UK government borrowing misses targets; historic German bond sale – business live

UK borrowing is rising faster than expected this year, as government spending outpaces income

• Latest: UK surplus weaker than hoped
• Surplus of 1.3bn in July misses forecast of 2.7bn
• July should be a strong month for tax receipts
• UK has borrowed 6bn more this year already

6.26pm BST

Donald Trump has seized on Germany's historic debt auction as another weapon to beat the Fed with:

So Germany is paying Zero interest and is actually being paid to borrow money, while the U.S., a far stronger and more important credit, is paying interest and just stopped (I hope!) Quantitative Tightening. Strongest Dollar in History, very tough on exports. No Inflation!.....

....WHERE IS THE FEDERAL RESERVE?

5.13pm BST

After a solid day's trading, the FTSE 100 index has closed 1% higher at 7,203, up 78 points.

The pound is still down on the day at $1.214, a drop of 0.25%.

Sterling gave some of the gains that were made yesterday, but it is still well above the lows of last week, so traders might be getting used to the idea of a no-deal Brexit seeing as it appears we are heading in that direction.

2.59pm BST

Time for a quick recap

Related: Government likely to exceed budget target by 8bn this year

Related: HS2 could be scrapped as critic gets role in independent review

2.48pm BST

My colleague Severin Carrell has spotted that Scotland ran a deficit seven times higher than the UK as a whole last year, despite again cutting its overspend on public services.

He writes:

The latest Government Expenditure and Revenue Scotland (Gers) figures showed there was a record gap of nearly 2,000 per person between how much was spent on public services and debt repayment, and total tax revenues for 2018/19.

Scotland's notional deficit stood at 12.6bn or 7% of GDP, including North Sea oil revenues, compared to the UK's total 23.5bn deficit - which includes Scotland's figure, equivalent to 1.1% of UK GDP.

Related: Scotland's 2018 deficit higher than UK as a whole last year

2.45pm BST

US retailer Target has lifted the New York stock market, by beating profit and revenue forecasts.

Target grew earnings by 17% in the last quarter, as its in-store pickup and same-day shipping services proved popular.

2.36pm BST

Ding ding! Wall Street has opened higher:

2.32pm BST

Back in Germany, a slowdown in machinery exports has reinforced fears that Europe's largest economy is heading into recession.

Exports of German-made equipment shrank by 1.8% in the second quarter of 2019, according to the German Mechanical Engineering Industry Association (VDMA), having risen by 3.8% in January-March.

"The uncertainty triggered by the trade conflict between the United States and China in particular, as well as the lack of prospects for an agreement on Brexit, are hurting our export-focused sector."

2.05pm BST

Just in: President Trump is launching yet another attack on America's central bank for not cutting interest rates harder and faster.

In a flurry of tweets, Trump begins by claims the media are trying to talk the US economy into a recession:

The Fake News LameStream Media is doing everything possible the "create" a U.S. recession, even though the numbers & facts are working totally in the opposite direction. They would be willing to hurt many people, but that doesn't matter to them. Our Economy is sooo strong, sorry!

Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He's like a golfer who can't putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don't count on him! So far he has called it wrong, and only let us down....

.....We are competing with many countries that have a far lower interest rate, and we should be lower than them. Yesterday, "highest Dollar in U.S.History." No inflation. Wake up Federal Reserve. Such growth potential, almost like never before!

1.36pm BST

Technically, the German 30-year bond auction is a failure, as Berlin sold less than half of the debt on offer.

On the other hand, if investors are paying for the privilege of lending to you, it's hardly a complete flop.

Germany only got 40% or so of the EUR2bn it wanted from the 30y zero-coupon bunds. Still, EUR824mn at -0.11% for 30 years.

12.50pm BST

Back in the financial markets, Germany has broken new ground by selling 30-year government debt with a zero coupon.

The happy investors in the new German 30-year benchmark will lose more than 3% of their investment for sure (in nominal terms), if they hold the bond until maturity. This is the crazy world we live in.

#Germany #Bund - Ok not surprising given the -0.11% yield on offer - but Germany manages to sell just EUR 824 Mln of the EUR 2.0 bln of the new 0% 2050 Bund on offer #fail. So much for #negative #yields being the new normal?

Germany sold the world's first 30-year bond offering a zero coupon, with an effective yield of -0.11%. Demand was pretty weak. @bloombergtv @queenofchartz pic.twitter.com/0rlq6LZyBx

12.41pm BST

A clarification to that earlier post: Ryanair's Irish pilots have been blocked from striking later this week.

The budget airline is now seeking an injunction at the high court in London to prevent UK-based pilots walking out. Sorry for the confusion....

Related: Ryanair wins high court injunction to stop Irish pilot strikes

12.27pm BST

Today's borrowing figures are the first released since Sajid Javid replaced Philip Hammond at the Treasury nearly a month ago.

They're a reminder of the challenge facing Britain's finance ministry, which already didn't expect to balance the books until the mid-2020s.

Worse than expected public finances deliver headache for new chancellor https://t.co/UXdk7IaQLc

11.58am BST

Two important pieces of transport news:

1) The government has appointed a major critic of its High Speed 2 rail project to help lead a review into the project.

Related: HS2 in doubt: review into whether rail project should proceed

Update for Irish customers: pic.twitter.com/X1vaXKDNVs

11.46am BST

On the other hand, Britain's widening deficit might undermine the PM's efforts to boost spending.

Richard Hughes, Macroeconomic Policy Unit Research Associate at the Resolution Foundation, explains:

"Borrowing was 6 billion higher in the first four months of this year than the same period last year. The Office for Budget Responsibility had been expecting a 29 per cent increase in borrowing for this year as a whole, but we're seeing borrowing up twice that so far, at 60 per cent.

Crucially these higher borrowing figures come before recent decisions by the new government to turn on the spending taps, and complicate the government's intention to increase public spending in the September spending round if they also want to remain committed to the current fiscal rules."

11.19am BST

Boris Johnson's rash of spending pledges - including more police and more NHS funding - will also blow a hole in the deficit this year.

Josie Dent, Senior Economist at the CEBR think tank, explains:

Boris Johnson has announced several expansionary fiscal policies since becoming Prime Minister, which are likely to increase government borrowing and expenditure in the future.

Among the increased spending measures, he has promised more money for no-deal preparations and funding for an additional 10,000 prison places. He has also pledged to speed up the implementation of full fibre broadband and increase school funding. Meanwhile, the Prime Minister has also shown support for plans to raise the higher income tax band to 80,000, in addition speaking favourably about a cut to the rate of tax on company profits.

11.02am BST

Today's public finances also show how the government has failed to eliminate the budget deficit, in the decade since the financial crisis began.

10.56am BST

John McDonnell MP, Labour's Shadow Chancellor, isn't impressed by the jump in borrowing this financial year, saying:

"With the Conservatives only interested in forcing through a No Deal Brexit, nine years of economic mismanagement have left our public services in a terrible state ahead of the Spending Review.

"Instead of borrowing yet more money to fund their failed programme of tax cuts, the priority has to be reversing the damage done to schools and social care, and stopping the rollout of Universal Credit which is causing so much hardship.

10.55am BST

Economist Rupert Seggins has spotted that higher public sector wages have helped push the deficit higher this year.

That follows the abolition of the notorious 1% pay cap on public sector pay increases last year.

1. UK public sector borrowing at 16bn in the financial year to July. Up 6bn on the same period last year. Mainly down to a 5.6bn increase in central gov't receipts being outweighed by a 10.8 bn increase in central gov't spending. Local gov't borrowing up 0.8bn. pic.twitter.com/K56LlziyUH

2. Biggest drag on central government revenues has been less money coming to the Treasury from the Asset Purchase Facility. Coffers have been most boosted by growth in NICs & interest & dividends received. pic.twitter.com/cgWkgqR2OR

3. On the spending side of the coin, it's current spend, staff costs & investment that have been the biggest boosts this year, with the only major downward contribution to overall growth coming from public sector pensions (net of contributions). pic.twitter.com/4BwiUxGvcM

10.37am BST

Thomas Pugh of Capital Economics agrees that July's disappointingly small budget surplus means the UK may miss its deficit target for the 2019-20 financial year.

Total borrowing for the current financial year was expected to rise to 29.3bn, up from 23.6bn in 2018-19.

It seems likely that government borrowing will continue to overshoot the OBRs forecast over the next few months as the government ramps up spending on preparations for a no deal Brexit.

What's more, a change in the accounting treatment of student loans in September will raise the deficit by more than 10bn a year. However, we doubt this will prevent the Chancellor from loosening fiscal policy in a one-year spending review in September or in an autumn budget, either before or after Brexit. Just how far borrowing rises will depend on whether there is a deal or a no deal, or a delay.

Okay the takeaway from the UK Public Finances data is that the spending taps are now open with an extra 6.5% being spent by the UK government compared to July last year. #GDP

So far this fiscal year the UK government has spent some 5.3% more than in 2018 #FiscalBoost #GDP

"As we lead up to the 31 October Brexit deadline, it's important that the government gets to grips with the bigger, long-term picture, which is maintaining the sustainability of our public finances.

he government has a responsibility to instil confidence back into the UK economy, which will be essential if the economy is going to be in the best shape to face the challenges and opportunities of life outside the European Union."

10.16am BST

Just in: the UK is on track to MISS its borrowing targets this financial year.

The latest public finances, just released, show that Britain posted a smaller budget surplus than hoped in July.

9.44am BST

European stock markets have opened higher today, despite Donald Trump's latest attack on China.

Italy's FTSE MIB is the top performer, gaining 1.5%, on hopes that a new coalition government can be formed.

This firmly green open came despite Trump doubling down on his trade war rhetoric. The President appeared to dismiss the risk of a recession, shifting to an ideological stance in the face of economic warning signs, stating the need to 'take China on' makes the battle worthwhile and that whether the outcome is good or bad in the short term is 'irrelevant'.

That kind of talk puts even more pressure on the Fed to safeguard the American economy, meaning investors are going to be on high alert for hints that the central bank is prepared to cut rates against relatively soon when they pour over July's meeting minutes this evening.

9.39am BST

Over in Rome, the battle to end the latest Italian political crisis has begun.

Related: Italian PM resigns with attack on 'opportunist' Salvini

Asked if he feared a new euro zone crisis, Scholz told German television:

"No, there is no sign of that." Agreement had been reached with Italy on developing the European stability criteria even with the current government in Rome, he said. "And it looks as if a new government, perhaps with a different composition, will emerge."

#Germany's Scholz sees no sign #Italy will trigger euro crisis https://t.co/siVODHWAAm

9.38am BST

Overnight, JP Morgan warned that the trade war will hit American families this autumn.

It believes that the next swathe of tariffs, starting in September, will push the total cost towards $1,000 per year per household:

JPMORGAN: " .. the average estimated annual tariff cost per household is expected to increase from ~$600 to ~$1,000 with Phase III implementation at a rate of 10%, which would offset majority of the benefit the US households received from the Tax Act (est. ~$1,300)." pic.twitter.com/6L7Q63c39a

2. JPMorgan has a list of US companies most exposed to the Sept 1 tariffs .. pic.twitter.com/0d0P5ZyjGX

3. ... and the US companies exposed to the (delayed) Dec 15 tariffs: pic.twitter.com/pg6UGNZluo

9.04am BST

Trump's criticism of China helped to dampen the mood across Asia-Pacific markets today.

Asian stocks are mixed, with markets reluctant to get ahead of themselves in hoping for a near-term resolution to the US-China conflict. The intensifying concerns over the state of the global economy have only soured the outlooks for open and trade-dependent Asian economies, with such fears feeding into the performances of risk assets.

Until there is a meaningful breakthrough in the US-China impasse, it would be a big ask for Asian assets to carve out substantial gains over the near-term. A more pronounced slowdown in the global economy will only reflect negatively in the currencies across Asia and emerging-markets.

8.52am BST

With relations with China stretched, the US is hoping to make headway with Japan over trade.

Toshimitsu Motegi, Japan's economy minister, is due in Washington later today to discuss a "mini" bilateral trade agreement with Robert Lighthizer, the US trade representative.

8.32am BST

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

"It's about time, whether it's good for our country or bad for our country short term.....The fact is somebody had to take China on."

President Trump says his trade war with China will help in the longterm despite recession fears: "I am doing this whether it's good or bad ... somebody had to take China on" https://t.co/LKwvtZnflM pic.twitter.com/gTbcHUYr26

"This is something that had to be done. The only difference is I am doing it," he said.

"China has been ripping this country off for 25 years, for longer than that and it's about time whether it's good for our country or bad for our country short term. Long term it's imperative that somebody does this."

President @realDonaldTrump: "We have to solve the problem with China." pic.twitter.com/ElNZ6SY7hc

"We're very far from a recession...In fact, if the Fed would do its job, I think we'd have a tremendous spurt of growth, a tremendous spurt."

....The Prime Minister was able to save a great deal of expense and effort for both the United States and Denmark by being so direct. I thank her for that and look forward to rescheduling sometime in the future!