Eurozone beats forecasts with 0.4% growth
Newsflash: the eurozone has beaten growth forecasts.
Eurozone GDP grew by 0.4% in the third quarter of this year, twice as fast as the 0.2% growth expected.
That follows Germany’s welcome dodging of a recession, and France’s Olympics-fuelled growth over the summer, which we’ve seen this morning.
Statistics body Eurostat says:
Ireland (+2.0%) recorded the highest increase compared to the previous quarter, followed by Lithuania (+1.1%) and Spain (+0.8%). Declines were recorded in Hungary (-0.7%), Latvia (-0.4%) and Sweden (-0.1%).
The year on year growth rates were positive for seven countries and negative for six.
Key events
Closing summary
Eurozone GDP grew by 0.4% in the third quarter of this year, twice as fast as the 0.2% growth expected.
That follows Germany’s welcome dodging of a recession, and France’s Olympics-fuelled growth over the summer, which we’ve seen this morning.
Rachel Reeves has announced £40bn of tax rises on businesses and the rich as Labour’s first budget in 14 years sought to reverse more than a decade of decline in Britain’s public services.
After months of speculation since the party’s general election landslide victory, the chancellor revealed a sweeping package of tax increases she said would be vital to balance the books and turn the page on austerity.
“The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Reeves said. “There are no shortcuts, and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.”
At its heart was an increase in national insurance contributions (Nics) paid by employers – worth £25bn by the end of this parliament – alongside billions of pounds in increases from changes to capital gains tax, inheritance tax, VAT on private schools and the non-dom tax regime.
In financial markets, borrowing costs initially fell, as investors welcomed the confirmation of large tax hikes.
But the rally reversed – causing bond prices to fall and and yields (or interest rates) to rise, as the City digested the sharp increase in government borrowing forecast by the Office for Budget Responsibility, the fiscal watchdog.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care – JK
John Burn-Murdoch, columnist and chief data reporter at the Financial Times, observed that the tax burden is also high in other countries.
Economists at ING have looked at how the budget has been received in financial markets.
Financial markets have been on a wild ride since the announcement of the UK’s latest budget. Big tax rises are coming, but not as quickly as big spending increases. And the prospect of higher growth has led investors to curtail expectations for Bank of England rate cuts.
Markets initially liked the tax hikes, but quick spotted the higher borrowing projection.
UK bond yields did initially dip as the chancellor was speaking, and markets liked Rachel Reeves’ confirmation that tax rises would raise £40bn (1.5% GDP) per year. That’s a big number by any comparison and is much more than Labour promised to raise during the general election. Investors also warmed to Reeves’ commitment to balancing the current budget (day-to-day spending vs taxes), initially within five years, and latterly over three.
But no sooner had the chancellor ended her speech did the tide quickly begin to turn. 10-year government bond (gilt) yields are up four basis points on the day, at the time of writing, and almost 15bp from the intraday low.
Keith Cooney, head of business rates at the property firm Knight Frank, said:
Today it was revealed that despite a change in government, the £29bn business rates tax burden is set to increase again for 2025 with the largest ratepayers – which will include the country’s key employers – being asked to effectively fund any support for SMEs.
Despite pledges to support the high street the chancellor has cut the business relief for retail, leisure and hospitality from 75% to 40% albeit retaining the cap of £ 110,000 per business. Moreover, the move to fund a reduction in the multiplier for retail, leisure and hospitality from 2026/7 with a higher rate targeting warehouses, is shortsighted as government is effectively taxing the infrastructure that these businesses rely on to move goods to their premises and directly to the consumer.
This all adds even more complexity to an already highly complex system, and simply the shifts the tax liability without acknowledging that the tax burden on UK businesses is simply too high. It is difficult to see how these measures will help fix the foundations needed for economic recovery.
Will Hutton, political economist and Observer columnist, wrote on X:
A shock and awe budget that for all the leaks has caught everyone off guard – on both left and right. The left never thought she’d dare – the right cling to the impossible view you can have a small state, low taxes and great public services. My hunch is growth will follow too
— Will Hutton (@williamnhutton) October 30, 2024
Phil Vernon, head of business rates at PwC UK, said:
The introduction of permanently lower business rates multipliers for high street retail, hospitality and leisure (RHL) properties from 2026-27 will be welcomed by these sectors. However, the government intends to fund the relief through a higher multiplier for properties with a Rateable Value over £500k. This is likely to spell higher rates bills for other property types such as offices, factories or distribution hubs from 2026.
In the short term, the freeze in the small rates multiplier in 2025 is good news for many small businesses. Companies in the RHL sectors will be pleased with the extension of the current relief although this will be slightly tainted by the cutting of the relief from its current level of 75% to 40%. This would mean a single-property business with a gross rate charge of £100k would see their annual rates bill rise from £25k to £60k next April.
In addition, with the relief capped at £110k per business, this means that the wider retail sector will not see a significant reduction in their rates bills until at least 2026, when the new multipliers are introduced.
Andy Jones, partner at EY UK, has also looked at the retail measures.
For retailers, the bottom line is that today’s budget will likely result in increased cost pressures amid what is already a challenging backdrop. A particularly significant headline, as expected, is the proposed increase in the national minimum wage and National Insurance Contributions (NICs) for employers. Whilst good news for workers, this will impact retailers during a time of already-intense cost pressures.
Moreover, whilst the announcement to ease the removal of the business rate discount will be welcome news for some businesses, it will still be an increase on the amounts paid today. That said, many may be hopeful that it is a first indication of the new government’s approach to taxation and an indication that further reliefs that may come in the future. Therefore, overall, whilst the freeze on fuel duty and the reduction in alcohol duty rates for draught products will be welcomed, the budget will likely lead to increased inflationary pressures for retailers and likely price rises for consumers.
Chris Sanger, EY’s tax policy leader, added:
Business rates is an area that governments have struggled with for at least the last decade. This is a tax that is paid regardless of whether a business is in the red or the black – whether there are profits to fund this tax or not. We have seen the tax rate increase from the low 40s to the high 50s, marking a big increase in the costs for those firms using real estate.
Julia Kollewe
Here is some reaction to the changes to business rates for shops, pubs, bars and restaurants.
Kate Nicholls, chief executive of UKHospitality, said next year “will be painful for hospitality,” with an increased annual tax bill of £3bn.
This budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.
Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40% is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.
But, she added:
However, there are reasons for longer-term positivity. I am pleased that the chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality. Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.
Simon Green, head of business rates at property consultancy Gerald Eve, was more blunt.
The decision to slash the retail, hospitality and leisure relief scheme from 75% to 40% is absolute madness. It will see rates bills more than double overnight for 250,000 small businesses, leading to business failures and job losses.
AstraZeneca’s China president Leon Wang under investigation
Julia Kollewe
Meanwhile… AstraZeneca’s China president Leon Wang is standing back because he is under investigation by Chinese authorities, the UK’s biggest pharmaceutical firm has announced.
Wang, who is also the company’s executive vice president for international markets, “is cooperating with an ongoing investigation by Chinese authorities”. It is not clear whether he has been detained. The company said:
Our China operations continue under the leadership of the current general manager of AstraZeneca China.
If requested, AstraZeneca will fully cooperate with the investigation.
Michael Lai is general manager at AstraZeneca China.
Last month, it emerged that five current and former AstraZeneca employees had been detained by Chinese police as part of an investigation into possible breaches related to data privacy and importing unlicensed medications. Update: Eight to nine current or former staff were detained.
The detentions took place earlier this summer, and targeted Chinese citizens who marketed cancer drugs for the oncology division of the British drugmaker, in news first reported by Bloomberg.
Police are investigating whether AstraZeneca employees were involved in importing a drug meant to treat liver cancer, but which had not been approved for distribution across mainland China.
The investigation, which is being led by police in the Shenzhen region, is also examining the way the company collected patient data, and whether that may have broken China’s privacy laws.
China has become a big market for AstraZeneca, and it has invested heavily in the country, announcing plans last year to build a $450m factory and signing a number of licensing deals with Chinese companies, including one for an obesity and type 2 diabetes pill. It acquired the Shanghai-based Gracell Biotechnologies, which develops cell therapies for cancer and autoimmune disease, for $1.2bn earlier this year.
Reeves reveals £5bn funding for housebuilding
Julia Kollewe
To build 1.5m more homes in the coming five years, as the Labour government has pledged, Reeves has revealed £5bn of government funding, including £3.1bn for affordable housing (an increase of £500m). There is also £3bn support for small housebuilders and the build-to-rent sector in the form of housing guarantee schemes.
The chancellor also said that local authorities would hire “hundreds of new planning officers” to speed up housebuilding. The government is reducing ‘right to buy’ discounts for council tenants to buy the homes they are living in, and local authorities get to keep full receipts from the sale of council homes.
Following the deadly Grenfell fire in 2017, the government will spend £1bn to remove dangerous cladding from tall buildings next year, Reeves said.
Helen Barnard, director of policy, research & impact at the charity Trussell Trust, posted on X:
Affordable housing announcements: reducing Right to buy discounts, LAs retain full receipts, social rents CPI +1% over next 5 years, more planning officers, £1bn to remove cladding. All good stuff! #Budget2024
— Helen Barnard (@Helen_Barnard) October 30, 2024
Reeves: ‘permanently lower’ tax rates for shops and pubs
Julia Kollewe
Rachel Reeves has announced permanently lower tax rates for retail, hospitality & leisure properties from 2026-27, to help the high street.
While relief on business rates for the industry is being extended, it will be reduced from 75% to 40% in 2025-26, up to a cap of £110,000 per business. The small business tax multiplier will be frozen next year. Those two measures amount to £1.9bn of support to small businesses and the high street, according to the Treasury.
We’re protecting our high streets.
From 2026-27 permanently lower tax rates will be introduced for retail, hospitality & leisure (RHL) properties.
Plus, for 2025-26, 250,000 RHL properties will receive 40% relief on their bills, up to a cash cap of £110,000 per business. pic.twitter.com/OWSplc4YJc
— HM Treasury (@hmtreasury) October 30, 2024
£40bn of tax rises in the budget
Over in parliament, Rachel Reeves is presenting the budget, and revealed it includes £40bn of tax rises – to address the ‘black hole’ in the public finances, and other unfunded commitments.
You can track it all here:
On the US GDP report, Richard Flynn, managing director at Charles Schwab UK, says:
“Today’s figures show that the economy has grown less than expected. In recent quarters we have seen the economy sustain healthy growth considering the point in the cycle and the time since the last recession, so it’s not entirely surprising to see a slowdown today.
It’s important to remember that one report does not a trend make – this may be a change in the wind, but it also may just be a wobble. Overall, the economy is in a good place so we wouldn’t expect today’s numbers to factor too heavily in the Fed’s next policy decision.
Recession will likely not be at the top of central bankers’ risk lists at this point – they’ll be keeping a much closer eye on inflation and jobs numbers as they seek to maintain this period of calm.”
US growth slows to 2.8% per year
Newsflash: The US economy grew a little slower than expected in the last quarter.
US GDP grew at an annual rate of 2.8% in July-September, new data show, the equivalent of 0.7% growth in the quarter.
That’s slightly below forecasts of a 3% annualised rise in GDP, and also a little slower than the 3% growth recorded in Q2.
US company payrolls stronger than expected
Boom! US companies created many more jobs than expected this month.
US private sector payrolls rose by 233,000 jobs in October, data provider ADP reports, smashing forecasts of a 113,000 increase.
ADP Payroll 233k exp was 113k. Big jump.
— Viral Patel (@viralpatel15) October 30, 2024
That may show that the US labo(u)r market is stronger than thought, dampening the pace of interest rate cuts in the months ahead.
Hopes of any good news “rabbits” in the budget may be dashed, flags George Eaton of the New Statesman.
“The era of rabbits is over,” a Reeves source tells me ahead of the Budget.
— George Eaton (@georgeeaton) October 30, 2024
Volkswagen hit by 60% fall in profits as sales in China slump
Jasper Jolly
Volkswagen has reported a 60% drop in profits amid a slump in sales in China, with the carmaker emphasising the difficulties it faces as it prepares to close factories in Germany for the first time.
Germany’s biggest carmaker has told workers it is considering shutting three plants serving its main Volkswagen brand in its home market and cutting staff pay, raising the prospect of an extended battle with unions representing 120,000 German employees.
VW remains profitable but earnings before tax dropped almost 60% to €2.4bn (£2bn) in the quarter from July to September, down from €5.8bn a year earlier.
Carmakers around the world are struggling with limp demand for new vehicles as higher interest rates take their toll, while several – including VW’s German rivals BMW and Mercedes-Benz – have reported that demand in China in particular has dropped.
The British sportscar brand Aston Martin also confirmed on Wednesday that the “weak macroeconomic environment in China” was dragging it back.
Track the UK budget here:
My colleague Andrew Sparrow is live-blogging all the UK budget action today, which you can see here:
(I’ll pop over to assist a little later, when Rachel Reeves begins her speech)
The Institute for Fiscal Studies have published a handy thread on today’s budget, highlighting how government spending and borrowing have risen in recent years:
A key ingredient of the Budget will be the @OBR_uk’s updated growth forecast.
The IMF is more optimistic about the UK’s growth than its European peers, but a large upgrade of the @OBR_uk’s forecast is unlikely.
[THREAD on how the UK compares to other countries: 1/4] pic.twitter.com/M0jrhyzjUK
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
At the turn of the millennium, the size of the UK state – measured by overall government spending – was below the average of advanced economies.
That gap has now closed.
[2/4] pic.twitter.com/BzWVPR05x5
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
Government revenues have risen since 2001, and particularly sharply over the last parliament.
But unlike on the spending side, this increase still leaves the UK with lower revenues than its peers.
[3/4] pic.twitter.com/yGPf8OXXyr
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
An appetite to spend that resembles other advanced economies, but is not matched by a corresponding willingness to tax, has led to the UK’s debt rising by more than most of its peers.
Read more on how the UK compares to other countries here: https://t.co/i8w76Vx8Hg
[4/4] pic.twitter.com/QSUwBqUVP5
— Institute for Fiscal Studies (@TheIFS) October 30, 2024
