Winter recession fears for UK after fall in retail sales – business live

Today’s drop in UK bond yields will be welcomed in the Treasury, as it means the cost of issuing new debt (or rolling over maturing bonds) is falling.

It comes as Jeremy Hunt considers slashing the UK inheritance tax rate in next week’s autumn statement after economic forecasters told the chancellor he would have more money to spend thanks to rising tax revenues and falling borrowing costs.

Our political correspondent Kiran Stacey explains:

Hunt is weighing up big cuts to the tax people pay after inheriting wealth, paid for in part by better than expected government spending forecasts and by raising benefits by less than expected.

The chancellor had been expected to hold off from cutting taxes until next year as he and Rishi Sunak continue to focus on reducing inflation.

But after UK inflation fell further than expected last month and with Tory MPs clamouring for a pre-election giveaway, sources say the chancellor is open to the idea of doing it sooner.

UK government bond prices are rallying, as investors continue to bet that interest rates will be cut soon as recession fears build.

The rise in prices is pushing down the yield, or interest rate, on UK government debt – a sign that inflation is expected to ease.

The yield on 10-year gilts has fallen to 4.05% this morning, down from 4.15% last night, and the lowest level since 22 May.

This yield has fallen in the last month, from over 4.7% in mid-October.

Shorter-dated UK bonds are also strengthening, pushing down the yield on two-year gilts. That should lead to a drop in fixed-term mortgage costs (which are priced off these yields).

Full story: Fall in retail sales in Great Britain signals high street recession

Phillip Inman

Retailers in Great Britain suffered a slump in sales in October as the impact of high borrowing costs and rising prices signalled a high street recession in the run-up to Christmas.

Bad weather also played a part in a 2.7% year-on-year fall in retail sales that the Office for National Statistics (ONS) said hit clothing and household goods stores the hardest.

Emphasising the severity of the downturn, the ONS said the month-on-month drop in October was 0.3%, much lower than the 0.3% rise economists polled by Reuters had forecast.

Figures for September were revised down to show sales dropped by 1.1% on the month, a sharper fall than the 0.9% first estimated. More here.

British Gas is hiring over 700 new staff to join its customer service teams in Stockport, Leicester, Leeds, Edinburgh and Cardiff as the winter heating season begins, my colleague Jillian Ambrose reports.

The UK’s biggest energy supplier said the roles will be in place by the end of the year to help distribute its £100m support package for customers who are struggling to pay their bills.

Chris O’Shea, the chief executive of British Gas parent company Centrica, said many of its customers are still “struggling overall with the cost of living and need to speak to us for longer about their energy bills.”

British Gas is under pressure to prove that it has the best interests of its customers at heart after it emerged last winter that agents working on its behalf had broken into homes which were behind on their bills to fit pre-payment meters despite signs that young children and people with disabilities lived in the property.

Households can expect their energy bills to rise by 5% from January after analysts forecast a hike in the government’s energy price cap to an average of around £1,930 for the typical home.

The slide in retail sales volumes in October, to the lowest since February 2021, shows a genuine weakening underway in the economy, warns Sandra Horsfield, economist at Investec.

Horsfield says today’s retail sales report has revealed “a distinctly glum autumnal picture”, with volumes down 0.3% in October, and 2.7% lower than a year ago.

In a research note, Horsfield says the weather is one factor:

Weather effects from the particularly wet second half of the month are said to have played a role in reducing footfall, on the heels of what had been an unusually warm September and early October.

This may well not only have deterred purchases of autumn/winter clothing ranges but kept consumers out of shops more generally.

But, the cost-of-living squeeze in persuading consumers to tighten their purse strings too, she points out.

The downgrade to September’s retail sales report (showing a fall of 1.1%, not the 0.9% first estimated), is another blow.

It could mean that the UK’s third-quarter GDP report, which showed the economy stagnated, is revised lower…

Horsfield says:

Initial estimates had suggested the economy just about avoided a contraction (at least after rounding) in Q3, but with releases such as today’s, it is possible that this changes in subsequent releases of GDP statistics.

In any case, we remain of the view that a winter recession looks likely, as higher interest rates gradually feed through and take their toll on household and business finances. That said, we also continue to expect the downturn to be mild as a moderation in inflation should help support real purchasing power.