Retail sales slide, as UK consumer confidence is hammered by inflation – business live

The oil price has hit a three-week high this morning, after Israel security officials signalled their readiness to embark on a ground offensive into Gaza.

Brent crude rose 1.5% to hit $93.79 per barrel, the highest since the end of September, as tensions in the Middle East kept markets on edge.

Gold is also rising this morning, as Raffi Boyadjian, lead investment analyst at XM, points out:

The ongoing conflict in the Middle East continued to weigh on market sentiment on Friday as investors were on alert for a possible escalation over the weekend. With reports suggesting that a ground offensive by Israel into the Gaza Strip could be imminent, oil futures headed higher, extending their weekly gains to between 2% and 3%.

Gold, which has been the safe haven of choice during this latest episode, climbed to a three-month high above $1,980/oz, as the risk of the conflict widening appears to be growing. Tensions on Israel’s northern border with Lebanon are boiling over after Hezbollah reportedly fired more rockets, while a US warship intercepted three missiles from Yemen, likely to have been launched by Iranian-backed Houthi forces.

European stock markets are sliding into the red again today, as they head towards sharp weekly losses.

The UK’s FTSE 100 index is down 53 points or 0.7% at 7445 points, a two-week low.

The FTSE 100 has lost 2% so far this week, as investors have fretted that conflict in the Middle East could spread.

Russ Mould, investment director at AJ Bell, says:

“The FTSE 100 is on track to end the week nearly 2% lower, the result of a challenging period for investors worried about war in the Middle East, interest rates potentially staying higher for longer and mixed messages from large corporates in the US.”

The pan-European Stoxx 600 is down 1% this morning, at a seven-month low, with Germany’s DAX and France’s CAC both down 1.2%.

European shares are set to post their biggest weekly loss in three months.

Britain’s long-term borrowing costs have hit their highest level since the early days of Tony Blair’s administration.

The yield, or interest rate, on 30-year British government bonds has touched the highest in more than 25 years this morning.

It rose as high as 5.119%, up 4 basis points today, to highest since September 1998, Reuters reports. That takes it above a previous peak of 5.115% set on 4 October.

Yields rise when price fall, and indicate the cost of issuing new government debt.

Today’s move comes amid the wider bond market selloff that has gripped markets this autumn.

“Poor inflation news in the UK has seen gilt yields close in on a new cycle higher,” says Mark Dowding, of RBC BlueBay Asset Management.

Phillip Inman

Phillip Inman, the Observer’s economics editor, said the lower-than-expected debt payments that were a feature of today’s public finance figures (see earlier post) disguise a serious dilemma for the Treasury.

He writes:

“There may be calls from Tory MPs for tax cuts based on an estimated £25bn undershoot on the forecasts for the 2023-24 annual spending deficit, but the Treasury would struggle to justify that to international lenders – the ones that panicked when Liz Truss announced unfunded tax cuts.

Much of the boost to the Exchequer came from inflation-linked increases in tax receipts – from higher wages feeding into income tax revenues and higher VAT payments – that will need to be channelled back into higher welfare payments and to cash-strapped councils.

Also, as the Resolution Foundation said, lower debt interest payments in September flatter to deceive. That’s because inflation is expected to be higher for longer, keeping interest higher for longer and increasing the longer term debt bill.

The Foundation said:

“The longer-term higher expectations for interest rates will leave the Chancellor even less room for manoeuvre in the Autumn Statement. A one percentage point rise in rates currently increasing borrowing by £15bn in five years’ time’.”

There’s not much good news for the government this morning, as they digest two historic byelection defeats and see the retail sector sliding into a possible recession.

But there is one glimmer of optimism – UK borrowing continues to undershoot forecasts.

The UK recorded a smaller-than-expected budget deficit of £14.3bn in September, the Office for National Statistics said this morning.

That’s £1.6bn less than a year ago, in September 2022, and the sixth highest September borrowing since monthly records began in 1993.

Significantly, it is lower than the £20.5bn which the Office for Budget Responsibility had forecast for September, suggesting chancellor Jeremy Hunt will come under pressure from MPs to consider tax cuts in his autumn statement.

Hunt has pushed back against calls to ease the tax burden, though.

September’s deficit shrank due to higher tax receipts, and a fall in the interest payment on government debt (thanks to the fall in the RPI index this summer).

Martin Beck, chief economic advisor to the EY ITEM Club, says:

Were the pattern of recent months to continue over the rest of 2023-2024, the full-year deficit could come in around £25bn below the OBR’s forecast of £131.6bn.

Sale of Telegraph newspapers and The Spectator kicks off

Mark Sweney

The sale of the Telegraph newspapers and The Spectator has formally kicked off, thwarting a last ditch attempt by the Barclay family to shut down the auction with a blockbuster £1bn offer.

This morning the boards of the parent companies of Telegraph Media Group (TMG), the parent company of the Daily Telegraph and Sunday Telegraph, and The Spectator said that advisers Goldman Sachs has launched a sales process for each of the businesses.

Earlier this week, the Barclay family tabled an offer valuing the Telegraph newspaper group at £1bn in an attempt to stop the sale process heading to an auction and deter rival bidders from challenging them.

The Barclays acquired the Daily and Sunday Telegraph as well as the Spectator in 2004 but Lloyds bank took control of them in June after the family failed to reach agreement over more than £1bn in unpaid debt.

Lloyds resisted multiple previous proposals tabled by the Barclays, and the bank has been keen to see what value might be placed on an influential media asset such as the Telegraph in an open auction.

Other potential bidders include Axel Springer, which lost out to the Japanese conglomerate Nikkei in the takeover battle of the Financial Times in 2015, the Daily Mail owner Lord Rothermere, and Sir Paul Marshall, the founder of the London-based hedge fund Marshall Wace and a minority investor in GB News.

Marshall is forming a consortium that includes the US hedge fund billionaire Ken Griffin.

There are also bids being put together by National World, which is run by David Montgomery, the former chief of the Mirror newspaper group. And Sir William Lewis, the former News UK, Dow Jones and Telegraph executive.

Rupert Murdoch’s News UK is considered a potential bidder for The Spectator.

Any deal to buy the Telegraph is likely to draw close scrutiny from the UK government and regulators such as Ofcom and the Competition and Markets Authority, including a public interest test and, potentially, plurality and competition investigations, depending on who wins the auction.

Bank of England governor Andrew Bailey has predicted inflation will fall this month.

Speaking to the Belfast Telegraph, Bailey said October’s inflation figures, due in a month’s time, is expected to show a “noticeable drop” in the headline rate of price rises.

The sharp rise in energy prices last year will fall out of the annual inflation comparison, while Ofgem’s energy price cap means average bills fell this month.

Bailey also said that September’s inflation figures, which were released on Wednesday, were not far off what the BoE expected – even though the CPI measure of rising prices stuck at 6.7%.

He said:

“We were not expecting much change in inflation.

It was not far off what we were expecting. Core inflation fell slightly from what we were expecting and that’s quite encouraging”.

Bailey also told the Belfast Telegraph that the Windsor Framework has brought “confidence” to Northern Ireland, after meeting with businesses in Newry.

The pound has dropped this morning, suggesting some traders think the fall in retail sales makes another increase in interest rates less likely.

Sterling is down half a cent against the US dollar at $1.2094.

Neil Birrell, chief investment officer at Premier Miton Investors, says the Bank of England will welcome the fall in consumer spending, as it tries to bring inflation down to its 2% target (it was 6.7% last month):

“After sticky UK CPI data showed food price inflation slowing, but rising petrol prices negating it, retail sales slowed more than expected in September. It’s not surprising to see the consumer sector under pressure given what has been thrown at it.

This data will be seen as good news by the Bank of England, although it’s unlikely to be a major factor in their policy decisions.”

Britain is facing “the start of another retail recession”, warns consultancy group Capital Economics.

Following the 0.9% drop in retail sales volumes last month, their assistant economist Alex Kerr explains:

The 0.9% m/m fall in retail sales volumes in September meant sales volumes fell 0.8% q/q in Q3 and suggests that after the 18-month-long retail recession came to an end in Q1, the sector may already be back in recession.

And as the drag on activity from higher interest rates intensifies, we still think that real consumer spending will decline by 0.5% from its peak to its trough over the coming quarters.

Grant Fitzner, chief economist at the ONS, says:

“Retail sales fell notably in September with retailers telling us that cost of living pressures are influencing consumers, particularly for sales of non-essential goods.

“It was a poor month for clothing stores as the warm autumnal conditions reduced sales of colder weather gear.”

Newsflash: Retail sales across Great Britain have fallen by more than expected last month, underlying the drop in consumer confidence flagged by GfK this morning.

Retail sales volumes fell by 0.9% in September 2023, following a rise of 0.4% in August 2023, new figures from the Office for National Statistics show.

That’s worse than expected – economists had forecast a 0.2% monthly fall.

On an annual basis, sales volumes were 1% lower than a year ago (although inflation meant that people actually spent 4.7% more, but got fewer items).

The squeeze on household budgets hit spending, while demand for autumn clothing was weak due to warm weather in September

The ONS says:

Non-food stores sales volumes fell by 1.9% in September 2023; retailers reported that the fall over the month was because of continuing cost of living pressures, alongside the unseasonably warm weather reducing sales of autumn-wear clothing.

GfK’s major purchase measure – an indicator of confidence in buying big ticket items – saw the sharpest drop of 14 points in October.

That is a significant turnaround from last month’s four-point increase – something that will concern retailers in the run-up to Christmas.

Confidence in personal finances over the next 12 months fell six points to minus eight, although it remains 26 points higher than this time last year, while expectations for the general economic situation over the coming year has fallen by eight points to minus 32 – 29 points higher than last October.

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

UK consumer confidence has tumbled this month as households grow more nervous about the propects for their personal finances and the wider economy.

The latest gauge of consumer optimism from GfK dropped to a three-month low of -30 in October, down from September’s reading of -21.

Joe Staton, client strategy director at GfK, says confidence has fallen because many households are struggling to meet bills, such as mortgage payments and rents.

“This sharp fall underlines that the cost-of-living crisis, and simply not having enough money to make-ends-meet, are still exerting acute pressure for many consumers.”

Staton adds that there is “growing unease” among consumers, citing the…

“fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East”.

Michael Hewson, chief market analyst at CMC Markets, says:

The lagging effect of higher mortgage rates, along with rising prices at the pump as well as the horrific events in the Middle East hammered sentiment.

Data earlier this week showed that UK inflation failed to fall as expected last month, while wages are rising faster than prices after a two-year squeeze.

Also coming up today

The latest UK retail sales figures, due at 7am, will give another insight into consumer spending.

Inflation fears are also hitting market confidence, as investors fear that central banks will maintain the squeeze of higher interest rates for longer.

Yesterday, America’s top central banker, Jerome Powell, warned that US inflation was “still too high”, but also appeared to hint that the Federal Reserve could leave interest rates on hold again next month.

The agenda

• 7am BST: UK public finances for September

• 7am BST: Great Britain’s retail sales for September

• 1.30pm BST: Canadian retail sales for September

• 2pm BST: Patrick Harker, president of the Federal Reserve Bank of Philadelphia, gives a speech