Closing summary

Time to wrap up.

UK factories are struggling with the worst supply chain crunch since the 1970s, as fears over shortage of raw materials, parts and staff continue to soar.

Consumers have been hit in the pocket too, with Unilever hiking prices on its stable of food, personal care and cleaning products by 4% in the last quarter.

More increase are coming, as the marmite, PG Tips and Dove producer plans to keep passing on its rising costs.

UK government borrowing has undershot forecasts so far this year, giving chancellor Rishi Sunak more ammunition ahead of next week’s budget.

But economists suspect the chancellor will keep spending tight, in the hope of building up a fiscal warchest ready for the next election.

Shares in the struggling property giant China Evergrande tumbled after plans to offload a stake in one of its units for $2.6bn collapsed.

The failure increases the pressure on the group that has just days to avoid an official default on its debt.

Worries about Evergrande weighed on the London stock market, with mining shares sliding as investors worried about the knock-on impact on China’s economy.

Over in New York, WeWork has finally gone public, after its 2019 IPO collapsed.

US jobless claims have dipped to a new pandemic low...

...but eurozone consumer confidence has taken a knock this month.

Bitcoin has dipped back from yesterday’s record highs, but is still outperforming gold as a protection against inflation this year.

Hospitality bosses have warned that pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, which have hit a three-month daily high over 50,000 this afternoon.

The Turkish lira has slumped to a record low after a shock 200-basis point rate cut, following pressure from president Recep Tayyip Erdoğan.

Turkey’s inflation rate is already near 20%, and the weak lira will push up import costs.

Adeline Van Houtte, European analyst at The Economist Intelligence Unit, explains:

The weakness of the lira will exacerbate upward pressures on the prices of imported and internationally traded goods and services.

Combined with higher global commodity prices, including energy raw materials prices, and ever-rising inflationary expectations, this may keep the annual rate of inflation at around current levels over the next few months, notwithstanding a favourable base effect in the closing months of 2021.”

Barclays has brushed off concerns over rising inflation and the supply chain crisis, after almost doubling profits in the last quarter.

Households have been warned that Britain’s gas crisis will keep driving energy bills higher until 2023, and could leave only five or six of the strongest suppliers standing.

FirstGroup has announced the sale of its Greyhound bus service in the US to become fully focused on UK transport, as its Lumo train service operated its inaugural journey from London to Scotland.

And a consultation launched on regulating UK’s buy now, pay later credit industry:

Goodnight. GW

The UK’s buy now, pay later credit industry faces tighter regulation, although the government has concluded there is “relatively limited evidence” of widespread consumer harm.

The comment, in a new document from the Treasury, could indicate that legislation will be less tough than some have called for.

Leading buy now, pay later (BNPL) players, such as Klarna, Laybuy and Clearpay, were quick to welcome the long-awaited consultation on how the multibillion-pound industry should be policed.

Sushil Kuner, principal associate at the law firm, Gowling WLG, say the Treasury is taking a “proportionate approach”:

“In setting out its policy options for the regulation of BNPL, HMT has obviously reflected on the Woolard Review, which recognised that while BNPL products have significant potential benefits for consumers, for example a cost-free way to access credit easily and to ‘try before you buy’, they also posed a number of potential harms to consumers.

To that end, they have set out to design a proportionate system of regulatory controls, a key example being proposals to allow merchants to continue to offer BNPL as a payment option without being authorised by the FCA and subject to FCA regulation. At first sight, this indeed appears to be a proportionate approach and one which would guard against the risk of unintended consequences of a blanket approach to the regulation of BNPL which may drive merchants out of the BNPL market, thereby limiting consumer choice.”

FTSE 100 closes lower

In the City, the FTSE 100 index has closed down 33 points or 0.45% at 7190 points.

That’s its lowest close since last Wednesday, as the blue-chip index slips back from last Friday’s 20-month highs.

Mining shares led the fallers, with Rio Tinto down 4.8% and BHP Group off 3.7%, reflecting concerns over China’s economy.

Housebuilders, a measure of UK economic confidence, also lost ground with Barratt down 3% and Taylor Wimpey dipping by 1.9%.

Danni Hewson, AJ Bell financial analyst, sums up the day:

“Mining stocks have been unable to shake investor concerns sparked by yet another twist in the Evergrande saga and their trajectory helped kept London’s blue-chip index firmly in the doldrums today.

This week’s slate of earnings reports from both sides of the Atlantic have added their own side of discomfort with company after company warning that supply issues and price hikes aren’t going to be a flash in the pan and are going to impact earnings going forward.

For businesses like consumer goods giant Unilever those prices can and are being passed on to the consumer, to a point. Its share price enjoyed a mild bump today after decent trading results and basking in the vicarious glow, Reckitt Benckiser was one of the FTSE 100’s biggest winners today.

European markets also closed lower, with Germany’s DAX and France’s CAC losing around 0.3%.

#fechamento
▪️ 21/10/21 12:55
Fechamento Europa
🇩🇪DAX 15.484,55 -0,25%🔻
🇬🇧FTSE 100 7.190,90 -0,45%🔻
🇫🇷CAC 40 6.686,17 -0,29%🔻
🇪🇺EuroStoxx50 4.156,95 -0,36%🔻

— Alex Princival (@alex_princival) October 21, 2021

A WeWork office spaces in the SoHo neighborhood of New York.
A WeWork office spaces in the SoHo neighborhood of New York. Photograph: Mary Altaffer/AP

Office leasing company WeWork has finally gone public, two years after its IPO plans collapsed.

Shares in WeWork jumped 7.5% in early trading as it joined the stock market through a special purpose acquisition company.

The merger with BowX Acquisition Corp, first announced in March, valued WeWork at roughly $9bn. That’s far below the $47bn valuation it attracted through a private round of financing from SoftBank Group in 2019, which made it the US’s most highly valued start-up.

WeWork grew rapidly by shaking up the office rentals market, with free beer taps and foosball tables.

But its debts also swelled, and its 2019 flotation was pulled after Wall Street baulked at its high valuation and corporate governance issues.

Although co-founder and chief executive, Adam Neumann, was ousted and lost his multibillionaire status, he retained a shareholding - which the FT reports is worth just over $1bn today.

Eurozone consumer confidence drops

Eurozone consumer confidence has fallen this month, as the strong recovery earlier this year falters.

The latest gauge of consumer morale in the euro area dropped to -4.8 from -4.0 in September, the European Commission reports.

In the European Union as a whole, consumer sentiment fell by 0.9 points to -6.1.

It suggests people are less optimistic about the economic outlook, as supply chain problems persist and surging energy costs push inflation to a 13-year high.

Eurozone and EU consumer confidence

Consumer confidence surged as vaccine rollouts allowed economies to unlock, unemployment dropped, and people returned to shops, hospitality venues and leisure activities again.

It hit a three-year high this summer, but has since eased back.

Bert Colijn, senior eurozone economist at ING, says consumer confidence still looks fairly strong:

Higher savings have on average created a buffer among households and unemployment continues to decline at a decent pace.

Already increasing inflation and higher gas bills on the way do cause some discomfort, but not yet enough to derail consumer confidence too much on average.

Mind you, we do expect some crowding-out effect of other types of consumption, especially for the lower-income households, but recovery effects are likely to be strong enough to not let this derail the recovery

Updated

Sales of US homes (excluding new builds) have jumped 7%, as prices continue to climb.

Sales rose to a seasonally adjusted annualized rate of 6.29 million in September, according to the National Association of Realtors.

A brief drop in mortgage interest rates in August may have helped sales -- the average rate on a 30-year fixed deal fell below 3%.

Prices surged by over 13% year-on-year, with a shortage of properties on the market fuelling house price inflation.

Lawrence Yu, chief economist at the National Association of Realtors,

As mortgage forbearance programs end, and as homebuilders ramp up production – despite the supply-chain material issues – we are likely to see more homes on the market as soon as 2022,.

Those mortgage forbearance programmes protected homeowners in the United States, who fell behind on their repayments after the pandemic struck the economy.

Sales of existing homes rose in September, likely driven by a brief decline in mortgage rates, as persistently tight supply drove prices higher https://t.co/ObnMD9sjfN

— CNBC (@CNBC) October 21, 2021

Updated

Stocks have opened cautiously on Wall Street.

The Dow Jones industrial average, which hit a record high yesterday, is down 64 points or 0.2% at 35,544.

Goldman Sachs (+1%), Walgreens Boots Alliance (+0.9%) and Nike (+0.75%) are leading the risers.

IBM has sunk over 6% after missing forecasts for sales and profits last night. Revenues only crept up by 0.3%, dragged back by its legacy IT infrastructure business Kyndryl, which is being spun off.

The broader S&P 500 is flat, near a record high. But Tesla has rallied by 2%, after posting record revenue and profits in the third quarter despite the global computer chip shortage.

Updated

Manufacturers in Philadelphia are also being hit by rising costs, as the global supply chain problems rumble on.

The latest ‘Philly Fed’ survey shows that factories in the Philadelphia region continued to pay high charges for raw materials and parts, and passed those costs on.

Some 73% of firms surveyed reported an increased in input prices, while just 3% saw a reduction.

Over 58% of the firms reported increases in prices received for their own goods this month, 7 % reported decreases, and 34% reported no change.

The survey, used as a gauge for US industry more widely, also found that manufacturing activity in the region continued to expand this month, but at a slower rate, while new orders increased.

Manufacturing activity in the region continued to expand this month, according to the firms responding to the October Manufacturing Business Outlook Survey. https://t.co/rUoReZcWSP pic.twitter.com/E4WhvyQVxo

— Philadelphia Fed (@philadelphiafed) October 21, 2021

In addition, the price indexes remain elevated and continue to suggest widespread increases in prices. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.

— Philadelphia Fed (@philadelphiafed) October 21, 2021

US unemployment claims have dipped as cases of the Delta variant of Covid-19 have receded, explains Daniel Zhao of Glassdoor:

Initial UI claims SA fell slightly last week to 290K, hitting another new intra-crisis low.

Initial claims are continuing to decline as the Delta wave recedes. Delta is on the downswing but cases are still elevated, suggesting further room for improvement.#joblessclaims 1/ pic.twitter.com/Vq7IZP59Bw

— Daniel Zhao (@DanielBZhao) October 21, 2021

Continuing UI claims (SA) hit another intra-crisis low too, at 2.48 million. The decline has accelerated since mid-September, perhaps due to increased hiring after the Delta wave peaked in early-to-mid September#joblessclaims 3/ pic.twitter.com/nFu9A8OH93

— Daniel Zhao (@DanielBZhao) October 21, 2021

Today’s data shows the US is on track to hit pre-pandemic jobless claims levels by the end of this year, says Robert Frick, corporate economist at Navy Federal Credit Union:

“Claims hit a new pandemic low of 290,000, but that number is even more impressive given seasonal adjustments were working against it due to the Monday holiday last week. All things being equal, we’re on track to return to pre-pandemic layoff levels by year’s end.”

US jobless claims hit pandemic low

US initial jobless claims have dipped to a new pandemic low.

Just 290,000 Americans filed new claims for unemployment insurance last week, a 6,000 fall on the previous week.

That’s the lowest level for initial claims since March 14, 2020, just before pandemic lockdowns drove jobless claims to record highs.

For the week ending October 16, 256,304 workers filed for regular #UnemploymentBenefits. Initial claims declined with respect to the previous week. 1/4 pic.twitter.com/XhPKa6K2OK

— Equitable Growth (@equitablegrowth) October 21, 2021

Stripping out seasonal adjustments, and jobless claims dropped by over 24,000 to 256,403 last week.

That’s closer to the pre-pandemic levels, when initial claims were in the low 200,000s.

It shows that US firms are still holding onto workers, with vacancies near record levels, despite the ongoing supply chain disruption, Delta outbreaks, and signs that consumer confidence has weakened.

At 290,000, weekly US initial jobless claims again came in better than expected.
Will reinforce the move among more #Fed officials judging that the "substantial further progress test" has been met.
The more this continues, the greater the challenge to separating taper from rates.

— Mohamed A. El-Erian (@elerianm) October 21, 2021

The number of Americans receiving unemployment support for at least two weeks also dipped:

Regular continued claims, also referred to as insured unemployment, was 2.2 million the week ending October 9. Following the expiration of enhanced UI programs, including #PUA and #PEUC, a total of 3.3 million workers claimed benefits the week ending October 2. 3/4 pic.twitter.com/rcHsXDaraX

— Equitable Growth (@equitablegrowth) October 21, 2021

Jobless claims were 290k last week, down -6k. The insured unemployment rate was 1.8%, down -0.1%. Continued claims fell -122k to 2.48 mil. Pandemic Unemployment Assistance claims fell -31k to 518k. https://t.co/eT6a6xoJwA pic.twitter.com/c9lAJy3Tdj

— MTS Insights (@MTSInsights) October 21, 2021

Updated

Bitcoin is proving to be a more popular hedge against inflation than the classic protection, gold.

Bitcoin hit a record high over $66,000 yesterday, and is up around 120% so far this year.

The price of bitcoin this year
The price of bitcoin this year Photograph: Refinitiv

Gold, though, remains firmly out of favour - down 6% at around $1,780 per ounce, even though inflation is rising in many countries.

The price of gold this year
The price of gold this year Photograph: Refinitiv

Bitcoin soared over April’s record high yesterday, after the launch of a bitcoin ETF (exchange-traded fund) which will give investors exposure to the crypto asset without having to buy it themselves.

That EFT could spur mainstream acceptance of crypto as an investable asset, with advocates insisting it offers protection against money-printing by central banks.

The Financial Times reports today that investors are fleeing gold for cryptocurrencies as inflation worries perk up.

More than $10bn has been pulled from the biggest gold exchange traded fund this year and funds’ physical gold hoards have also been selling down, according to Bloomberg data.

Veteran gold traders acknowledged times are changing. “There is zero interest in our strategy right now,” said John Hathaway, senior portfolio manager at Sprott Asset Management, a precious metals investment group.

He added: “The bitcoin crowd see the same things I see in terms of money printing risks of inflation.”

But... crypto does faces the threat of regulation, and could suffer if central bankers rein in their loose monetary policies.

Jeffrey Halley, senior market analyst at OANDA says:

It will be interesting to see how the digital Dutch tulip space copes with the unwinding of QE globally in 2022, as well as rate hikes, potential regulatory threats and a group of world central banks who aren’t going to sit by and let cryptos take away their monetary policy lunch.

And don’t get me started on (un) stable coins and their supposed, but surprisingly opaque to public scrutiny, dollar for every coin backing.

But in the short term, cryptos are a tradeable asset class for now, and the technical picture remains very bullish, he adds:

The price action and momentum as everyone tries to get rich quick, I mean invest in the future of money, should be respected.

Updated

Shock Turkish rate hike sends lira sliding

Back in the markets, the Turkish lira has hit a record low after Turkey’s central bank slashed interest rates more aggressively than expected.

The Central Bank of the Republic of Turkey (CBRT) startled investors by lowering headline borrowing costs to 16% today, from 18%, twice as big a cut as expected.

A shocking 200 bps cut (most expected 100 bps) by Turkey's central bank. Lira plummets to 9.49 against the dollar, a record.

— Piotr Zalewski (@p_zalewski) October 21, 2021

President Tayyip Erdoğan had been demanding further stimulus measures, despite Turkey’s inflation rate running at almost 20%.

Erdoğan dismissed two CBRT deputy governors last week, including Ugur Namik Kucuk who had opposed an earlier shock rate cut. In March he sacked the bank’s governor, Naci Ağbal, after it raised rates against his wishes (the third governor he has ousted).

The lira has sunk to around 9.5 to the US dollar, a record low - which will push up the cost of imports further, fueling inflation.

A 2 percent weakening in the #currency in #Turkey as #markets react to a 200 bps (bigger-than-expected) cut in rates by a politically pressured central bank Follows September's 100 bps cut that had already driven the #Lira to record lows in recent weeks#economy #fx #centralbanks pic.twitter.com/b2vUW190Xn

— Mohamed A. El-Erian (@elerianm) October 21, 2021

Erdoğan has argued that higher interest rates cause inflation, because companies pass on their increased borrowing costs onto consumers through higher prices.

Orthodox economics, though, says higher interest rates deter borrowing and encourage saving, leading consumers to spend less, and lowering inflation.

#Turkey’s central bank chief, powered by President Erdogan’s unorthodox monetary ideas, announced an interest-rate cut despite rising inflationary pressures and a lira slumping to record lows. not to mention lack of sufficient FX reserves)

The lira sank. who would have thought… pic.twitter.com/oNiEnF3puf

— Michael Nicoletos (@mnicoletos) October 21, 2021

Updated

Hospitality trade fears going under if UK imposes new Covid ‘plan B'

Pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, the head of the hospitality trade body has warned, amid concern that the industry cannot survive a second lost Christmas.

Kate Nicholls, the chief executive of UK Hospitality, which represents 730 companies operating 85,000 venues, warned businesses would be driven under by a tightening of restrictions over the key Christmas period.

“For the hospitality sector as a whole, the period between Halloween and New Year’s Eve is when you would earn 40% of your profits,” she said.

“We lost Christmas in its entirely last year, so it’s desperately important for survivability, getting you through the bleak months of January and February when people don’t come out as much.

“A lot of businesses are still fragile. Any knock at this point in time could have an impact on viability. People will just go to the wall. This idea you could shut down or have a restriction for a small period to save Christmas needs knocking on the head. There’s a danger you don’t save Christmas, you cancel it.”

Here’s the full story:

CBI: Worries about UK shortages highest since the 1970s

Concerns about shortages of raw materials, parts and workers in the UK have escalated, according to the latest industrial trends survey from the CBI.

Almost two-thirds of manufacturers said that a lack of material and components was likely to hit their output over the next quarter, the highest reading since January 1975.

Concerns about worker shortages also jumped. Two-in-five firms are worried about a lack of skilled labour, the highest reading since July 1974. Nearly a third are concerned about availability of other labour, a record reading.

Manufacturers also reported that costs growth continued to rise sharply over the last quarter, similar to July, which saw the fastest growth since 1980.

This led them to lift their own prices (as we’ve seen with Unilever today). Average domestic prices surged at the fastest rate since April 1980, with exports prices up at the most rapid pace since April 2011.

Looking ahead to the next three months, costs growth is set to speed up further, with both domestic and export price inflation expected to accelerate, the CBI warns.

The supply chain crisis appears to be weighing on business optimism, which was broadly unchanged in the quarter to October, after rising in the previous two quarters.

Anna Leach, CBI Deputy Chief Economist, said:

“From higher material costs to labour shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand.

Manufacturers are using key levers, such as hiring new workers and planning further investment in plant & machinery and training, to expand production. But with both orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.

Here are full details of the report:

UK #manufacturing output volumes in the quarter to October grew at a similarly firm pace to September, according to the latest quarterly Industrial Trends Survey. Manufacturers expect output growth to pick up substantially in the next three months pic.twitter.com/PahKHz4Ubl

— CBI Economics (@CBI_Economics) October 21, 2021

Total new orders in the quarter to October at a slower, but still strong, pace compared to July, with the deceleration driven by an easing in domestic orders growth. Meanwhile, export orders increased at a similar pace to last quarter pic.twitter.com/4dgoJKjTV7

— CBI Economics (@CBI_Economics) October 21, 2021

Concerns about supply shortages in the next three months escalated further in October. 64% of firms cited availability of materials/components as a factor likely to limit output next quarter (highest share since January 1975). pic.twitter.com/v3fraM7GSv

— CBI Economics (@CBI_Economics) October 21, 2021

Manufacturers also expressed heightened concerns about labour shortages affecting future output, with 40% of firms worried about a lack of skilled labour (highest since July 1974) and 31% concerned about availability of other labour (a survey-record high). pic.twitter.com/dO7wCFVjif

— CBI Economics (@CBI_Economics) October 21, 2021

The manufacturing sector continues to face acute cost pressures. Firms reported that average costs growth in the quarter to October remained broadly in line with July – which saw the fastest growth since 1980. Costs growth is set to speed up further next quarter pic.twitter.com/3Vf7AD9pud

— CBI Economics (@CBI_Economics) October 21, 2021

Rapid cost growth has continued to feed into price pressures, with average domestic and export prices growing at their fastest rate since April 1980 and April 2011, respectively. Both domestic and export price inflation are expected to accelerate in the next three months pic.twitter.com/Vpz7lX1pyY

— CBI Economics (@CBI_Economics) October 21, 2021

Julian Jessop, economics fellow at the Institute of Economic Affairs, has spotted that Britain’s national debt, as a share of the economy, is actually lower than estimated earlier this year.

That’s because GDP has been higher than thought, proving that growth, not tax rises are the best way to improve the public finances.

[Increasing the denominator is an excellent way to lower your debt/GDP ratio, rather than self-defeating austerity measures which end up hitting growth]

As Jessop puts it:

“UK government borrowing and debt continue to undershoot the OBR’s old forecasts, underlining how economic growth – not tax hikes – is the best way to repair the public finances.

“Borrowing was a whopping £43.4 billion lower than projected in the first six months of the fiscal year. What’s more, the ratio of debt to national income has already fallen sharply as the economy has rebounded more quickly than expected and GDP has been revised higher.

“The stock of debt was reported to be equivalent to 95.5 per cent of GDP at the end of September, but it was estimated at 99.7 per cent as recently as June, and more than 100 per cent several times in 2020.”

Something I think almost everyone has missed... 🤓

UK public debt has *already* fallen sharply as a share of national income as GDP has been revised up

September 95.5%
August 97.6%
July 98.8%
June 99.7%

and it was reported at more than 100% several times in 2020#Budget

— Julian Jessop (@julianHjessop) October 21, 2021

Updated

UK flights last week hit their highest level since the first Covid-19 lockdown.

They rose to 59% of their 2019 average, as the relaxation of travel restrictions lifted demand (although this was before Morocco banned flights to and from the UK due to the rise in coronavirus case rates)

The 7-day average number of UK daily flights in the week ending 17 Oct 2021 was the highest since the first UK wide lockdown, at 59% of the level seen in the same week of 2019 (3,625), according to @Eurocontrolhttps://t.co/BbsH8zHNoV

— Office for National Statistics (ONS) (@ONS) October 21, 2021

But the ONS also reports that spending on credit and debit cards in Britain fell by five percentage points last week, to 97% of its pre-pandemic average.

The sharpest falls over the past week came for spending in the ‘staple’ and work-related categories, while social spending was broadly unchanged.

  • “delayable” decreased by 4 percentage points
  • “staple” decreased by 10 percentage points
  • “work related” decreased by 9 percentage point
UK credit and debit card spending

The ONS also reports that UK wholesale gas prices finally dipped last week, for the first time in three months.

Data from @nationalgriduk show the system average price (SAP) of gas has decreased by 6% in the week to 17 October 2021.

This was the first weekly fall in 13 weeks https://t.co/PEy6QUS1Wx pic.twitter.com/Y9tKDfLxkU

— Office for National Statistics (ONS) (@ONS) October 21, 2021

Today, gas for next-month delivery is around 226p per therm, having briefly spiked over 400p per therm early in October.

But that’s still over quadruple January’s levels of around 50p, a surge which has caused 13 smaller suppliers to collapse in recent weeks.

The head of Scottish Power has warned that the energy crunch will drive more suppliers under, and keep pushing up energy bills until 2023.

Keith Anderson, chief executive of Scottish Power, also blasted the UK’s energy price cap, which stopped suppliers passing on rising wholesale costs:

“Customers are going to get a huge increase in their bills next April, and in October, and I suspect that they’ll see another increase in their bills six months later.

“Moving the energy price cap every six months is just completely hopeless. We need it to start changing more frequently.”

Anderson also predicted that the UK could be left with just five or six of the strongest suppliers still standing. Here’s the full story by my colleague Jillian Ambrose:

Over a fifth of UK companies are struggling to find hauliers to bring goods into the UK, with food importers particularly hit.

The Office for National Statistics’ latest business insights report shows that:

Of currently trading businesses that reported how their importing had been affected, 22% reported lack of hauliers to transport goods or lack of logistics equipment as a challenge, in late September 2021, up from 11% in late April 2021.

A lack of hauliers was particularly prevalent in the accommodation and food service activities industry with 64% of businesses in this industry reporting it as a challenge, up from 7% in late April 2021.

The UK government is now relaxing the rules on cabotage, to allow EU drivers to make unlimited deliveries within a fortnight. That could encourage them to make trips into the UK.

But the biggest challenges remain paperwork, transport costs, and customs duties and friction at the border.

More than half of firms reported challenges in exporting or importing, where there’s been little improvement since January 2021 when the UK-EU trade deal came in.

UK import and export conditions
UK import and export conditions Photograph: ONS

Updated

The number of UK online job adverts rose 2% last week, as companies continue to struggle to fill vacancies.

The latest real-time economic indicators from the ONS show there were 43% more online job ads last Friday than in February 2020, before the first lockdown.

Adverts for positions in “transport, logistics and warehouse” roles jumped by 6%, and are four times as high as before the pandemic. That highlights the strains in Britain’s supply chain, with shortages of lory drivers, delivery workers, and other logistics roles.

Figures from @Adzuna show the volume of online job adverts in “transport, logistics and warehouse” are over 4 times as high as its February 2020 average level, having increased by 6% from the previous week https://t.co/aa6RWGLmLv pic.twitter.com/imoA8pzBc2

— Office for National Statistics (ONS) (@ONS) October 21, 2021

Simon French, chief economist at Panmure Gordon, says UK debt repayment costs are heading higher, as inflation pushes up:

This AM's UK borrowing data keeps the OBR on track to revise down in-year borrowing considerably next week - but dont expect Chancellor to hang out the bunting with debt interest as % of GDP approaching its highest level since 2011/12 - & heading higher as RPI-linked coupons ⬆️ pic.twitter.com/P9KUWp3ZSQ

— Simon French (@shjfrench) October 21, 2021

Revisions will largely be a function of cautious OBR forecast for 4% growth in 2021 back in March. This underestimated the pace of the recovery - we had +6.5% YoY at time, & consensus now +7%. Need for I-Y energy subsidies/ Net Zero/LU funds likely to reinforce wider HMT caution.

— Simon French (@shjfrench) October 21, 2021

Unilever price rises: what the experts say

Unilever’s price hikes will have hit a lot of consumers, points out Neil Wilson of Markets.com:

Unilever products are just about everywhere in just everyone’s homes. So, when they raise prices it usually affects a lot of people.

Unilever raised prices by an average 4.1% in the third quarter across all its brands, helping it to achieve underlying sales growth of 2.5% despite sales volume declining 1.5%. Turnover rose 4%. The company said it is taking action to “offset rising commodity and other input costs”.

The company’s prediction that inflation will keep rising should worry central bankers too, says AJ Bell financial analyst Danni Hewson.

Unilever reckons inflation is here to stay. That’s bad news not just for investors in the consumer goods giant but also for central bankers.

“The like of the Federal Reserve will have been hoping inflationary pressures would ease sooner rather than later as they walk the tightrope of keeping prices from overheating while not choking off the recovery by raising interest rates too far and too fast.

“However, given the breadth of costs Unilever is exposed to and the fact that dealing with input costs is bread and butter for a consumer goods company, a warning that inflation will be higher in 2022 carries weight.

It could also push cash-conscious consumers towards cheaper rivals, Hewson adds.

“For now Unilever hopes price increases, running at the highest rate in years, will keep margins flat year on year but the company faces its own balancing act of not increasing prices so much that its products are no longer competitive.

It is a real test of the strength of the company’s brands

Freetrade’s Senior Analyst Dan Lane says Unilever faces a ‘very tricky path’, despite success in some areas.

Unilever’s ability to pivot towards its ecommerce channels is paying off.

Moving even further into Beauty has also clearly been a shrewd move - the likes of Dove and Vaseline are more than holding up their end of the bargain in the skincare division.

The reality is Covid is going to leave a very tricky path ahead for Unilever though. The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.

For investors, there’s maybe the feeling the post-crisis quality growth story is in danger too.

If the world swings towards value stocks and investors dust off their attitude to fixed income the popular bond-proxies like Unilever could really suffer.

Unilever said it increased pricing by 4.1% in the third quarter, the fastest rate since the start of 2012. The company expects at least another year of inflationary pressure, with the peak coming in the first half of 2022. https://t.co/qGG8qAoPTT

— Lisa Abramowicz (@lisaabramowicz1) October 21, 2021

Marmite and PG Tips maker Unilever raises prices as inflationary pressure bites

Unilever’s headquarters in Rotterdam.

Consumer goods giant Unilever has lifted its prices, and warned that further inflation is ahead as it battles an “unprecedented” rise in costs.

Unilever makes food ranges including Carte d’Or and Magnum ice cream, tea brand PG Tips, Hellmann’s mayonnaise and Marmite, personal care products including Dove soap, and cleaning products such as Cif, Persil and Domestos.

Unilever lifted its prices by 4.1% in the last three months, as it passed on the impact of rising commodity and other input costs to consumers.

And it warned today that it doesn’t see these pressures easing.

Finance chief Graeme Pitkethly said:

“We expect inflation could be higher next year than this year.

These price hikes saw Unilever’s underlying sales grow by 2.5%, more than offsetting a 1.5% drop in sales volumes.

Commodity costs and wholesale food prices have been soaring this year, driven by rising demand, higher energy costs, and ongoing supply chain disruption from the pandemic.

The UN’s Food Price Index shows that global food commodity prices are up almost a third over the last year, with driven by cereals, vegetable oils, dairy and sugar prices.

Unilever’s CEO, Alan Jope, said the company will continue to raise prices in response to rising costs:

Cost inflation remains at strongly elevated levels, and this will continue into next year.

We have and will continue to respond across our categories and markets, taking appropriate pricing action and implementing a range of productivity measures to offset increased costs.

Shares in Unilever have jumped 2.7%, to the top of the FTSE 100 leaderboard.

Updated

Barclays almost doubled its third-quarter profit to £2bn as it benefited from strong mortgage lending in the UK and a boom in investment banking.

The British bank’s profit before tax rose from £1.1bn a year ago, taking its year-to-date profit to an all-time high of £6.9bn. Barclays said a consumer recovery had contributed to the stronger performance, as well as higher investment banking fees.

Barclays has released bad debt provisions of £622m so far this year as the economy recovers from the pandemic and it reckons it will need less to cover bad debts. This is in stark contrast with this time last year when Barclays had set aside £4.3bn to cover bad debts, but government support measures propped up businesses.

Last UK government borrowing figures before next week's budget out this morning:
📉 Borrowing for April-Sept 2021 falls 48% from same period in 2020
📈Tax revenues up 20%, spending down 6%
💷 Debt drops to 96% of GDP, near level seen in 1960s
🚀 Debt interest bill leaps 50%

— David Milliken (@david_milliken) October 21, 2021

Rising inflation has driven up the cost of repaying Britain’s national debt by around 50% in the first half of the financial year.

Interest payments from April to September totaled £32.7bn, up from £21.7bn a year ago, due to the increase in the Retail Prices Index to which index-linked gilts (government bonds) are pegged.

The RPI has risen sharply this year - hitting 4.9% in September, up from just 0.5% in August 2020.

The UK August’s borrowing total has been revised down to £16.8bn, from £20.5bn, today’s public finances show.

That’s due to stronger corporation tax revenue and lower spending on public services and the job furlough support programme than initially estimated, Reuters explains.

August’s initial estimate of £20.5bn was rather worse than the £15.6bn which economists expected, with a rise in debt interest payments pushing up spending.

European market open lower

European stock markets opened lower, with worries about China’s Evergrande’s dampening the mood.

The UK’s FTSE 100 is down around 0.3%, or 23 points lower at 7200.

Leading the fallers are mining stocks such as Rio Tinto (-3.6%), Anglo American (-3.2%) and BHP Group (-2.5%), which are all exposed to China’s economy.

European stock markets, 21st October
European stock markets, 21st October Photograph: Refinitiv

Evergrand’s failure to sell a majority stake in its property services division is worrying the markets, says Victoria Scholar, Head of Investment at interactive investor:

Overnight in Asia, Evergrande slumped more than 13% sparking risk-off sentiment across the major indices, as the embattled Chinese property giant came back onto the market after a trading halt that lasted more than a fortnight.

Having already missed a couple of bond coupon payments, default risk remains with fears around what a collapse of the systemically entrenched business would mean for China’s financial system and its wider economy.

Recent reports of power shortages in China are another concern, she adds

Shares in Anglo American are under pressure, trading lower by more than 2% after reporting guidance towards the bottom end of the expected range for diamonds, iron ore and copper. Investors shrugged off higher production for the third quarter, focusing on the weaker outlook instead.

The stock has come under selling pressure in recent months, shedding 20% since the August peak on the back of declining iron ore and copper prices, on the back of some demand shocks from China from its steel production curbs, Evergrande’s default risk and now power shortages,”

UK #PSNB hit £21.8 billion in Sept, 2nd highest figure for this month since records began. Net debt is £2.218 trillion, or 95.5% of GDP, the highest ratio since 1963. The data makes it harder for #Sunak to to deliver any #Budget giveaways next week with tax hikes more likely pic.twitter.com/sNwzIF8fuU

— Victoria Scholar (@VictoriaS_ii) October 21, 2021

The fall in UK borrowing is good news for the chancellor ahead of next week’s budget, says James Smith, research director at the Resolution Foundation.

But, Smith says, Rishi Sunak shouldn’t take it as a sign to tighten fiscal policy, given the uncertainty over the economic outlook...

Key public finances data out this morning – final release before the Budget.

Data for September show borrowing of £21.8bn, second highest September on record, but £7bn lower than last year and with some more good news relative to the OBR’s March forecast.

A short thread…

— JamesSmithRF (@JamesSmithRF) October 21, 2021

Borrowing so far this year is £108.1bn, around £101.2bn less than the record-breaking 2020 at this point.

That's around £43.4bn lower than the OBR's March forecast. About £4bn news for Sep plus ~£7.5bn of revisions – so quite a bit of good news here for the Chancellor. pic.twitter.com/BYc42cHdVs

— JamesSmithRF (@JamesSmithRF) October 21, 2021

A big chunk of the news relative to the OBR forecast is on receipts.

Government current receipts were £62.3bn in Sep, £6.2bn more than last year.

Receipts so far this financial year are £379.8bn, about £27bn higher than the £352.9bn in the OBR’s forecast for the same period. pic.twitter.com/WU4EbE1XMz

— JamesSmithRF (@JamesSmithRF) October 21, 2021

All this leaves net debt at £2,219n at the end of September, or 95.5% of GDP - highest since March 1963.

In March, the OBR had expected it to continue to rise to 107.4% of GDP this year but that level now looks set to be much lower following improved borrowing +revisions. pic.twitter.com/N9dd5hbMVE

— JamesSmithRF (@JamesSmithRF) October 21, 2021

The strength of receipts reflects the economy which was ~4% larger than the OBR’s March forecast in Aug.

That should see receipts continue to come out strong but higher inflation should start to offset that. pic.twitter.com/pR4nz7QYoF

— JamesSmithRF (@JamesSmithRF) October 21, 2021

For next week’s Budget, then, there is more good news here for @rishisunak.

The Chancellor will need to resist the temptation to take this as a sign to tighten policy too quickly. Instead he should respond to the uncertain outlook.

For more on this, see: https://t.co/nXfGoPvVCN

— JamesSmithRF (@JamesSmithRF) October 21, 2021

Capital Economics: economic rebound lifts tax receipts

UK government borrowing has fallen much more quickly than almost everyone expected, says Paul Dales, chief UK economist at Capital Economics,.

That means the fiscal outlook has improved ahead of next week’s budget.

But, the chancellor could still keep a very tight grip on the public finances, to try and bring down borrowing even quicker and build a fiscal war chest ahead of the next election.

Dales explains:

Public sector net borrowing of £21.8bn in September (consensus £22.6bn) was once again better than the £25.9bn the OBR forecast back in March. That means borrowing is now a whopping £43.5bn lower in the 2021/22 financial year so far than the Chancellor had expected. But we suspect Sunak will set himself some tight fiscal rules that mean there will be no major fiscal giveaway in next Wednesday’s Budget.

The rebound in the economy meant that tax receipts were £62.3bn in September, which was higher than the £56.1bn in August last year and the £58.5bn the OBR forecast for September this year. The £74.1bn of government spending was a bit higher than the £73.6bn recorded last September. That was partly due to the recent rises in RPI inflation, which raised the government’s payments on its stock of index-linked gilts, meaning that £4.8bn was devoted to debt interest payments in September.

But total spending was still much lower than the £84.9bn the OBR had forecast for this September. The government spent just £1.3bn on the furlough and self-employment income schemes as they closed. In total since there were created, £96.8bn has been spent on those two schemes.

Updated

UK tax revenue increased by £4.7bn year-on-year in September, to £45.6bn.

That included a £1.2bn increase in Pay As You Earn Income Tax, £500m each more from VAT and corporation tax, and an extra £600m from both business rates and stamp duty.

On the spending side, the cost of the furlough scheme (Coronavirus Job Retention Scheme) dropped from £2bn to £700m as it was wound up; spending on the Self-Employment Income Support Scheme dipped from £1bn to £600m.

The UK also spent £4.8bn on interest payments on its debt stock, the same as in September 2020.

Rising prices raises the cost of paying off government debt that linked to inflation, as the ONS explains:

The recent high levels in debt interest payments are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged.

UK public finances

Chancellor of the Exchequer, Rishi Sunak, has responded to September’s public finances:

“Our recovery is well underway – with more employees on payrolls than ever before and the fastest forecast growth in the G7 this year - but the pandemic has had a huge impact on our economy and caused our debt levels to rise.

“At the Budget and Spending Review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future.”

Introduction: UK borrowing dips in September

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

British public borrowing has almost halved so far this financial year as the economy continues to recover from the pandemic, in a final healthcheck ahead of next week’s budget.

Government borrowing fell to £21.8bn in September, a drop of around £7bn compared with September 2020, and less than economists forecast.

That’s the second-highest September borrowing since monthly records began in 1993, reflecting the cost of the pandemic.

UK public finances
UK public finances Photograph: ONS

It means the UK has borrowed £108.1bn since April -- around £101bn less than in the first half of the last financial year, when the pandemic drove borrowing to record levels.

That’s also sharply lower than the £151.1bn which the Office for Budget Responsibility had expected to have been borrowed so far this year.

Borrowing so far this financial year has consistently undershot the forecasts from the OBR, which could give chancellor Rishi Sunak some flexibility on tax and spending.

UK public finances

In September, central government receipts rose to around £62.3bn, an increase of £6.2bn than a year ago -- as tax revenues were lifted by the recovery.

Spending by Central Government bodies dipped a little, down £1.3bn to £84.1bn.

Martin Beck, senior economic advisor to the EY ITEM Club, says the public finances have improved faster than expected:

“Stronger-than-expected tax receipts continued to account for the bulk of the borrowing undershoot, though spending has also fallen back more quickly than anticipated.

In both cases this reflects a much stronger recovery in activity than the OBR’s cautious forecast. These improvements are set to be sustained, and the EY ITEM Club expects full year borrowing to come in at just over £200bn, well below the OBR’s forecast of £234bn.

Overall, the UK’s national debt is now £2,218.9bn. That’s around 95.5% of gross domestic product (GDP), the highest ratio since the 98.3% recorded in March 1963.

UK public finances
UK public finances Photograph: ONS

Also coming up today

The crisis at Evergrande is looming over the markets again today. Stock markets are edgy after the Chinese property giant’s effort to sell a stake in its property services unit collapsed, putting more pressure on the company as it tries to avoid default.

Shares in China Evergrande Group, the parent company for the sprawling empire built by former steel industry executive Xu Jiayin, are down almost 12% in afternoon trading in Hong Kong as trading resumes after a two-week suspension.

Evergrande Property Services, one of its most profitable units, was off by 6.45%.

My colleague Martin Farrer explains:

Evergrande announced on Wednesday that it had formally abandoned plans to sell a 50.1% slice of Evergrande Property Services, and said there was “no guarantee” it could meet its financial obligations in order to stay afloat.

The company, which is China’s second-biggest property developer with thousands of projects, has debts of $305bn.

But it is running out of cash thanks to a government crackdown on lending, and a slump in property sales and prices, sending shockwaves through the Chinese economy and global financial markets.

Kyle Rodda of IG says:

Sentiment has turned slightly in Asian markets today, despite Wall Street’s positive lead, as market participants continue to focus on earnings beats over inflation pressures, slowing growth and policy risks.

News on the Evergrande front hasn’t helped risk appetite to be sure, with the company’s shares falling today upon return from a trading halt, with news a takeover deal for it property arm has fallen through adding to fears of a technical default as soon as tomorrow.

European markets are expected to open lower.

European Opening Calls:#FTSE 7200 -0.32%#DAX 15487 -0.23%#CAC 6693 -0.20%#AEX 803 -0.26%#MIB 26493 -0.33%#IBEX 8997 -0.24%#OMX 2319 -0.32%#STOXX 4161 -0.27%#IGOpeningCall

— IGSquawk (@IGSquawk) October 21, 2021

The agenda

  • 7am BST: Public sector net borrowing for September
  • 11am BST: CBI industrial trends survey for October
  • 1.30pm BST: UK weekly jobless claims
  • 3pm BST: Eurozone consumer confidence for October

Updated

Contributors

Graeme Wearden

The GuardianTramp

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