the OBR was one of the main reasons why Kwasi Kwarteng’s mini-budget of unfunded tax cuts on 23 November caused market turmoil.
Ed Conway, Sky’s economics editor, has tweeted:
As I said on @skynews a moment ago, so far markets seem sanguine about the decision to delay the fiscal statement. No panic. Normally you’d take that for granted but not after the past few weeks… pic.twitter.com/tTGjKxO7L3
— Ed Conway (@EdConwaySky) October 26, 2022
As I wrote last night, part of the rationale was that since the market stress has now diminished there was no longer any reason to get the fiscal statement in before the BoE decision next Thurs. https://t.co/YB6wOC9qN2
— Ed Conway (@EdConwaySky) October 26, 2022
The Treasury spokesperson for the Liberal Democrats, Sarah Olney, said:
This delay risks leaving mortgage borrowers, pensioners and struggling families under a damaging cloud of uncertainty.
Rishi Sunak must confirm now that benefits and pensions will be up-rated in line with inflation, and there will be no cuts to our NHS and other crucial public services.
Sunak was installed by Conservative MPs into Number 10 without anyone voting for him, and without telling anyone about his plans for the country.
The public deserve to know immediately what lies in store, and that they will not be made to pay for the Conservative Party trashing our economy.
ITV’s political editor Robert Peston says the uncertainty is “unhelpful” for the Bank of England, which will make its interest rate decision on 3 November.
This delay in the fiscal plan – now rebranded as an Autumn Statement – by more than two weeks to 17 November is to see whether the post Hunt/Sunak rise in bond prices and fall in market interest rates has significantly reduced the hole in the public finances, such that tax… https://t.co/HfzTjQrFDV
— Robert Peston (@Peston) October 26, 2022
rises and public spending cuts may not need to be as humongous as originally thought. The point is that if Sunak/Hunt are regarded as responsible stewards of the public-sector balance sheet, in practice investors and the market cut them more slack. There is a cost…
— Robert Peston (@Peston) October 26, 2022
though. The Bank of England will make its interest rate decision on 3 November without knowing what kind of retrenchment Hunt is planning. That degree of uncertainty is unhelpful.
— Robert Peston (@Peston) October 26, 2022
Markets have taken the news in their stride.
Sterling is still 0.8% ahead at $1.1562, and up 0.3% versus the euro at €1.1541. The FTSE 100 index has sold off 27 points, or 0.4%, to 6,986.
There has also been little impact on the government bond markets, which determine the long-term cost of government borrowing. UK borrowing costs remain significantly lower than under Liz Truss, with 10-year gilt yields hovering around 3.6%.
The yield (or interest rate) on the 30-year gilt has edged up 7 basis points today to 3.75% while the 20-year is yielding 3.9%, up 6bps. The two-year gilt yield has dropped slightly to 3.36%.
UK’s fiscal plan postponed until 17 November
Britain’s fiscal plan has been moved (again), from 31 October to 17 November and will be a full budget.
The chancellor, Jeremy Hunt, told reporters:
Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way and for that reason, the medium-term fiscal plan is extremely important.
It’s also extremely important that statement is based on the most accurate possible economic forecasts and forecasts of public finances, and for that reason the prime minister and I have decided that it is prudent to make that statement on 17th of November when it will be upgraded to a full autumn statement.
I’ve discussed this last night with the governor of the Bank of England. He understands the reasons for doing that, and I’ll continue to work very closely with him.
Mercedes-Benz to sell Russian assets
Germany’s Mercedes-Benz is to sell its Russian assets to a local investor, becoming the latest carmaker to pull out of the country since Moscow sent troops to Ukraine in late February.
The Russian ministry of industry and trade said in a Telegram statement:
Mercedes-Benz intends to sell its shares in Russian subsidiaries to a local investor.
The new owner of the Russian divisions of Mercedes-Benz, Avtodom, will be able to attract other companies as partners for joint productions.
Mercedes-Benz confirmed it intended to sell in a separate statement. The general director of Mercedes-Benz Russia, Natalya Koroleva, said:
The fulfilment of obligations to customers in Russia… as well as the preservation of jobs for employees of the Russian divisions of the company
were the main priority in concluding the deal with Avtodom. No financial details of the transaction were provided by either side, but the German carmaker estimated the value of its Russian assets at €2bn.
Many foreign companies left Russia for ethical or logistical reasons in recent months, including carmakers Renault and Nissan. Western sanctions imposed on Russia since the beginning of the Ukraine offensive have heavily disrupted supply chains, with the technology and automotive sectors badly hit.
World Bank chief calls for more targeted energy support
The head of the World Bank has warned that Covid debt will take decades to pay off, and that governments can’t afford to help everyone with their soaring energy bills.
The bank’s president David Malpass said Covid support schemes had not been targeted enough at the most vulnerable and that governments were making the same mistake with energy support measures. He told the BBC’s World Service:
They went to everyone… and now the consequences are coming home.
People will be left for years and even decades paying for that debt.
He said the same approach was being adopted to help people cope with rising energy bills.
Governments are saying we will take care of everyone, which is just too expensive.
This is pushing global debt to record levels and people at the bottom will be hardest hit, he said.
Virgin Wines expects boost from people staying at home
While times are tough, Virgin Wines, one of the UK’s largest wine retailers, expects a boost from people ditching the pub and staying at home to save money.
Trading was positive in August but softer than anticipated in September, impacted by the national period of mourning in light of the death of Her Majesty the Queen and the Group’s decision to desist from any marketing and promotional activity during this period.
Looking ahead, there will continue to be pressure on consumers’ disposable income and as such we are mindful of the potential impact on frequency of order and average order values.
However, as consumer spending comes under pressure, we are also aware that people are more likely to stay in and socialise at home rather than taking the more expensive option of going out. We expect top line performance will be relatively resilient and therefore now expect revenue growth to be broadly flat for the financial year 2023.
The company’s profit before tax, excluding exceptional costs, was little changed from last year at £5.1m (2021: £5.2m), and up £2.3m (+83%) from 2020. Revenues fell to £69m from nearly £74m in 2021.
Mark Brumby, leisure analyst at Langton Capital, has tweeted:
Hard to fault the logic when Virgin Wines says “as consumer spending comes under pressure…people are more likely to stay in and socialise at home rather than taking the more expensive option of going out”
— Mark Brumby (@brumbymark) October 26, 2022
Photograph: Gabriel Bush/REX/Shutterstock for BAFTA
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