Thursday, December 8

UK threatened with second credit rating downgrade; Kwarteng to hold mortgage crisis talks – business live | Business


Fitch has also warned that Britain’s economy will shrink next year, despite the mini-budget.

“,”elementId”:”b7efa6f0-56d8-4ef1-b3e3-0946ddde64dd”},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

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We forecast the economy to contract in 2023 despite the energy tariff support and the proposed tax cuts. In addition to the energy crisis and weaker external demand (including contraction in the eurozone), the likely tighter domestic financing conditions will lead to a contraction of 1.0% in 2023 before growth recovers to 1.8% in 2024.

n

“,”elementId”:”42638dcc-14b3-494d-9a36-5e8aabc9ef91″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Yesterday, Liz Truss claimed that an “anti-growth coalition” was holding the UK back – including opposition parties, unions, remainers and environmental campaigners (and quite possibly anyone who disagrees with the government).

“,”elementId”:”324cb95b-cb34-49d3-a6b6-09426462769f”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/politics/2022/oct/05/liz-truss-anti-growth-coalition-close-fractious-tory-party-conference”,”text”:”Truss takes aim at ‘anti-growth coalition’ on final day of turbulent conference”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”662e6928-754b-4173-80e0-7a4e11210e96″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch, though, points out that Truss’s administration haven’t shown how their growth plan will actually improve the economy:

“,”elementId”:”b7eaff34-2d22-4f7a-8be3-829e2859a719″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

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Although the government seeks to lift growth to 2.5% over the medium term, it has yet to fully outline how and in what timeframe it plans to directly address structural challenges related to low investment, labour supply and continued uncertainty over the implementation and evolution of the Trade Cooperation Agreement (TCA) with the EU.

n

“,”elementId”:”5cb04381-ae17-40fc-82ff-c8c5b1bdc992″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

There could be progress on that last point soon — Simon Coveney, the Irish foreign minister, is flying to London for talks with his UK counterpart, James Cleverly, today over Northern Ireland’s Brexit arrangements.

“,”elementId”:”3605c7d5-ba16-44b9-9c50-27238c5929af”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/politics/2022/oct/05/uk-and-ireland-to-hold-talks-on-resolving-northern-ireland-brexit-row?CMP=Share_iOSApp_Other”,”text”:”UK ends standoff with EU as hopes rise for Northern Ireland Brexit deal”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”78cb2324-67ad-4cb0-aa9f-1aa827f87bca”}],”attributes”:{“pinned”:false,”keyEvent”:true,”summary”:false},”blockCreatedOn”:1665037704000,”blockCreatedOnDisplay”:”07.28 BST”,”blockLastUpdated”:1665038143000,”blockLastUpdatedDisplay”:”07.35 BST”,”blockFirstPublished”:1665038143000,”blockFirstPublishedDisplay”:”07.35 BST”,”blockFirstPublishedDisplayNoTimezone”:”07.35″,”title”:”Fitch: UK economy to contract next year”,”contributors”:[],”primaryDateLine”:”Thu 6 Oct 2022 07.51 BST”,”secondaryDateLine”:”First published on Thu 6 Oct 2022 07.28 BST”},{“id”:”633e6d888f0865e1775f553a”,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch’s warning comes as Chancellor Kwasi Kwarteng prepares to meet high street bank bosses to discuss the crisis in the mortgage market following the mini-budget.

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The talks comes as home­owners face the biggest increase in mortgage costs for 14 years, with the average rate on a new two-year fixed mortgage rising above 6%.

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These soaring rates mean some homeowners’ monthly payments are increasing by hundreds of pounds a month when they remorgage, and are also pricing new home-buyers out of the market.

“,”elementId”:”4036057c-bfd9-4fdd-b2d0-4b8911dd67d5″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

My colleague Rupert Jones explains:

“,”elementId”:”c6543a86-b3bd-45ad-8079-9d6913612e6f”},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

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Moneyfacts, a financial data provider, said the average new two-year fixed rate had risen again and broken through 6% on Wednesday. It went up to 5.97% on Tuesday, having already risen to 5.75% on Monday.

n

The average two-year fix has increased from an average of 4.74% on 23 September, the day of the mini-budget. At the start of December last year the average was 2.34%.

n

“,”elementId”:”72b7af50-117f-4fbe-89da-06680695190b”},{“_type”:”model.dotcomrendering.pageElements.TweetBlockElement”,”html”:”

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Mortgage costs surged as the money markets dramatically lifted their forecasts for UK interest rates after the mini-budget.

“,”elementId”:”da468b32-a21c-4272-8098-959b51c74b57″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

This morning, the money markets suggest the Bank of England will have hiked base rate to 5.5% by next summer, from 2.25% today.

“,”elementId”:”e7f74fb7-b47a-40d1-be5a-7a4699f05eb3″}],”attributes”:{“pinned”:false,”keyEvent”:true,”summary”:false},”blockCreatedOn”:1665037704000,”blockCreatedOnDisplay”:”07.28 BST”,”blockLastUpdated”:1665037828000,”blockLastUpdatedDisplay”:”07.30 BST”,”blockFirstPublished”:1665037828000,”blockFirstPublishedDisplay”:”07.30 BST”,”blockFirstPublishedDisplayNoTimezone”:”07.30″,”title”:”Chancellor to hold crisis talks with high street banks over rising mortgage rates”,”contributors”:[],”primaryDateLine”:”Thu 6 Oct 2022 07.51 BST”,”secondaryDateLine”:”First published on Thu 6 Oct 2022 07.28 BST”},{“id”:”633e66f18f08e5a4d389ad71″,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

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

Also Read  Cybercrime cost American seniors $3 billion last year, a 62% jump

“,”elementId”:”9c1e7923-df18-4268-8db2-70c4ef1a7aae”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

A second rating agency has threatened to downgrade the UK’s credit rating, warning that the unfunded tax cuts in Kwasi Kwarteng’s mini-budget will drive up borrowing.

“,”elementId”:”bbf27c68-125e-43fb-b160-dc548f8507c6″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch has cut the outlook on the UK’s AA- investment grade credit rating, to Negative from Stable, following a similar move from S&P.

“,”elementId”:”89a47aea-62ca-45a2-b653-15a9a3092f7b”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch warned that the “large and unfunded fiscal package” could lead to a significant increase in the government’s deficits over the medium term, and undermine the previous government’s fiscal consolidation strategy.

“,”elementId”:”d62db9bd-afd5-4aad-af0b-cdb6b111c1b4″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

In a rather scathing verdict of Kwarteng and Liz Truss’s plans, Fitch says:

“,”elementId”:”8f59b518-4c8e-4b97-9f08-1ce7c98bc283″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

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The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength.

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“,”elementId”:”12398914-d24a-443f-83e7-e9b5225ce398″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch also criticises Kwarteng for hinting that there could be more tax cuts, and fears the government’s politicial credibility, and the credibility of its fiscal policy, are both hurt.

“,”elementId”:”725f7e99-fc6c-4c1a-9ae5-c8fa6b7623af”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Monday’s humiliating u-turn on abolishing the top rate of UK income tax didnt change Fitch’s wider assessment either:

“,”elementId”:”529a54f5-8ff1-4d69-b184-f9a21db57666″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

n

Although the government reversed the elimination of the 45p top rate tax (expected to cost £2bn in FY22-2023), the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy.

n

“,”elementId”:”6b19b108-2ba6-4ad6-9761-004bdea0e2bf”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch estimates that “without compensatory measures”, the general government deficit will remain elevated at 7.8% of GDP in 2022 and increase to 8.8% in 2023.

“,”elementId”:”eea1b6d1-8ae1-4d42-9a5a-e0d0d69cec54″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Borrowing will be pushed up by rising interest payments on inflation-linked bonds, household support packages, the energy price cap and tax cuts.

“,”elementId”:”e86a8c93-3183-4d1b-8550-82fd1a41d7db”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

This would lift the UK government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting “both higher primary deficits and a weaker growth outlook”.

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Also coming up today

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National Grid is set to publish its outlook for both gas and electricity supplies this winter today, outlining how Britain’s power system will cope with harsh weather.

“,”elementId”:”71c653b6-a7e0-45d1-aaf4-fdeceecf2ba3″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

The report comes amid growing concern that factories could be forced to shut down as Vladimir Putin chokes Europe’s gas supplies.

“,”elementId”:”69102bed-47fd-4331-a838-fc5585b8ce9f”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/business/2022/oct/05/uk-prepares-for-winter-blackouts-as-energy-rationing-campaign-discussed”,”text”:”UK drops plan to prepare for winter blackouts with energy rationing campaign”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”3b67b2d6-a869-40d0-9720-bc366cc3c92f”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

We also find how UK, and eurozone, construction companies fared last month, and the Office for National Statistics releases its weekly economic insights.

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The agenda

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  • 7am BST: German factory orders for August

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  • 8.30am BST: Eurozone construction PMI for September

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  • 9.30am BST: UK construction PMI for September

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  • 9.30am BST: ONS’s latest economic activity and business insights

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  • 12.30pm BST: European Central Bank’s Monetary Policy Meeting Accounts published

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  • 1.30pm BST: US weekly jobless claims

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Key events

Fitch has also warned that Britain’s economy will shrink next year, despite the mini-budget.

“,”elementId”:”b7efa6f0-56d8-4ef1-b3e3-0946ddde64dd”},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

n

We forecast the economy to contract in 2023 despite the energy tariff support and the proposed tax cuts. In addition to the energy crisis and weaker external demand (including contraction in the eurozone), the likely tighter domestic financing conditions will lead to a contraction of 1.0% in 2023 before growth recovers to 1.8% in 2024.

n

“,”elementId”:”42638dcc-14b3-494d-9a36-5e8aabc9ef91″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Yesterday, Liz Truss claimed that an “anti-growth coalition” was holding the UK back – including opposition parties, unions, remainers and environmental campaigners (and quite possibly anyone who disagrees with the government).

“,”elementId”:”324cb95b-cb34-49d3-a6b6-09426462769f”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/politics/2022/oct/05/liz-truss-anti-growth-coalition-close-fractious-tory-party-conference”,”text”:”Truss takes aim at ‘anti-growth coalition’ on final day of turbulent conference”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”662e6928-754b-4173-80e0-7a4e11210e96″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch, though, points out that Truss’s administration haven’t shown how their growth plan will actually improve the economy:

“,”elementId”:”b7eaff34-2d22-4f7a-8be3-829e2859a719″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

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Although the government seeks to lift growth to 2.5% over the medium term, it has yet to fully outline how and in what timeframe it plans to directly address structural challenges related to low investment, labour supply and continued uncertainty over the implementation and evolution of the Trade Cooperation Agreement (TCA) with the EU.

n

“,”elementId”:”5cb04381-ae17-40fc-82ff-c8c5b1bdc992″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

There could be progress on that last point soon — Simon Coveney, the Irish foreign minister, is flying to London for talks with his UK counterpart, James Cleverly, today over Northern Ireland’s Brexit arrangements.

“,”elementId”:”3605c7d5-ba16-44b9-9c50-27238c5929af”},{“_type”:”model.dotcomrendering.pageElements.RichLinkBlockElement”,”url”:”https://www.theguardian.com/politics/2022/oct/05/uk-and-ireland-to-hold-talks-on-resolving-northern-ireland-brexit-row?CMP=Share_iOSApp_Other”,”text”:”UK ends standoff with EU as hopes rise for Northern Ireland Brexit deal”,”prefix”:”Related: “,”role”:”thumbnail”,”elementId”:”78cb2324-67ad-4cb0-aa9f-1aa827f87bca”}],”attributes”:{“pinned”:false,”keyEvent”:true,”summary”:false},”blockCreatedOn”:1665037704000,”blockCreatedOnDisplay”:”07.28 BST”,”blockLastUpdated”:1665038143000,”blockLastUpdatedDisplay”:”07.35 BST”,”blockFirstPublished”:1665038143000,”blockFirstPublishedDisplay”:”07.35 BST”,”blockFirstPublishedDisplayNoTimezone”:”07.35″,”title”:”Fitch: UK economy to contract next year”,”contributors”:[],”primaryDateLine”:”Thu 6 Oct 2022 07.51 BST”,”secondaryDateLine”:”First published on Thu 6 Oct 2022 07.28 BST”},{“id”:”633e6d888f0865e1775f553a”,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch’s warning comes as Chancellor Kwasi Kwarteng prepares to meet high street bank bosses to discuss the crisis in the mortgage market following the mini-budget.

“,”elementId”:”59fb85ce-2e02-4c3a-a5b5-d580c5d6f8c3″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

The talks comes as home­owners face the biggest increase in mortgage costs for 14 years, with the average rate on a new two-year fixed mortgage rising above 6%.

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These soaring rates mean some homeowners’ monthly payments are increasing by hundreds of pounds a month when they remorgage, and are also pricing new home-buyers out of the market.

“,”elementId”:”4036057c-bfd9-4fdd-b2d0-4b8911dd67d5″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

My colleague Rupert Jones explains:

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Moneyfacts, a financial data provider, said the average new two-year fixed rate had risen again and broken through 6% on Wednesday. It went up to 5.97% on Tuesday, having already risen to 5.75% on Monday.

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The average two-year fix has increased from an average of 4.74% on 23 September, the day of the mini-budget. At the start of December last year the average was 2.34%.

n

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n”,”url”:”https://twitter.com/EdConwaySky/status/1577624054718029824?ref_src=twsrc%5Etfw”,”id”:”1577624054718029824″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”3ee75b90-1b1a-45c2-b172-233ac10a2f74″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Mortgage costs surged as the money markets dramatically lifted their forecasts for UK interest rates after the mini-budget.

“,”elementId”:”da468b32-a21c-4272-8098-959b51c74b57″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

This morning, the money markets suggest the Bank of England will have hiked base rate to 5.5% by next summer, from 2.25% today.

“,”elementId”:”e7f74fb7-b47a-40d1-be5a-7a4699f05eb3″}],”attributes”:{“pinned”:false,”keyEvent”:true,”summary”:false},”blockCreatedOn”:1665037704000,”blockCreatedOnDisplay”:”07.28 BST”,”blockLastUpdated”:1665037828000,”blockLastUpdatedDisplay”:”07.30 BST”,”blockFirstPublished”:1665037828000,”blockFirstPublishedDisplay”:”07.30 BST”,”blockFirstPublishedDisplayNoTimezone”:”07.30″,”title”:”Chancellor to hold crisis talks with high street banks over rising mortgage rates”,”contributors”:[],”primaryDateLine”:”Thu 6 Oct 2022 07.51 BST”,”secondaryDateLine”:”First published on Thu 6 Oct 2022 07.28 BST”},{“id”:”633e66f18f08e5a4d389ad71″,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

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

“,”elementId”:”9c1e7923-df18-4268-8db2-70c4ef1a7aae”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

A second rating agency has threatened to downgrade the UK’s credit rating, warning that the unfunded tax cuts in Kwasi Kwarteng’s mini-budget will drive up borrowing.

“,”elementId”:”bbf27c68-125e-43fb-b160-dc548f8507c6″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch has cut the outlook on the UK’s AA- investment grade credit rating, to Negative from Stable, following a similar move from S&P.

“,”elementId”:”89a47aea-62ca-45a2-b653-15a9a3092f7b”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch warned that the “large and unfunded fiscal package” could lead to a significant increase in the government’s deficits over the medium term, and undermine the previous government’s fiscal consolidation strategy.

“,”elementId”:”d62db9bd-afd5-4aad-af0b-cdb6b111c1b4″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

In a rather scathing verdict of Kwarteng and Liz Truss’s plans, Fitch says:

“,”elementId”:”8f59b518-4c8e-4b97-9f08-1ce7c98bc283″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

n

The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength.

n

“,”elementId”:”12398914-d24a-443f-83e7-e9b5225ce398″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch also criticises Kwarteng for hinting that there could be more tax cuts, and fears the government’s politicial credibility, and the credibility of its fiscal policy, are both hurt.

“,”elementId”:”725f7e99-fc6c-4c1a-9ae5-c8fa6b7623af”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Monday’s humiliating u-turn on abolishing the top rate of UK income tax didnt change Fitch’s wider assessment either:

“,”elementId”:”529a54f5-8ff1-4d69-b184-f9a21db57666″},{“_type”:”model.dotcomrendering.pageElements.BlockquoteBlockElement”,”html”:”

n

Although the government reversed the elimination of the 45p top rate tax (expected to cost £2bn in FY22-2023), the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy.

n

“,”elementId”:”6b19b108-2ba6-4ad6-9761-004bdea0e2bf”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Fitch estimates that “without compensatory measures”, the general government deficit will remain elevated at 7.8% of GDP in 2022 and increase to 8.8% in 2023.

“,”elementId”:”eea1b6d1-8ae1-4d42-9a5a-e0d0d69cec54″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

Borrowing will be pushed up by rising interest payments on inflation-linked bonds, household support packages, the energy price cap and tax cuts.

“,”elementId”:”e86a8c93-3183-4d1b-8550-82fd1a41d7db”},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

This would lift the UK government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting “both higher primary deficits and a weaker growth outlook”.

“,”elementId”:”beb55e46-6252-49c2-ad27-858ad56d4c82″},{“_type”:”model.dotcomrendering.pageElements.SubheadingBlockElement”,”html”:”

Also coming up today

“,”elementId”:”1c1e6bc4-9567-4edf-b01f-634fb8f7a801″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

National Grid is set to publish its outlook for both gas and electricity supplies this winter today, outlining how Britain’s power system will cope with harsh weather.

“,”elementId”:”71c653b6-a7e0-45d1-aaf4-fdeceecf2ba3″},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

The report comes amid growing concern that factories could be forced to shut down as Vladimir Putin chokes Europe’s gas supplies.

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We also find how UK, and eurozone, construction companies fared last month, and the Office for National Statistics releases its weekly economic insights.

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The agenda

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    n

  • 7am BST: German factory orders for August

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  • 8.30am BST: Eurozone construction PMI for September

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  • 9.30am BST: UK construction PMI for September

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  • 9.30am BST: ONS’s latest economic activity and business insights

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  • 12.30pm BST: European Central Bank’s Monetary Policy Meeting Accounts published

  • n

  • 1.30pm BST: US weekly jobless claims

  • n

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Filters BETA

Political uncertainty is also weighing on the UK, Fitch adds.

The new government of Prime Minister Liz Truss has sought to assuage concerns regarding transparency and institutional independence after comments about potential revisions to the BoE’s mandate during the Conservative leadership contest and the roll-out of a large fiscal package without the involvement of the Office of Budget Responsibility.

Reduced popular support for the ruling Conservative Party, the social impact of the cost of living crisis and increased frequency of strikes could constrain the new Prime Minister’s room for manoeuvre.

Polling company YouGov showed yesterday that Truss’s popularity had deteriorated dramatically, while several polls have given Labour very large leads since mini-budget.

Most Britons – and Tory voters – have an unfavourable opinion of Liz Truss (fieldwork 1-2 October)

All Britons
Favourable: 14% (-12 from 21-22 Sep)
Unfavourable: 73% (+16)

Con voters:
Favourable: 30% (-25)
Unfavourable: 60% (+28)https://t.co/28mDtcnwSO pic.twitter.com/XncwvbKjat

— YouGov (@YouGov) October 5, 2022

n”,”url”:”https://twitter.com/YouGov/status/1577581557367332866″,”id”:”1577581557367332866″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”a6a3c14d-2d7f-4a67-a918-4bad6f833a1f”}}”/>

Liz Truss is already less popular than Boris Johnson and Jeremy Corbyn ever were

Liz Truss: -59 net favourability (1-2 Oct)

Boris Johnson worst score: -53 (July 2022)
Jeremy Corbyn worst score: -55 (June 2019)https://t.co/28mDtcnwSO pic.twitter.com/vsdXbzUaZs

— YouGov (@YouGov) October 5, 2022

n”,”url”:”https://twitter.com/YouGov/status/1577581545682046976″,”id”:”1577581545682046976″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”8144125f-b8ac-4a33-a564-02c6c32aca52″}}”/>

First time since 2019 GE that a majority expects a Labour Government.

If an election took place within six months, what do Britons think would be the most likely outcome? (2 Oct)

Labour Gov't: 52% (+12)
Conservative Gov't: 28% (-8)

Changes +/- 25 Septhttps://t.co/z5wS2F35Lr pic.twitter.com/QLzXcpbzQP

— Redfield & Wilton Strategies (@RedfieldWilton) October 3, 2022

n”,”url”:”https://www.twitter.com/RedfieldWilton/status/1576985523490623493″,”id”:”1576985523490623493″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”3700ba6e-8c3a-4789-bdfe-f626861f5fb1″}}”>

First time since 2019 GE that a majority expects a Labour Government.

If an election took place within six months, what do Britons think would be the most likely outcome? (2 Oct)

Labour Gov’t: 52% (+12)
Conservative Gov’t: 28% (-8)

Changes +/- 25 Septhttps://t.co/z5wS2F35Lr pic.twitter.com/QLzXcpbzQP

— Redfield & Wilton Strategies (@RedfieldWilton) October 3, 2022

Fitch: UK economy to contract next year

Fitch has also warned that Britain’s economy will shrink next year, despite the mini-budget.

We forecast the economy to contract in 2023 despite the energy tariff support and the proposed tax cuts. In addition to the energy crisis and weaker external demand (including contraction in the eurozone), the likely tighter domestic financing conditions will lead to a contraction of 1.0% in 2023 before growth recovers to 1.8% in 2024.

Yesterday, Liz Truss claimed that an “anti-growth coalition” was holding the UK back – including opposition parties, unions, remainers and environmental campaigners (and quite possibly anyone who disagrees with the government).

Fitch, though, points out that Truss’s administration haven’t shown how their growth plan will actually improve the economy:

Although the government seeks to lift growth to 2.5% over the medium term, it has yet to fully outline how and in what timeframe it plans to directly address structural challenges related to low investment, labour supply and continued uncertainty over the implementation and evolution of the Trade Cooperation Agreement (TCA) with the EU.

There could be progress on that last point soon — Simon Coveney, the Irish foreign minister, is flying to London for talks with his UK counterpart, James Cleverly, today over Northern Ireland’s Brexit arrangements.

Chancellor to hold crisis talks with high street banks over rising mortgage rates

Fitch’s warning comes as Chancellor Kwasi Kwarteng prepares to meet high street bank bosses to discuss the crisis in the mortgage market following the mini-budget.

The talks comes as home­owners face the biggest increase in mortgage costs for 14 years, with the average rate on a new two-year fixed mortgage rising above 6%.

A chart showing how UK mortgage affordability has worsened

These soaring rates mean some homeowners’ monthly payments are increasing by hundreds of pounds a month when they remorgage, and are also pricing new home-buyers out of the market.

My colleague Rupert Jones explains:

Moneyfacts, a financial data provider, said the average new two-year fixed rate had risen again and broken through 6% on Wednesday. It went up to 5.97% on Tuesday, having already risen to 5.75% on Monday.

The average two-year fix has increased from an average of 4.74% on 23 September, the day of the mini-budget. At the start of December last year the average was 2.34%.

You’ll have seen a lot of charts in the past few weeks.
But this one REALLY matters.
The mortgage burden – the % we spend on our repayments – is heading for the highest level since the late 80s.
Last time it hit these levels it preceded the biggest housing crash in modern history pic.twitter.com/6gVHXpXxi0

— Ed Conway (@EdConwaySky) October 5, 2022

n”,”url”:”https://twitter.com/EdConwaySky/status/1577624054718029824?ref_src=twsrc%5Etfw”,”id”:”1577624054718029824″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”7e0e181d-9728-4b81-9b9e-4b579f512d8a”}}”>

You’ll have seen a lot of charts in the past few weeks.
But this one REALLY matters.
The mortgage burden – the % we spend on our repayments – is heading for the highest level since the late 80s.
Last time it hit these levels it preceded the biggest housing crash in modern history pic.twitter.com/6gVHXpXxi0

— Ed Conway (@EdConwaySky) October 5, 2022

Mortgage costs surged as the money markets dramatically lifted their forecasts for UK interest rates after the mini-budget.

This morning, the money markets suggest the Bank of England will have hiked base rate to 5.5% by next summer, from 2.25% today.

Introduction: Fitch cuts outlook for UK rating to ‘negative’ from ‘stable’

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

A second rating agency has threatened to downgrade the UK’s credit rating, warning that the unfunded tax cuts in Kwasi Kwarteng’s mini-budget will drive up borrowing.

Fitch has cut the outlook on the UK’s AA- investment grade credit rating, to Negative from Stable, following a similar move from S&P.

Fitch warned that the “large and unfunded fiscal package” could lead to a significant increase in the government’s deficits over the medium term, and undermine the previous government’s fiscal consolidation strategy.

In a rather scathing verdict of Kwarteng and Liz Truss’s plans, Fitch says:

The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength.

Fitch also criticises Kwarteng for hinting that there could be more tax cuts, and fears the government’s politicial credibility, and the credibility of its fiscal policy, are both hurt.

Monday’s humiliating u-turn on abolishing the top rate of UK income tax didnt change Fitch’s wider assessment either:

Although the government reversed the elimination of the 45p top rate tax (expected to cost £2bn in FY22-2023), the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy.

Fitch estimates that “without compensatory measures”, the general government deficit will remain elevated at 7.8% of GDP in 2022 and increase to 8.8% in 2023.

Borrowing will be pushed up by rising interest payments on inflation-linked bonds, household support packages, the energy price cap and tax cuts.

This would lift the UK government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting “both higher primary deficits and a weaker growth outlook”.

Also coming up today

National Grid is set to publish its outlook for both gas and electricity supplies this winter today, outlining how Britain’s power system will cope with harsh weather.

The report comes amid growing concern that factories could be forced to shut down as Vladimir Putin chokes Europe’s gas supplies.

We also find how UK, and eurozone, construction companies fared last month, and the Office for National Statistics releases its weekly economic insights.

The agenda

  • 7am BST: German factory orders for August

  • 8.30am BST: Eurozone construction PMI for September

  • 9.30am BST: UK construction PMI for September

  • 9.30am BST: ONS’s latest economic activity and business insights

  • 12.30pm BST: European Central Bank’s Monetary Policy Meeting Accounts published

  • 1.30pm BST: US weekly jobless claims




www.theguardian.com

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