UK public finances beat forecasts, as Ryanair boss apologises over cancellations –as it happened

Boost for government as Britain's borrowing fell in August, as Ryanair faces critics at its AGM

• Latest: UK deficit lower than expected
• Could give Hammond some wriggle-room
• Michael O'Leary: We made a major booboo
• Video: Pilots aren't overworked, and it's not difficult
• Ryanair apologises over flight cancellations
• Ryanair 'to hire 125 pilots' and raise pay...
• Introduction: US dollar rises as Federal Reserve triggers balance sheet reduction

5.48pm BST

After their record breaking runs, US markets paused for breath following the Federal Reserve's announcement it would begin winding down the stimulus programme which has been supporting the economy since the financial crisis.

The reaction in Europe was fairly subdued, with most markets heading higher. But continuing strength in the pound - now up 0.6% at $1.3573 - saw the UK's leading index slip back slightly. The final scores showed:

5.24pm BST

Riskier markets have shrugged off the US Federal Reserve's suggestion of another rate rise this year, but could fall sharply in time if the US economy shows signs of flagging, says Capital Economics. The consultancy's markets economist Oliver Jones said:

Risky asset markets took the Fed's unexpectedly-hawkish tone on Wednesday in their stride. We think that they will remain resilient over the next year and a half or so, even though we forecast that the Fed will hike rates once a quarter between now and the early 2019.

The US dollar and Treasury yields rose after the conclusion of the FOMC's meeting on Wednesday in response to the committee's signal that it is likely to raise the federal funds rate in December, despite the weakness of core inflation and the effects of the recent hurricanes. (The Fed also announced the start of balance sheet "normalisation", but this was widely expected.)

5.02pm BST

Bank shares have been boosted by the prospect of higher interest rates, in the wake of the US Federal Reserve meeting on Wednesday. Chris Beauchamp, chief market analyst at IG, said:

The prospect of higher rates in the key US market, and indeed even the possibility of a modest rate rise in the UK, has prompted investors to buy up financial services stocks in hope of better margins and improved profits and dividends. Europe has been bolstered by a weaker euro, as Janet Yellen manages to do what Mario Draghi could not or would not, with last night's arguably more hawkish statement putting some fight back into the US dollar. Today's speech from Draghi stayed off the topic of monetary policy, thus providing little for euro bulls to go on.

3.51pm BST

The eurozone consumer confidence figures were at their highest level for about 16 years, says ING Bank. Its senior eurozone economist Bert Colijn said:

The current economic environment in the Eurozone continues to be very favourable to the consumer, as job growth accelerates, wage growth has begun to improve, and inflation remains below the ECB's target. This helps the Eurozone economy as more confident consumers continue to boost household demand.

While the breakdown of individual questions from the September survey has not been released yet, recent data shows expectations of major purchases in the coming year have jumped to levels last seen before the crisis, which is in line with an increasingly positive assessment of personal finances. Expectations of households' future financial situation have been improving too and there are few doubts related to the historically low expectations of unemployment in the coming 12 months.

3.41pm BST

In the eurozone, consumer confidence rose by more than expected in September.

The European Commission's initial estimate showed confidence among consumers rise from -1.5 in August to -1.2, better than the unchanged reading that analysts had been forecasting.

3.18pm BST

After their recent record breaking runs, US markets have lost some ground in the wake of Wednesday's Federal Reserve meeting.

News that the Fed was still considering another interest rate rise this year and would begin cutting its $4.5bn worth of bond holdings has seen investors take a more cautious tone.

2.59pm BST

Monetary policy cannot tackle local financial imbalances in the eurozone area, and individual governments need to rely on their own tools to solve these issues, says European Central Bank president Mario Draghi.

In a speech in Frankfurt at the second annual conference of the European Systemic Risk Board, he said:

Financial and business cycles can potentially become de-synchronised, meaning that financial imbalances can grow in an environment characterised by relatively muted inflation. In such an environment, the use of monetary policy is not the right instrument to address financial imbalances, and may lead to substantial deviations of aggregate output and inflation from their desirable levels. This is particularly so in a currency union where monetary policy affects the entire region, but financial imbalances may be local in nature. Macroprudential policies, targeted at particular markets or countries, can play a key role in addressing such imbalances.

Despite recent progress, the level of non-performing loans (NPLs) on European banks' balance sheets remains high. At the end of 2016, the stock of gross NPLs in the EU banking sector was around a1 trillion. This number, however, does not take into account the fact that that collateralised lending plays an important role in Europe. For example, including collateral and provisioning, the coverage of NPLs is, on average, 82% in the euro area. Banks' profitability, however, is affected by the lower returns provided by the NPLs, given the weight of gross exposures in total assets: gross NPLs represent 4% of the total assets of euro area banks, against only 0.8% for US banks.

Much has been achieved since the global financial crisis. In particular, banks in Europe are more resilient and the banking union has advanced. Moreover, authorities have the mandates and tools to tackle risks in the banking sector and are using them. These improvements have created a financial system that poses fewer risks to the real economy.

At the same time, work remains to be done. Authorities need to watch out for blind spots, where risks can build up unnoticed, and use the tools at their disposal. And legislators need to be mindful that authorities require a broad range of tools to be able to tackle risks beyond the banking sector.

2.44pm BST

Trouble is brewing at UK outsourcing group Capita, as staff vote to hold a six-day strike in a dispute over pensions.

Members of the Unite union will walk out from October 5 after voting heavily in favour of industrial action.

"Capita's pension proposals will have far-reaching consequences for the retirement of many Unite members.

Some staff will lose a shocking 70% of their retirement income.

Workers at outsourcing group Capita are to stage a six-day strike next month in a dispute over pensions - @unitetheunion

2.33pm BST

2.20pm BST

The FT's Arthur Beesley has written about this morning's Ryanair AGM.

Here's a flavour:

At the AGM, a number of shareholders challenged Mr O'Leary, who took personal responsibility for the cancellations.

"We do have the sackcloth on. I have apologised personally to all of those passengers and to the ones we didn't disrupt," he said.

1.43pm BST

Over in America, there's been a sharp fall in the number of people signing on for unemployment benefit.

Around 259,000 Americans filed an "initial jobless" claim last week, much better than the 302,000 which Wall Street expected.

1.32pm BST

If you work for Ryanair, or have been affected by its flight cancellations, do please get in touch....

If you work for Ryanair we'd like to hear from you https://t.co/nbDrTFW8Wa

1.05pm BST

In other news, Standard & Poor's has fired a warning shot at China by downgrading its credit rating.

S&P warned that China's build-up of debt is a growing concern, as it cuts its rating by one notch, to A+ from AA-.

"China's prolonged period of strong credit growth has increased its economic and financial risks.

Although this credit growth had contributed to strong real gross domestic product growth and higher asset prices, we believe it has also diminished financial stability to some extent."

S&P downgrades #China from AA- to A+. Follows Moodys. I actually think China debt risks have fallen: corp earnings up, tighter regulation..

..odd to think China is a huge creditor nation, saves too much (46% of GDP) & consumes too little and has a weaker credit rating than....!

12.44pm BST

Ryanair's share price has recovered some of its early losses, and is now down just 0.7% today.

The news that the airline plans to hire 125 new pilots ASAP could be reassuring traders. But this still means the airline has lost almost 10% of its value this week.

The flight cancellations and fraught negotiations with pilots have overshadowed what would otherwise be a run-of-the-mill AGM for Ryanair. Ryanair shares dipped as Chief Executive Michael O'Leary apologised to shareholders for the management failure.

12.25pm BST

Here's my colleague Rob Davies's take on the Ryanair annual general meeting:

Ryanair boss Michael O'Leary has escalated the airline's dispute with pilots, saying they do not have a "difficult job" and claiming he can force them to give up a week of leave.

O'Leary is scrambling to prevent more disruption to the no-frills airline's schedule after last week cancelling up to 50 flights a day due to a rota "mess-up" that left it short of pilots.

Related: Ryanair boss says he may force pilots to change holiday plans

12.03pm BST

Michael O'Leary appears to be taking a carrot and stick approach with his pilots, warning that if they "misbehave there will be no goodies."

He also downplayed the news that some pilots are planning to work to rule, saying:

If you want and need to ask your staff to give up holidays no work to rule can alter that.

I don't even know how there would be industrial action in Ryanair. There isn't a union."

"We make mistakes. This time we made a major boo boo.

"A very big block of annual leave (for pilots) was over-allocated for September, October and November,"

11.29am BST

Reuters have more details on Ryanair's pay offer to pilots:

Ryanair will hand pilots at some of its largest bases a 10,000 euro annual pay rise on top of a 12,000 euro bonus offered this week to those who help the airline alleviate a pilot shortage, Chief Executive Michael O'Leary said on Thursday.

Pilots were offered the bonus in exchange for working an additional 10 days to plug a shortage that last week forced Ryanair to cancel more than 2,000 flights in September and October.

10.59am BST

Back in London, the Treasury has welcomed the drop in UK borrowing in August to 5.7bn, from almost 7bn.

A spokesperson says:

'We have made substantial progress in reducing the deficit, whilst taking a balanced approach that allows us to invest in our infrastructure and public services.

This approach is working but the national debt is still too high, so we must continue to live within our means and start reducing our debt."

10.57am BST

Sky News's Darren McCaffrey has just tweeted a video clip of Michael O'Leary denying that his pilots are overworked, or doing a "difficult job".

The Ryanair boss says:

If there are fatigue issues among pilots....on short-haul flying it is never as a result of flying.

WATCH: Michael O'Leary denies he has bad relationship with pilots but then has a pop at them. pic.twitter.com/9gQrxH1r9f

10.43am BST

Here's the Press Association's take on Ryanair's AGM:

Ryanair is planning to take back one week of its pilots' holidays to prevent any further flight cancellations, the airline's chief executive has said.

Michael O'Leary said pilots due to take a four-week block of holidays in the next few months because a change in annual leave rotas will be told to reduce that to three weeks.

10.43am BST

Michael O'Leary has revealed that Dublin-based pilots are getting a pay rise, and it will be offered to staff at some other bases too.

Ryanair's O'Leary says captains in Dublin to get an additional a10,000 from October plus 'attendance bonus' of a12,000.

"There has to be a fundamental change in how Ryanair deals with its pilots. Unfortunately the latest offers from Ryanair means it is a sticking plaster approach"

"That's where the point of anger is with the pilots, that Ryanair don't seem to be taking seriously the fundamental grievance about the precarious nature of the employment."

"Ryanair is not competing in the market place, there are many pilots that have left Ryanair such as the 140 to Norwegian Airlines but also many airlines throughout Europe have a holding pool of pilots and that holding pool is where the pilots have successfully competed the application process but awaiting a start date.

"We know that many of the pilots in these holding pools are actually Ryanair pilots waiting for a start date and when they get that start date they will then issue Ryanair with their notice."

10.40am BST

Guardian Business has launched a daily email.

Besides the key news headlines that you'd expect, there's an at-a-glance agenda of the day's main events, insightful opinion pieces and a quality feature to sink your teeth into each day.

Related: Business Today: sign up for a morning shot of financial news

10.30am BST

Back in Dublin, Michael O'Leary is continuing to answer questions over Ryanair's flight cancellations.

He's told the AGM that Ryanair doesn't have enough pilots to cover September, October and November, which is why it may force pilots to delay some holidays.

BREAK: @Ryanair boss Michael O'Leary announces they are going to recruit 125 pilots in next week or two. Also increase pay for some pilots.

Confronted by angry shareholder, Michael O'Leary admits "a major boo boo"

#ryanair shareholder asks "didn't you foresee this" Michael O'Leary says yes "only when we got into the weeds of it"

10.27am BST

John Hawksworth, PwC chief economist, says Philip Hammond will welcome the drop in public borrowing in August.

With the deficit below forecasts, Hawksworth believes chancellor Hammond could have some extra flexibility to boost spending in the budget.

Back in March, the OBR forecast that the budget deficit would rise to around 58 billion this year, but the latest data suggest that it may be similar to the 46 billion outturn for 2016/17. This would imply a budget deficit of just over 2% of GDP this year, which is already close to the Chancellor's medium term target for the deficit in 2020.

"All of this suggests that the Chancellor should have room for some easing of austerity in his Budget in November. This could involve extra money for priorities such as the NHS, social care, housing and infrastructure investment as well as some further relaxation of the public sector pay cap."

10.18am BST

Here's Howard Archer of EY Item Club on today's UK public finances:

Boost for #Hammond as #UK #public #finances see lowest Aug deficit since 2007 after first July surplus since 2002. PSNBex was 5.7bn (6.9bn)

Aug #UK #public #finances boosted by record #VAT receipts for month (up 5.6% y/y) which ties in with robust #retail sales

10.11am BST

Labour's shadow chancellor, John McDonnell MP, points out that the government has still failed to eliminate the UK deficit:

"These figures are yet another reminder of the last seven years of failed Tory economic policy, following on from the OECD just yesterday predicting growth in our economy to continue to slow next year.

"After one year in the job Philip Hammond has continued the record of failure of his predecessor. The deficit has still not been eliminated, the national debt continues to rise, yet the Chancellor is carrying on with austerity cuts that are weakening our economy further, and hitting the incomes of working families.

10.07am BST

The big picture of today's public finances is that Britain now owes almost 1.8 trillion, or 88% of annual economic output.

10.03am BST

August's public finances also suggest that Britain might borrow less than expected this financial year.

The annual deficit had been forecast to rise to 58.3bn, from 51.7bn - but borrowing since April is actually below expectations.

UK public sector borrowing fell 0.2 billion on 2016-17 to hit 28.3 billion in the year to August. On track to come in below OBR forecast. pic.twitter.com/2iXvZmaPlX

9.45am BST

Newsflash: Britain's public finances were stronger than expected in August.

Britain borrowed just 5.56bn to balance the books last month, the ONS reports. That's the smallest deficit for any August since the financial crisis struck a decade ago.

UK PSNBR (July) revised to a 1.3bn surplus from 0.8bn #gbp

9.35am BST

Crumbs! Michael O'Leary is telling shareholders that he's considering "taking back" a week's holiday from pilots, to fix the rota shortages that forced flight cancellations.

If that happens, pilots would receive extra pay for that week, he promises.

#Ryanair will ask pilots to surrender one weeks leave out of 4 - and offer double pay. Clear sign of shortage

9.30am BST

Newsflash: Ryanair's boss Michael O'Leary has apologised to shareholders at today's AGM over the airline's flight cancellations.

Ryanair CEO Michael O'Leary apologised to shareholders, and again to customers, for the cancellation of 2,100 of its over 103,000 flights over a 6 week period in September and October, due to a failure within its pilot rostering function.

Ryanair expects by the end of this week to have re-accommodated (or authorised refund requests to) over 95% of the 315,000 customers affected by these cancellations.

Looks like a couple of the big US pension funds voted against #Ryanair executive pay resolution ahead of today's AGM

9.22am BST

Ryanair's AGM is up and running:

Michael O'Leary has arrived for @Ryanair AGM at Ryanair H/Q Dublin against backdrop of flight cancellations #ryanaircancellations pic.twitter.com/XTHdhYHgJT

9.03am BST

Shares in Ryanair have fallen by 1.5% in early trading, extending their recent losses.

Shares in Ryanair have slipped 10% since it announced plans to cancel flights.

The selloff this morning is all about mounting concern over rising cost pressures which are likely to hit margins and profits.

8.58am BST

Ryanair shareholders are gathering in Dublin for the budget airline's AGM, and it could be a very bumpy ride.

Investors were already planning to revolt against executive pay at the airline, and vote against and the re-election of chairman David Bonderman. That was before this week's debacle over staff holidays, which means thousands of passengers are suffering flight cancellations.

Ryanair could sell tickets for its AGM later today - if it weren't for the fact that it would probably have to cancel a whole load of them at very short notice owing to a mess-up with its boardroom holiday rota.

Can you please, please let us in @Ryanair? We are not allowed passed this point. #thanks pic.twitter.com/uWJdWuxwph

8.55am BST

Disappointingly, Janet Yellen didn't give us any new clues yesterday on whether she'll seek a second term when her current stint as Fed chair ends in February.

Donald Trump's criticism of the Fed's actions has put Yellen's future in doubt. Potential replacements include veteran investment banker Gary Cohn (currently director of the National Economic Council), or former Fed governor Kevin Warsh.

Yesterday's Fed decision was deliberately long term. Consider it insurance against Fed Chair Ivanka https://t.co/1JzjZLy74U #economics #ubs

8.48am BST

The Financial Times says the Fed's decision to start unwinding QE is "historic":

Thursday's FINANCIAL TIMES: "Fed calls historic end to crisis-era QE and signals further rate rise" #tomorrowspaperstoday pic.twitter.com/rhIXaxZHYq

Today's @TimesBusiness front page: Fed weans US off stimulus after nine yearshttps://t.co/3wXbQjvzKs pic.twitter.com/cjDEZBvzln

8.37am BST

The strength of the US dollar has pulled sterling back down to $1.348, away from last week's one-year high over $1.36.

The euro has also taken a hit, down over one cent to below $1.19.

8.28am BST

Alex Lydall, Head of Dealing at Foenix Partners, says Janet Yellen's optimistic tone has helped to drive the dollar up.

The greenback rallied overnight as Fed chair Yellen signalled the official end to QE and crucially kept the door ajar for rate hikes this year despite split opinions on inflation trajectory among members.

Considering the catastrophes of late in the form of hurricanes, a sanguine approach from the Fed left markets aware a hike in December is still very much on the cards. Acknowledgment, not worry, was the general tone and optimism on the global outlook positions the Fed nicely coming into year-end with the process of balance sheet normalization set to kick-off in October.

8.26am BST

If you missed last night's Fed announcement, here's the latest Dot Plot (in yellow) showing how policymakers expect US interest rates to rise over the next few years.

Here's the only CHART that matters this morning. {DOTS<Go>} on @TheTerminal. And our full post-#FOMC analysis: https://t.co/uh72djsvEX pic.twitter.com/3OFvPxOkTA

8.15am BST

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

The move, announced after a two-day meeting by Fed officials, will start the gradual reduction of the central bank's $4.5tn portfolio of bonds and other securities, bought to keep interest rates close to zero in an attempt to kickstart the economy.

"The basic message here is that US economic performance has been good," Fed chair Janet Yellen said at a press conference. The Fed's decision had been made because "we feel the US economy is performing well" but she added the Fed could reverse course if conditions changed.

Related: The great unwinding: Fed begins slow demise of its post-crash stimulus

US Dollar Rallying as FOMC Signals Start of QE Unwind Next Month https://t.co/4PmU3s1rfq via @CVecchioFX pic.twitter.com/dNX1kE4O13

Asia stocks edging higher w/ reflation theme extending following Fed decision to begin bal sheet normalization & BoJ on hold. Dollar shines. pic.twitter.com/Y2ya8I9Tj9

Related: More Ryanair cancellations likely as pilots reject cash to work on days off