UK borrowing costs hit three-month high amid ‘buyers’ strike’ fears; US inflation dips to 2.4% as jobless claims jump – as it happened | Business

Time for a recap.

UK benchmark borrowing costs have hit a three-month high today, as City traders brace for a possible increase in borrowing in this month’s budget.

Chancellor Rachel Reeves is also considering raising capital gains tax as high as 39%, in a scramble to raise funds for crumbling public services.

Analysts have calculated that tax rises worth £25bn woud be needed to avoid further austerity.

Inflation across the US has weakened to 2.4%, its slowest pace in more than three years.

UK surveyors have reported that national house prices are rising again, helped by hopes of lower interest rates.

Renters, though, are facing higher tenancy costs as some landlords sell up.

UK lenders have reported that the default rates on secured loans to households increased in the third quarter of this year, and are expected to increase again in the final quarter

Shares in pharmaceuticals group GSK have rallied after it agreed to settle US litigation over its heartburn treatment Zantac.

TSB bank has been fined £11m for mistreating customers.

Rachel Reeves considers raising capital gains tax to 39%

Anna Isaac

Rachel Reeves is considering raising capital gains tax as high as 39% in the budget, the Guardian can reveal, amid a scramble to raise funds for crumbling public services.

Treasury modelling being reviewed by the chancellor and seen by this newspaper shows officials are testing a range of 33% to 39% for capital gains tax (CGT). The wealth tax is paid by about 350,000 people and is levied on the sale of assets including second homes and shares but at significantly lower rates than wages.

Whitehall sources say there is growing concern about the limited options for tax rises to fill a hole the Institute for Fiscal Studies (IFS) thinktank says is as big as £25bn, ahead of the budget on 30 October.

“Some very big tax decisions are being left until very late in the day,” one senior source claimed. Another said the Treasury’s tax-raising plans were in “complete disarray”.

Here’s the full story by my colleague Anna Isaac:

Here’s some snap reaction from financial experts to today’s US inflation report.

Neil Birrell, chief investment officer at Premier Miton Investors,says:

“It’s hard to know if it’s US jobs data or CPI that is more important overall, but today it’s undoubtedly the CPI as it came in a little higher than expected, particularly core inflation. However, this shouldn’t be enough to worry markets or indeed the Fed.

Although there’s more data to be released before the next Fed meeting, this will probably firm up views that a 0.25% cut is appropriate. As we know, one rogue number can get people worried or excited in equal measure, but there’s nothing to do that today.”

Here’s Mahmoud Alkudsi, senior market analyst at ADSS:

“Inflation appears to still be cooling off from the elevated levels seen earlier in the year, with September’s year-on-year CPI coming slightly above the forecasted 2.3%. This has continued to the disinflationary pattern we have seen in the last several months, although not at the pace the markets had predicted. This pattern comes contrary to the unexpectedly strong job market data reported earlier in the month. These developments may give the Federal Reserve conflicting views when considering the pace of its interest rate cuts.

Slowing inflation has fueled expectations of a monetary policy pivot from the data-driven Federal Reserve. It appears that interest rate cuts could potentially fulfill the inflationary element of the Fed’s dual mandate, whilst possibly risking the overstimulation of the jobs market.

Patrick O’Donnell, senior investment strategist at Omnis Investment, suggests the report could weigh on markets today:

“A higher print than consensus forecasts on headline inflation today. Hot on the heels of the employment report last week, this will further pressure bond yields higher in the short-term. The read-through for equity markets is also negative at the margin.

Core CPI is still relatively elevated right now but we expect rental prices to continue to drag this measure down into 2025. For setting policy, the FOMC will remain more focused on growth data and the labour market, and we expect significant revisions to the report last week. Geopolitical developments and earnings season are going to be the key market drivers right now.”

The number of Americans filing for for unemployment benefits last week has jumped to their highest level in a year.

The Labor Department has reported that applications for jobless claims jumped by 33,000 to 258,000 last week.

That’s the most since early August 2023 and well above the 229,000 analysts were expecting.

Rising jobless claims could be a sign of softness in the labor market, but this may also be due to the stormy weather that has hit the US:

Newsflash: US inflation fell last month to its lowest in over three and a half years, but was higher than expected.

The annual US CPI rate has dipped to 2.4% in September, the smallest 12-month increase in consumer prices since February 2021, in the final set of inflation data before next month’s presidential election.

That’s down from 2.5% in August. Economists had forecast a larger drop to 2.3%.

The Bureau of Labor Statistics also reports that core inflation (excluding food and energy) rose by 3.3% over the last year.

The energy index decreased 6.8 percent for the 12 months ending September. The food index increased 2.3 percent over the last year.

On a monthly basis, prices rose by 0.2% in September alone.

Despite fears of a possible ‘buyers’ strike’ on UK debt, Chester Ntonifor, BCA Research’s Global Fixed Income Strategist, is recommending that clients buy more.

Ntonifor has advised investors to upgrade UK gilts to overweight, and downgraded European credit to underweight.

Chester explains:

“in our view, non-US bond yields will remain under pressure since their central banks will cut interest rates by more than is currently priced, as we suggested last week. This is becoming more apparent in the UK, which we upgraded to overweight today…

Quite simply, economic surprises in the UK are collapsing relative to those in the US. Elsewhere, we remain underweight JGBs, and maintain overweight positions in Canadian, European, and Kiwi government bonds.”

UK government borrowing costs have hit a three-month high today, as bond traders ponder whether Rachel Reeves will announce an increase in borrowing in this month’s budget.

The yield (or rate of return) on UK 10-year debt has risen to 4.231% today, the highest since 3 July.

Bond yields move inversely to prices (when one rises, the other falls); today’s moves suggest investors are seeking a higher interest rate for holding UK debt.

The move comes after Citigroup economist Ben Nabarro warned there was a risk of a “buyers’ strike” (a run on government bonds) if chancellor Rachel Reeves announced a rapid increase in investment spending.

Reeves has been mulling whether to change the way the national debt is measured to account for the value of assets such as roads, schools and hospitals. That could give the chancellor room to borrow as much as £50bn more than currently planned without breaking fiscal rules.

Yesterday, Nabarrro explained:

“If the rules are changed and there is a material risk, or the possibility is entertained that Rachel Reeves could invest something like £50bn next year, then I think it’s a conceivable risk [of a buyers’ strike].

“I don’t think it’s inherent in changing the fiscal rules at all. But it does require us to put some guardrails around that fiscal headroom and making clear it’ll only be spent in part; that it’ll be increased over time, and is policed by institutions. If that is the case then I think the risk is very low.”

Other advanced economies’ bond yields are also rising today, including the US and Germany, but not quite as quickly as the UK.

Inflation in Ireland has dropped to just 0.7%, a three and a half-year low.

Ireland’s Central Statistics Office has reported that annual inflation fell to its lowest since March 2021, down from 1.7% in the year to August.

The decline in annual inflation was driven by cheaper clothing and footwear (where prices fell by 7.5% over the year), and a 2.6% drop in housing, water, electricity, gas & other fuels.

In September alone, consumer prices fell by 0.9%, including a drop in the cost of transport (-5.2%) and recreation & culture (-2.2%).

On an EU-harmonised basis, Ireland’s annual inflation rate was 0% in September (meaning the cost of living was unchanged over the year).

More UK households have defaulted on their mortgages in the last quarter, new Bank of England data shows, and the situation is likely to worsen in the run-up to Christmas.

UK lenders have reported that the default rates on secured loans to households increased in the third quarter of this year, and are expected to increase again in the final quarter (October-December).

This is the seventh quarter in a row in which lenders have reported a rise in default rates on secured loans, as this chart shows:

However, default rates for total unsecured lending slightly decreased in the last quarter, helped by a drop in defaults on credit cards.

Karim Haji, global and UK head of financial services at KPMG, says:

“These latest figures suggest that many households are still struggling in the current environment.

Unsecured lending demand, while stable, remained elevated compared to the first quarter of the year. A fall in default rates for unsecured lending is an encouraging sign and reflects the cautious approach to credit being taken by households.

TSB bank has been fined almost £11m for failing to treat struggling customers fairly when they fall behind on their loans.

The Financial Conduct Authority has fined TSB £10,910,500 for failing to ensure customers who were in arrears were treated fairly.

The watchdog has found that TSB risked agreeing unaffordable payment arrangements with customers in difficulty or charging them inappropriate fees, because it lacked suitable systems and controls to secure fair outcomes.

The bank has paid almost £100m in redress to the 232,849 mortgage, overdraft, credit card and loan customers affected.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, says:

‘If you get into difficulty, you hope for – and we expect – fair treatment so a stressful situation isn’t made worse.

TSB’s woeful systems and controls exposed its customers to risk of harm and meant it missed opportunity after opportunity to do the right thing. While it did take action, it took us instigating a review before it acted effectively to address all the issues.’