Mortgage approvals rise in September and bond investors look sanguine ahead of tomorrow's budget

Downward trend in oil price from higher production, falling demand in China and clean energy to continue

10-year gilt yields have risen in the past month but are within the range of other pre-budget periodsUK government borrowing costs have risen ahead of Rachel Reeves's budget on Wednesday.Some City investors say the chancellor's preparations for changing her fiscal rules could be contributing to a febrile mood in financial markets, amid fears that up to 50bn in extra borrowing for infrastructure investment could reawaken bond vigilantes betting against Britain. This includes warnings of a buyer's strike" if Reeves handles Labour's first budget since 2010 badly. Continue reading...

British Retail Consortium says prices falling at fastest rate in three years and are 0.8% lower than a year agoThe chances of a fresh cut in interest rates from the Bank of England next week have been boosted by a report that shows shop prices falling at their fastest pace in more than three years.The monthly snapshot from the British Retail Consortium showed prices were 0.8% lower this month than in October 2023 - compared to an annual fall of 0.6% in September. Continue reading...

Two days before the budget, the British prime minister promises better days lie ahead - but first, some pain

Rolling coverage of the latest economic and financial news

As Rachel Reeves prepares to unveil her measures, we look at how five of her predecessors broke the mould

A strategy of raising taxes, spending and borrowing all at the same time to fund investment has risks, but it has a logic too

Keir Starmer and Rachel Reeves were so desperate to win the election that they deprived themselves of the best tools for fixing their bleak inheritance'It saddens those of us who waited so long to see the back of the last lot that the new government has been so inept in its first 100 days. And it is particularly distressing that, while one hopes one's criticisms are constructive and made with the best of intentions, the Starmer government has been such easy meat for the rightwing press.It was the economist James Ball who used to say: beware of the OBE. He was not referring to the Order of the British Empire: those initials stood for One Big Explanation. For Keir Starmer, and Rachel Reeves, the one big explanation for their troubles is the inheritance" - far worse than they expected. Continue reading...

The chancellor says she will invest to reverse Tory decline, but stands accused of breaking party manifesto promisesLabour will launch a new era of public and private investment in hospitals, schools, transport and energy as momentous as any in the party's history in this week's budget, the chancellor, Rachel Reeves, has said.In an interview with the Observer before the first budget by a female chancellor, Reeves draws comparisons with Labour's historic reform programmes begun in 1945 by Clement Attlee, in 1964 under Harold Wilson and in 1997 under Tony Blair. Continue reading...

Leaders of the town, which has some of UK's highest levels of economic inactivity, are hoping for help from Rachel Reeves's budgetI'd love to work again, to have a reason to get out of bed in the morning," says Michelle. The former accountant from Barnsley has been out of work since the pandemic, but has found jobhunting tough amid a battle with the depression and anxiety she has faced since her teenage years.I've come out of a 30-year marriage. I got my first sicknote at the age of 57, first time unemployed. And everything went down hill from there," she says, wringing her hands under the table in a dimly lit room at the town's adult learning centre, alongside a dozen others in a similar position. Continue reading...

In one session after another, IMF officials repeated backing for principle of increased borrowing to drive growthSpeaking on Tuesday in Washington, the chief economist of the International Monetary Fund suggested he was relaxed about higher debt levels to fund public investment. He made the comment in answer to a question about the UK at the annual meetings of the IMF and World Bank, but it felt like a highly choreographed piece of theatre.Rachel Reeves was due to arrive at the meetings in the US capital the following evening and the IMF was aware that the UK chancellor was going to announce a significant overhaul of Britain's budget rules to allow for more investment by the state. Continue reading...

People holding their breath' to see what's in store for them in Rachel Reeves's first budget, reports GfK

Chancellor pledges to spend, but says there will be no Truss-style splurge when she changes fiscal rules in budgetRachel Reeves will pledge to reverse huge cuts in public investment in her budget next week after she confirmed that rules limiting her spending power will be overhauled to enable the government to release as much as 50bn for infrastructure spending.The chancellor said she would revise how the Treasury calculated shortfalls in the government budget over the rest of the parliament to free up funds to invest in public infrastructure. Continue reading...

Former chancellor says increasing borrowing means interest rates would be higher for longer' as Reeves says it will make space for investment'Nigel Farage, the Reform UK leader, has said that no one knows" who Robert Jenrick, the Tory leadership contender, is.Of the two candidates left in the contest, Jenrick is the one who is doing most to appeal to Tories who defected to Reform UK, because he is saying Britain should leave the European convention on human rights.I know the fella. Is he the chap that one day was on the very much on the left of the Conservative party and is now on the right of the Conservative Party?... No one knows who he is.I'm sure government can agree that support and providing opportunities for young people should be central to the policy of any government. We are glad to see the government working to build closer economic and cultural ties with Europe. We want to forge a new partnership with our European neighbours, built on cooperation, not confrontation and move to a new comprehensive agreement.We must build rebuild confidence through seeking to agree partnerships or associations helping to restore prosperity and opportunities for British people.We are not going to give a running commentary on the negotiations. We will obviously look at EU proposals on a range of issues, but we are clear that we will not return to freedom of movement. Continue reading...

People don't feel good about economic prospects, admits IMF chief Kristalina Georgieva

Ahead of the budget next week, the Guardian's John Harris is in Birmingham, where the city council in effect declared itself bankrupt in 2023. He spends time with people struggling with the severe spending cuts and asks what will happen if the chancellor Rachel Reeves does not offer more financial supportSupport the Guardian today: theguardian.com/politicspodFind out more about Saathi House here Continue reading...

After weeks of speculation, chancellor will tell IMF in Washington that UK's debt measure will be redefined to permit borrowing for investmentRachel Reeves will announce at the International Monetary Fund a plan to change Britain's debt rules that will open the door for the government to spend up to 50bn extra on infrastructure projects.After weeks of speculation, the chancellor will confirm at the fund's annual meetings in Washington on Thursday that next week's budget will include a new method for assessing the UK's debt position - a move that will permit the Treasury to borrow more for long-term capital investment. Continue reading...

New report upgrades outlook for UK economy with growth now forecast at 1.1% rather than 0.7%

Report says intense military operations in Gaza have left unprecedented humanitarian, environmental and social catastrophe'Gaza's economy has been left in utter ruin" by the year-long war between Israel and Hamas, and it would take 350 years to return to its pre-conflict levels, the United Nations has warned.In a report on the economic costs of the war prepared by its trade and development wing (Unctad), the UN said the fighting since Hamas killed more than 1,200 people in Israel on 7 October last year had devastated the remnants of Gaza's economy and infrastructure. Continue reading...

IMF predicts UK will grow by 1.1% this year, making it the joint third-fastest G7 country, but debt consolidation will be a challenge

Optimistic forecasts could be upset by high borrowing costs, war in the Middle East - or a Trump election win

ONS data shows higher debt interest payments and pay awards for public sector workers pushed figure to 16.6bnThe UK Treasury has said it will need to take difficult decisions in next week's budget after higher debt interest payments and pay awards for public sector workers pushed government borrowing to 16.6bn last month - the third highest September figure on record.In the last update on the state of the public finances before Rachel Reeves announces her tax and spending plans next week, the Office for National Statistics (ONS) said the UK's budget deficit was 2.1bn higher last month than in the same month a year earlier. Continue reading...

Move could raise 24bn a year say signatories including Jeremy Corbyn as polls suggest public supportA cross-party group of 30 MPs has urged Rachel Reeves to impose a wealth tax on Britain's rich in next week's budget rather than announce spending cuts that would hit the most poor hardest.In a letter to the chancellor, the MPs - including the former Labour leader Jeremy Corbyn and his then shadow chancellor, John McDonnell - say she could raise 24bn a year from a 2% tax on wealth above 10m and lay the foundations for a fairer, more sustainable economy. Continue reading...

Analysis from business and trade department says bill will significantly strengthen workers' right. This live blog is closedIn the past the weirdest budget tradition was the convention that the chancellor is allowed to drink alcohol while delivering the budget speech. But since no chancellor has taken advantage of the rule since the 1990s (and no one expects Rachel Reeves to be quaffing on Wednesday week), this tradition is probably best viewed as lapsed.But Sam Coates from Sky News has discovered another weird budget ritual. On his Politics at Jack and Sam's podcast, he says:Someone messaged me to say: Did you know that over in the Treasury as they've been going over all these spending settlements, in one of the offices, its full of balloons. And every time an individual department finalises its settlements, one of the balloons is popped.'There couldn't be a more important time for us to have this conversation.The NHS is going through what is objectively the worst crisis in its history, whether it's people struggling to get access to their GP, dialling 999 and an ambulance not arriving in time, turning up to A&E departments and waiting far too long, sometimes on trolleys in corridors, or going through the ordeal of knowing that you're waiting for a diagnosis that could be the difference between life and death.We feel really strongly that the best ideas aren't going to come from politicians in Whitehall.They're going to come from staff working right across the country and, crucially, patients, because our experiences as patients are also really important to understanding what the future of the NHS needs to be and what it could be with the right ideas. Continue reading...

Su Hardman on the news that the chancellor is expected to extend the freeze on income tax thresholds in the budget. Plus letters from Patrick Donovan, Prof Mike Stein and Michael Meadowcroft on Labour's tax plansI was stunned to read that Rachel Reeves is even considering extending the freeze on personal tax allowances (Rachel Reeves expected to extend stealth' freeze on income tax thresholds, 18 October). These have already been frozen for the best part of a decade thanks to a Tory government, and high inflation in recent years has exacerbated the punishing effects of this, particularly on those with lower incomes.Only last year, Reeves, as shadowchancellor, attacked the Tories for picking the pockets of working people" by freezing tax thresholds. It is a real kick in the teeth that a Labour government would even consider extending a measure that increases income inequality as much as this. Continue reading...

Economists at investment bank say markets are underestimating likely extent of action by Bank of England

Volkswagen Finance has agreed to pay over 21.5m in redress to around 110,000 customers who may have suffered harm because of its failings.Volkswagen Financial Services has apologised for the failings identified by the FCA, saying (via Reuters):We are in the process of concluding our remediation efforts as we continue to provide goodwill payments to affected customers and apologise for any detriment caused." Continue reading...

Exclusive: Health charity and other bodies say carving out new category of spending would save taxpayers moneyRachel Reeves is being urged to use next week's budget to ringfence health spending on prevention so it is protected from cuts when money is tight.A letter sent to the chancellor by a leading health charity, thinktanks and the body that represents accountants says carving out a new category of preventive spending would mean a healthier population and save the NHS money. Continue reading...

In Washington, finance ministers will face pressure for action to reduce their own debt and offer more resources to poorer nationsDebt, and why governments need to reduce it, will top the agenda at this week's annual meetings of the International Monetary Fund and World Bank in Washington.Finance ministers and central bank governors from around the world will gather in the US capital alongside thinktank and charity bosses to discuss the state of the global economy and its ability to generate a higher standard of living. Continue reading...

We need to deal with the climate effects of global capitalism the way we deal with inflation - by applying the brakesThe impact of the climate crisis is evident everywhere. Finance ministers meet in Washington DC this week for the annual meeting of the International Monetary Fund in the wake of two devastating hurricanes in the US within a month. Parts of the Sahara have been flooded for the first time in half a century.Scientists attribute the growing number of extreme weather events to a planet that continues to get hotter as the result of rising concentrations of greenhouse gases linked to human activity. Global temperature records are being broken with every year that passes and the idea that this can continue indefinitely is a fantasy. Continue reading...

The politically split Pennsylvania town shows why the race is so close - and it's unclear whether the president's legacy will be enough to carry Harris over the lineFrom the north, motorists pull into Scranton via the Joseph R Biden Jr Expressway. Cutting through the scenic Pocono Mountains, now at the start of autumn color season, they are greeted with a towering, electric billboard, blaring an encapsulating - if divisive - message to this working-class town: Democrats for Trump," it reads. Economy," it continues, with a green checked box next to the word.The sign in Biden's hometown is the perfect fall 2024 welcome mat in this crucial swing state filled with voters whose economic anxiety or satisfaction will decide next month's election. Continue reading...

The chancellor is set to announce a revenue-raising budget designed to reset Britain's public financesRachel Reeves is set to use one of the most pivotal budgets of recent times to call on businesses to pay more tax to help restore the NHS, amid warnings that the health service has been left with a 9bn hole in its finances.The chancellor is expected to stake her reputation on a tax-raising budget designed as a reset of the public finances. She has already had to deal with cabinet skirmishes over funding unveiled alongside the statement. However, Reeves is understood to believe that the public will accept a multibillion-pound hike in business taxes if it is linked to repairing the health system's finances. Continue reading...

A government with access to personal information could deliver welfare and services much more easily - and could also be a bulwark against the tech giants' business practicesThe government will need to intrude into people's lives more than ever to cope with spiralling demands on the state's finances. In the transition to greener technologies, the need to track who is emitting carbon and where they are doing it will only intensify.Last week's announcement by the mayor of London, Sadiq Khan, that he is employing more people to monitor cars coming into the ultra-low emission zone (Ulez) to make sure they are fined is another example of big brotherism that his counterpart in Manchester, Andy Burnham, decided Mancunians would not countenance. Continue reading...

The chancellor rightly wants to stimulate the economy by boosting growth. But she would be unwise to do it at the expense of the poorestThere is a danger that Labour will suffer the Macron effect when the budget is unveiled at the end of the month. Emmanuel Macron, who was first elected president of France in 2017, put business investment and building a culture of entrepreneurialism at the top of his to-do list - only to be condemned later as a friend of the rich.Rachel Reeves speaks a similar language when she says economic growth is her priority and that business people should be offered more support than even the Tories were prepared to countenance. Continue reading...

Toxic effect of high inflation" is hurting businesses, reports Begbies TraynorUK companies are cutting back on hiring due to economic uncertainty, new data this morning shows.The Recruitment & Employment Confederation (REC) has reported that the number of job vacancy adverts dropped below 1.6m last month, for the first time in two years.A fall in new job ads is symptomatic of a wait-and-see approach some employers are taking as they wait for more from the government around their plans to fuel the economy. This week's announcement of the Industrial Strategy has helped, as has the clarity on the Employment Rights Bill. A longer timescale for the Bill has settled fears of policies being rushed in, but there are still nerves about the longer-term impact on hiring with so much still to determine.This is why most businesses are looking to the Budget at the end of the month before they decide how to invest, to tell them what money they will have to invest in hiring. The Chancellor must demonstrate an understanding of the challenging cost environment that businesses face after a period of high inflation and interest rates, and the relief they now need.Today's Labour Market Tracker shows that Head Teachers and Principals (41.6%), School Midday and Crossing Patrol Occupations (25.5%) and Authors, Writers and Translators (19.9%) had the largest increase in the number of job postings in September."The arrival of new seasonal clothing and a surge in back-to-school bargain hunters helped deliver welcome growth in the non-food sector last month, despite a backdrop of rocky consumer confidence. At EE, we saw buoyancy in the tech sector, with a jump in smartphone sales driven by the launch of the new iPhone 16. Continue reading...

Many are still feeling the pinch of inflation while the fruits of growth disproportionately go to the better offWhen Ronald Reagan beat Jimmy Carter in the 1980 presidential election, 10 short words proved decisive. After a period in which high inflation had eroded living standards, the Republican challenger for the White House asked voters: Are you better off than you were four years ago?"The simple question that resonated so strongly with US voters 44 years ago has resurfaced in 2024 as the race between the vice-president, Kamala Harris, and the former president Donald Trump goes down to the wire. Continue reading...

Rachel Reeves is to seek advice from City experts to ensure big projects' value for money and reassure marketsRachel Reeves, the chancellor, is taking action to ensure her budget plan for a multibillion-pound increase in government borrowing to fund infrastructure projects avoids a Liz Truss-style meltdown in financial markets.Ahead of her tax and spending event on 30 October, the chancellor is convening on Friday the first meeting of a taskforce of leading City figures to advise on infrastructure projects. The government will also launch a watchdog to oversee public works and ensure value for money for the taxpayer. Continue reading...

The chancellor is aiming to make 40bn worth of tax rises and spending cuts to fill black hole' in public financesThe chancellor, Rachel Reeves, is exploring ways to raise billions of pounds extra in taxes at the budget.Labour outlined about 9bn worth of tax-raising measures in its manifesto, but also committed not to increase taxes on working people" using the three biggest revenue-raisers for the Treasury: income tax, national insurance and VAT. The party also committed to not increasing corporation tax on businesses. Continue reading...

Fall in inflation enables central bank to bring in quarter point cut to 3.25% after business and consumer slowdown

Rolling coverage of the latest economic and financial newsNewsflash: Inflation across the eurozone fell by more than initially thought last month, which may cement the chances of interest rate cuts today.Consumer prices across the euro area rose by 1.7% in the year to September, statistics body Eurostat reports, down from 2.2% in August.The lowest annual rates were registered in Ireland (0.0%), Lithuania (0.4%), Slovenia and Italy (both 0.7%). The highest annual rates were recorded in Romania (4.8%), Belgium (4.3%) and Poland (4.2%).Compared with August 2024, annual inflation fell in twenty Member States, remained stable in two and rose in five.We have always said we won't be taking plans for HS2 phase 2 back off the shelf after the Conservatives took a wrecking ball to the project and allowed costs to spiral completely out of control.

Leading authority on tax and spending policy to depart Institute for Fiscal Studies next year for Queen's College, Oxford

A proposed Italian-German bank merger makes sense for Europe, but Berlin is opting for domestic protectionismA potential merger between a German bank and an Italian rival would not normally elicit much interest beyond the business pages. But these are not normal times. The Italian bank UniCredit recently provoked a political backlash in Germany by acquiring a 21% stake in the German lender Commerzbank. Even chancellor Olaf Scholz weighed in, calling the Italian move an unfriendly attack". The significance of this row runs far beyond the worlds of Italian and German finance.News of the acquisition came just weeks after the publication of a report by Mario Draghi, the former president of the European Central Bank, on how to address the EU's declining competitiveness against the US and China. The former Italian prime minister warned that the EU faces slow agony" unless it takes radical action. One of Draghi's key recommendations was the need for deeper financial integration. In that context, German hostility to any tie-up raises serious questions about Berlin's political commitment to wider European reform. Continue reading...

In today's newsletter: Chancellor Rachel Reeves is painting a bleak picture ahead of the budget later this month. Here's what all the jargon means Sign up here for our daily newsletter, First EditionGood morning. I'm really sorry about this, but today's newsletter is about the extent of the black hole" in the public finances and the government's fiscal rules.I don't like this any more than you do: I'd frankly rather be writing about whether King Conker is a cheat. But the budget is nearly upon us, and the chancellor, Rachel Reeves, has started talking about a 40bn funding gap, when you might have only just got used to being alarmed about the 22bn black hole". Several of today's front pages carry reports of planned tax rises to balance the books; meanwhile, Reeves is planning to redefine debt to give herself more room for manoeuvre. If you have found yourself confused by this, congratulations on at least paying close enough attention to notice how knotty it all is.Music | Liam Payne, a former member of the boyband One Direction, has died after falling from a third-floor hotel room in Buenos Aires. Hundreds of fans gathered outside the hotel to pay tribute after the news, while authorities in Argentina said they were investigating the circumstances of Payne's death.National security | Counter-terrorism police are investigating whether Russian spies planted an incendiary device on a plane to Britain that caught fire at a DHL warehouse in Birmingham in July, the Guardian can reveal. Investigators are examining possible links with a similar incident in Germany, also in July.Extremism | An international network of race science" activists seeking to influence public debate with discredited ideas on race and eugenics has been operating with secret funding from a multimillionaire US tech entrepreneur. Seattle businessman Andrew Conru pulled his support after being approached by the Guardian.Asylum | Nearly 63,000 people who were waiting for their cases to be processed at the time of the general election are expected to be granted asylum after Labour dropped the Rwanda deportation scheme, an analysis has found. The Refugee Council said the asylum backlog was on track to be 59,000 cases lower at the start of 2025 after the processing of claims accelerated.US election | Kamala Harris said her presidency would not be a continuation of Joe Biden's presidency" in her first interview with Fox News as she criticized Donald Trump over his threats against the enemy within". In a contentious interview, Harris was pressed on subjects where she has come under attack from the right including immigration and the rights of transgender people.That just means debt should be falling by the last year of that period. That's it. Think about what that means: it's like saying on 1 January, right, I'm going to go on a diet this year, but I'm going to lose all the weight in December.Nobody would take you seriously if you said that, and economists from a broad spectrum think it's stupid. Fiscal rules are there to look plausible, they are often broken when it comes to the crunch, and they rely on the public not really knowing what they mean." Continue reading...

Focus on conflict, corruption and poverty heightens perception of risk, raising interest on sovereign debt, authors sayAfrica loses up to 3.2bn yearly in inflated interest payments on sovereign debt due to persistent negative stereotypes that dominate international media coverage of the continent, according to a new report.Research by consultants Africa Practice and the advocacy non-profit Africa No Filter suggests that media portrayals, especially during elections when global coverage is heightened, focus disproportionately on conflict, corruption, poverty, disease and poor leadership, widening disparities between perceived and actual risks of investing in the continent, and creating a monolithic view of Africa. Continue reading...

Getting rid of SDRT would pay for itself over time because other receipts would rise, abolitionists sayRachel Reeves is looking for taxes to raise, rather than ones to abolish. Never mind: here is a tax that ought to be scrapped by a government that calls itself pro-growth, pro-business and pro-investment, which was the pitch at this week's big summit. What's more, the enticing claim from abolitionists is that getting rid of the tax could - with a few qualifications - pay for itself over time because other Treasury receipts would rise.The tax is stamp duty on shares - or, in full, stamp duty reserve tax, or SDRT. It is the 0.5% levy on purchases of shares in UK companies that brought 3.8bn into the Treasury in the 2022-23 tax year. Ireland has a higher rate, 1%, but nobody else does. The US, China and Germany don't impose any equivalent tax at all. So the claim that the UK is at a competitive disadvantage in attracting listings and liquidity to its stock market looks solid. At a moment of panic over the sleepy state of London, especially at the bottom half of the stock market, that point ought to resonate. Continue reading...

Labour set out plans to raise taxes by 7.3bn in its manifesto - but Treasury briefing suggests 40bn in tax rises and spending cuts neededRobert Jenrick has finished his speech, and he is now taking questions.Q: Kemi Badenoch says she is Labour's worst nightmare. Is she right?I think that our party faces an existential challenge right now. Our party has no divine right to exist. That's why we need to get the choice right in this leadership election, and that's why I stand for ending the drama, ending the excuses, and actually delivering for the British people. Continue reading...

UK inflation drops below 2% target in September, weakening pound, and likely meaning a small increase in state benefits next year

Payments such as universal credit linked to previous September's figure, meaning a rise of just 1.7% in AprilLast month's surprise fall in UK inflation lands with bad timing for millions of people who receive state benefits linked to the figure, who can now expect their payments to rise by just 1.7% next April.A number of benefits, including universal credit, are increased each tax year in line with the cost of living figure for the previous September. Continue reading...

Surprise annual drop to 1.7% in September raises chance of interest rate cuts, increasing budget leeway