Reeves’s Budget to keep interest rates higher for longer, say economists

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A return by former Donald Trump to the White House would increase geopolitical tensions and be negative for the global economy outside the US, an official at the world’s largest wealth fund suggested on Tuesday.

Trond Grande, deputy chief executive of Norges Bank Investment Management, which operates Norway’s sovereign wealth fund, said:

The Republican [candidate] is probably the one that could ... exacerbate further the geopolitical tensions that we see. There’s more talk about tariffs and sanctions on one side than the other.

Asked whether Europe in particular would be negatively affected by a Trump victory, Mr Grande said European companies that deal closely with Chinese companies would be hurt most under a Trump presidency. Trump has said he would hike tariffs on Chinese products.

The domestic US economy - in which half of the fund’s investments are located - would remain broadly the same, regardless of who wins the election, Grande said.

“The difference between a Democratic and a Republican candidate ... wouldn’t be as important necessarily for the US,” he said.

French cosmetics giant L’Oréal experienced a mixed third quarter, telling investors that its North Asia region, which includes China, had shrunk by 4.4pc.

The company, however, grew by 6pc overall.

“Operating conditions in the Chinese ecosystem remain challenging ... In mainland China, the beauty market – already negative in the second quarter – continued to deteriorate, impacted by low consumer confidence,” it said.

US stock indexes slipped this afternoon as rising Treasury yields affected rate-sensitive sectors, while investors continued to evaluate earnings to assess the health of American companies.

GE Aerospace slumped 7.2pc despite raising its profit forecast for 2024, as persistent supply constraints hit its revenue.

The S&P 500 and Nasdaq lost 0.3pc, while the Dow Jones was flat.

Further pressuring equities, US Treasury yields were trading at near three-month highs as investors repriced expectations for the Federal Reserve’s policy trajectory.

Chuck Carlson, chief executive at Horizon Investment Services, said:

During the earnings season, you often get this kind of choppiness, but there’s also increased uncertainty relative to the interest rate direction.

Investors are trying to calibrate exactly what they think might be happening on the interest rate front.

Rachel Reeves’s plans for increased borrowing and spending will force the Bank of England to hold interest rates higher for longer, leading economists have said.

Pantheon Macroeconomics said that rates would be 0.25 to 0.5pc percentage points higher during the next financial year as a result of the Chancellor’s looser fiscal policy. 

Economists Robert Wood and Elliott Jordan-Doak said: “The Oct 30 Budget will include large tax increases, but we expect Chancellor Rachel Reeves overall to loosen fiscal policy, boosting growth and keeping interest rates higher than they otherwise would be.

“The MPC [Monetary Policy Committee] can keep cutting interest rates, but Ms Reeves’ Budget should keep rate-setters easing policy only gradually.”

They added: “The growth-depressing impact of Ms Reeves’ likely tax hikes is roughly cancelled out by the boost from higher day-today public spending.

“But extra government investment funded by more borrowing means the Oct 30 Budget should add a net boost to GDP…

“The MPC, by convention, bases its forecasts on announced government policy. So, its current forecasts use ex-Chancellor Jeremy Hunt’s tight fiscal plans.

“After Oct 30, rate-setters will need to factor in stronger GDP growth, which should make them more cautious about cutting interest rates.”

The Treasury and the Bank of England have been approached for comment.

France’s main farmers’ union has said it will stage nationwide protests next month as a push to conclude a trade deal between the European Union and South America deepens discontent.

It comes after anger at competition from cheaper imports, including from EU ally Ukraine, and a regulatory burden on EU producers led to large-scale protests across France and Europe earlier this year.

Weather-hit harvests and outbreaks of livestock disease along with political deadlock after a snap election at the start of summer have added to the grievances among French farmers, triggering renewed protests locally in recent weeks.

The FNSEA union will hold nationwide protests from mid-November, with the date and type of action to be decided subsequently, its president, Arnaud Rousseau, told reporters.

“The new factor and trigger is the renewed incoherency at European level, as shown by a barely disguised explanation that we are going to end up signing the Mercosur [South American trade bloc] deal,” he said.

French farmers fear a accord with the South American bloc will lead to a influx of cheaper agricultural goods that do not meet EU production standards. French President Emmanuel Macron has repeatedly opposed concluding a trade deal.

European and US stock markets dipped today, as traders sought to ascertain the outlook for US interest rates ahead of the presidential election.

Investors also focused on company earnings, as gold and oil prices continued to rise on the back of Middle East tensions.

Derren Nathan, head of equity research at Hargreaves Lansdown, said:

A mix of continuing unrest in the Middle East and uncertainty over the US election casts a cautious shadow over markets.

Concerns over the outcome of the US election on Nov 5 have weighed on investor sentiment, with recent polls and forecasts indicating that Donald Trump has gained ground on Kamala Harris, Deutsche Bank economists noted.

Expectations of another bumper US interest-rate cut from the Federal Reserve have been tempered slightly following a recent run of strong American data on jobs creation and as some top decision-makers suggested they would like to see a slower pace of rate cuts.

Tech titans Alphabet and IBM announce their latest results over the next two days, while earnings from Boeing, Coca-Cola, and L’Oreal are also in the pipeline.

General Motors raised some of its full-year profit projections Tuesday following solid earnings as strong vehicle pricing compensated for lower auto sales.

3M, GE Aerospace, Lockheed Martin and Verizon also beat expectations.

Briefing.com analyst Patrick O’Hare said there is a bit of debate on why equities have retreated despite the generally good corporate earnings reports.

One is that a rise in market interest rates has created concerns that equities are trading at levels too high compared to their earnings.

“The other possibility is that stocks hit some speed bumps yesterday because the market had gone up six straight weeks and was due for a pull-back,” he said.

The FTSE 100 fell 0.1pc today as morning losses were mostly reversed after the IMF upgraded its forecast for the UK.

The biggest riser was miner Fresnillo, up 2.8pc, followed by aerospace manufacturer Melrose, which rose 2pc.

Insurance company Admiral fell the most, losing 2pc, followed by housebuilder Persimmon, down 1.8pc.

Meanwhile, the FTSE 250 closed up 0.2pc. Construction group Morgan Sindall rose 20pc, while Wizz Air gained 6.9pc.

At the other end of the index, supplier to the oil and gas industries Hunting plunged 16.5pc, while City firm Bridgepoint lost 2.9pc.

Wall Street heavyweight Jamie Dimon would consider a role in Kamala Harris’ administration, according to a report. 

The New York Times claimed that the boss of banking giant JPMorgan has privately suggested he would be open to a role, perhaps that of the Treasury Secretary.

A spokesman for JPMorgan told the NYT that Mr Dimon “has never publicly endorsed a presidential candidate”. JPMorgan declined to comment further to The Telegraph.

At JPMorgan’s post-earnings report call earlier this month, Mr Dimon said the chance of him being asked to take up a government role was “almost nil”.

He added: “And I probably am not going to do it. But I always reserve the right [to reconsider].”

US Treasury Secretary Janet Yellen on Tuesday said she has not yet seen policies announced by China that would address its low level of consumer spending as a share of its economy.

She told a press conference in Washington DC:

Our view has been that raising consumer spending in China as a share of GDP (gross domestic product) is really important, along with measures to address problems in the property sector.

So far I would say I haven’t really heard any policies on the Chinese side that address that.

Germany’s 10-year bond yield rose to its highest level in almost two months today, tracking US Treasury notes, as a range of factors including doubts about the speed rate cuts.

Germany’s 10-year bond yield, the benchmark for the euro zone, rose as high as 2.334pc, the highest since Sept 3. The yield was 2.289pc late last night.

Bond market analysts have struggled to pinpoint an exact driver for the rise in longer-dated bond yields in Europe and the United States.

But they have pointed to stronger than expected US economic data causing traders to moderate their expectations for rate cuts from the Federal Reserve. In addition, a rise in oil prices and concerns about high levels of bonds being issued as governments run large budget deficits appear to be having an effect.

Padhraic Garvey, regional head of research for the Americas at ING, said European bond markets were being “bullied” by US Treasury yields, which have risen as investors have reduced their bets on quick Fed rate cuts.

Chinese President Xi Jinping told Russia’s Vladimir Putin that the international situation was gripped by chaos but that Beijing’s strategic partnership with Moscow was a force for stability.

“At present, the world is going through changes unseen in a hundred years, the international situation is intertwined with chaos,” Xi told Putin today in the Russian city of Kazan at the opening of the BRICS summit.

“But I firmly believe that the friendship between China and Russia will continue for generations, and great countries’ responsibility to their people will not change.”

The United States casts China as its biggest competitor and Russia as its biggest nation-state threat, and President Joe Biden has said the democracies face a challenge from autocracies such as China and Russia.

Biden has referred to Xi as a “dictator” and has said Putin is a “killer” and even a “crazy SOB”. Beijing and Moscow have scolded Biden for the comments.

Putin called Xi “dear friend” and claimed the partnership with China was a force for stability in the world.

“Russian-Chinese cooperation in world affairs is one of the main stabilising factors on the world stage,” Mr Putin said.

The FTSE 100 is currently down 0.1pc, having fallen as much as 0.8pc today.

Chris Beauchamp, chief market analyst at online trading platform IG, credits the IMF with helping the index recoup most of its earlier losses. He said:

The FTSE 100 has managed to recoup some of its losses thanks to an upgrade to the IMF’s UK forecast.

The institution expects more cuts from the Bank of England, a view echoed by various banks that expect rate cuts to continue next year. It wasn’t all good news for investors however, due to the prospect of more global tariffs hurting growth.

[Meanwhile] earnings from General Motors have been insufficient to lift Wall Street, but ... October’s weakness in US stocks usually gets started around now, especially in pre-election years.

Hopes that a Trump presidency will prove beneficial for the US economy in some ways were offset by the knowledge that a Republican win will also mean more disagreements over trade with both allies and foes alike.

At least US GDP growth, and thus consumer spending, remains robust.

The United States is set to announce “strong new sanctions” as early as next week, with targets including parties in countries that support Russia’s military, US Treasury Secretary Janet Yellen said this afternoon.

She told a press conference:

We will unveil strong new sanctions targeting those facilitating the Kremlin’s war machine, including intermediaries in third countries that are supplying Russia with critical inputs for its military.

Her comments come as world financial leaders gather in Washington this week for the annual meetings of the International Monetary Fund and World Bank.

They also come more than two and a half years after Russia’s invasion of Ukraine in February 2022, which prompted a series of US actions taking aim at Russia’s revenues and industry.

A sharp fall in British consumer price inflation in September was driven by volatile data, Bank of England rate-setter member Megan Greene said on Tuesday when asked how it might affect her vote next month.

Consumer price inflation fell to a three-year low of 1.7pc in September from 2.2pc in August, below forecasts in a Reuters poll of economists. The services component dropped to 4.9pc from 5.6pc.

She said:

Services inflation ... was the biggest surprise, actually in the latest print.

But she wanted that this was affected by volatile date “so I wouldn’t put too much weight on that”.

Ms Greene voted against the BoE’s first rate cut of its current loosening cycle in August.

US stocks are retreating from record highs this week as investors take a breather after weeks of advances for major indexes.

J.J. Kinahan, chief executive of IG Group North America, said:

We set all these new highs with a sense of nervousness. That’s for three primary reasons: a lot of conflicts around the world at the moment, the Fed and what they’re going to do next and the election ... [have] people a bit more unsure of what’s next.

The next few weeks are likely to be volatile for equity markets, as investors scrutinise company earnings, fresh economic data and the results of the US election, followed by a central bank meeting.

Traders are pricing in an 89.6pc chance of a quarter percentage point interest rate cut in November, according to CME’s FedWatch.

The S&P 500 dropped 0.4pc as it opened this afternoon as investors look towards election and paired back bets on fast interest rate cuts.

It follows a fall yesterday and gives investors the first back-to-back decline in six weeks.

The Dow Jones dropped by a similar amount, while the Nasdaq was down by less than 0.1pc.

The boss of British technology giant Arm has said he would be “open to” a potential secondary listing in London more than a year after it shunned the City for New York.

Chief executive Rene Haas indicated the Cambridge-based company could make the move after making the biggest public listing on Wall Street last year, spurning advances by then-prime minister Rishi Sunak.

Mr Sunak had repeatedly lobbied Arm to float in London, either as its main market or through a dual listing. Officials had reportedly offered to bend listing rules to attract the company.

Mr Haas also told the Bloomberg Tech Summit that he does not think AI is overhyped.

He said: “The amount of innovation it’s going to drive is just incredible.”

I am heading off now but the live updates will keep coming courtesy of the rapid-typing Alex Singleton.

The IMF forecasts suggested growth was still being fuelled by a growing population and higher immigration, writes Szu Ping Chan.

The IMF projections showed Sir Keir Starmer remained far away from his target of having the fastest growing economy in the G7 for two consecutive years, measured by GDP per head, growing by just 0.6pc this year and 1.1pc in 2025 on a per capita basis.

By contrast, US GDP per head is projected to grow by 2.3pc this year and 1.7pc in 2025. GDP per head - which is used as a proxy for living standards - is projected to shrink this year in Germany and Canada.

Rachel Reeves has been warned that huge tax hikes or spending cuts risk damaging growth in a move that will make the challenge of bringing down debt harder.

The International Monetary Fund (IMF) said countries including the UK that attempt to do “too much too quickly” on tax rises and spending cuts risked having an “adverse impact on growth”.

However, Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund, also fired a warning shot at the Chancellor’s plans to borrow more to invest, signalling that there was still a “need to bring debt levels down” in countries such as the UK.

Mr Gourinchas said: “If you’re not doing that, that’s when you find yourself potentially later on at the mercy of market pressures. That will force an adjustment that is uncontrolled to a large extent, at which point you have very few degrees of freedom. So you don’t want to get in that position. And I think the effort to stabilise public debt has to be seen in that context.” 

Ms Reeves is widely expected to change how debt is defined in the budget in order to reflect the benefits of investment as well as the costs. 

Mr Gourinchas stressed there was a fine balance to be struck on getting debt down, adding that protecting public investment was important.

“If you try to do too much too quickly, you might have an adverse impact on growth. And you have to be careful there, because most countries have important needs when it comes to spending, whether it’s about essential services, or if we think about public investment and the climate transition. So we need to protect also the type of spending that can be good for growth.”

US Treasury Secretary Janet Yellen made a thinly-veiled attack on Donald Trump’s tariff-based economic plans if he wins the presidential election as she spoke at the IMF and World Bank annual meeting.

The former Federal Reserve chair told world financial leaders that the US economy has grown stronger because Joe Biden’s administration rejected isolationism.

Ms Yellen opened the IMF and World Bank annual meetings by highlighting US economic growth since the nation was in the grips of the Covid pandemic. 

Without mentioning Trump by name, she said in an advance draft of her remarks that the Biden administration had ended a period of international isolationism that “made America and the world worse off”.

She said: “We went from millions having lost their jobs to a historic labour market recovery,” 

She said US economic growth has been “almost twice as fast as most other advanced economies this year and last, even as inflation came down sooner”.

US stock indexes opened lower as rising Treasury yields pressured shares that are sensitive to interest rates.

The Dow Jones Industrial Average fell 54.8 points, or 0.1pc to 42,876.84. 

The S&P 500 fell 21.3 points, or 0.4pc, at the open to 5,832.7​, while the Nasdaq Composite dropped 88.1 points, or 0.5pc, to 18,451.86.

The pound remains down on the day after Andrew Bailey gave a speech about maintaining financial stability.

Sterling was down 0.2pc having earlier dipped to its lowest level against the dollar since August 19.

Mr Bailey said in his speech at the Bloomberg Regulatory Forum in New York that there is a need for “surveillance tools” on financial institutions that are not banks to guard against the risk of another financial crisis.

However, he said nothing that hinted about the future direction of interest rates.

Capital gains tax receipts rose by 16.3pc in the third quarter, official figures show, as Rachel Reeves prepares to lay out tax rises in her Budget in two weeks.

Income from the levy rose to £572m in the three months to September, according to the Office for National Statistics, compared to £492m in the same period last year.

Receipts were up 20.6pc compared to the previous quarter.

Britain’s growth prospects have been upgraded by more than any other major advanced economy, according to forecasts that risk being thrown into jeopardy by Rachel Reeves’s tax raid.

Just days before the Chancellor delivers her maiden Budget on Oct 30, the International Monetary Fund (IMF) predicted the UK economy would grow by 1.1pc this year.

This is more than double its estimate of 0.5pc just six months ago, and represents the biggest upgrade of any G7 economy this year.

Read how Britain compares to other nations.

General Motors managed to post a third quarter profit of $3bn (£2.3bn) despite falling US sales are down and its joint venture in China losing money. 

The Detroit carmaker, which is behind brands like Chevrolet and Buick, reported $48.8bn (£37.6bn) in revenue from July through September, which was 10pc more than last year.

Chief financial officer Paul Jacobson said that while overall sales in the US fell 2.2pc in the quarter, much of the drop in GM’s most-profitable market was from sales to large fleet buyers. 

Sales to individuals, which generally are more profitable, rose 3pc.

However, the company’s joint venture in China lost $137m, compared with a $192m profit a year ago. 

Mr Jacobson said the loss is a symptom of tough market conditions there, where domestic brands are turning out well-built products at low costs.

Holiday Inn owner Intercontinental Hotel Group (IHG) increased its revenues per room despite a significant slump in China.

Elie Maalouf, chief executive of IHG hotels and resorts, said he was “pleased” with recent trading, stressing that it meant the business is “on track” to meet market expectations.

IHG, which also owns the Crowne Plaza and Hotel Indigo brands, revealed that global revenues per available room rose 1.5oc over the third quarter of 2024.

Bosses said growth was boosted by “healthy business demand”.

Shares were up 1pc as the company saw particularly strong growth in Europe and Asia, where revenue per available room was up 4.9pc, with occupancy and room rates both increasing year-on-year.

However, the company saw a 10.3pc slump in revenues per available room in Greater China, as it was badly hit by typhoons and the timing of public holidays.

The price of gold has risen further despite a rise in bond yields as investors seek out safe havens in the event of a Trump victory in the US election.

Bullion was last up 0.3pc to more than $7,731 an ounce, while sliver gained 1.6pc to tip over $34.

Usually, rises in Treasury yields hurts the price of gold as they pay no interest compared to government bonds.

Bas Kooijman, chief executive of DHF Capital, said: “With the US presidential election just over two weeks away, polls suggest that former President Donald Trump’s chances of winning are increasing. 

“This possibility is prompting investors to seek more safe-haven assets like gold to hedge against potential controversial policies he might implement, which could impact inflation, monetary policy, and global trade.”

US stock markets are on track to fall at the opening bell as fears about a Trump victory sent bond yields higher.

Global bonds have been sold-off amid fears that a victory for the Republican candidate will usher in a new wave of inflationary policies across the US.

The yield on the benchmark 10-year Treasury bond rose as high as 4.22pc, its highest point since July and continuing a steady climb higher since early October.

Traders are pricing in a 92pc chance of a quarter of a percentage point interest-rate cut in November, compared to 97pc a week ago.

As a result, interest rate sensitive stocks have fallen in premarket trading, with Tesla down 0.7pc, Apple falling 0.3pc and Nvidia losing 0.5pc.

In futures trading, the Dow Jones Industrial Average had dropped 0.4pc, the S&P 500 was down 0.5pc and the Nasdaq 100 had fallen by 0.5pc.

The value of the pound has slipped to a new two-month low against the dollar as traders bet on a slower pace of interest rate cuts in the US.

Sterling was down 0.1pc to below $1.30 as markets increasingly expect Donald Trump to win the presidential election, bringing in potentially inflationary policies.

The pound has slumped by more than 3pc against the US currency so far this month amid declining inflation and comments from the Governor of the Bank of England pointing to “more aggressive” rate cuts.

Sterling was down 0.2pc against the euro, which is worth 83.5p.

Olaf Scholz told German bosses they should hire more people and pay them better wages to help the country’s “stagnating” economy.

The Chancellor urged businesses to attract skilled workers from abroad to reignite growth, after his government predicted Europe’s largest economy is heading for its first two-year recession since the early 2000s.

Mr Scholz’s administration has eased immigration rules to help companies bring in more talent from other countries.

In a speech to the German employers’ lobby group BDA in Berlin, he said: “The economy is stagnating. The bad mood is doing the rest. We need to get out of this bad situation together.”

He added: “We need many, many smart and creative minds and capable, hands-on workers — as many as we can possibly recruit for us here in Germany.”

Alongside his call for more hiring, he said wages need to rise to encourage more people to work and to stimulate domestic demand. 

He told bosses: “I know we are not always of the same opinion here.”

Oil prices have risen further after Hezbollah said it bombed an Israeli spy headquarters near Tel Aviv in an overnight attack.

Brent crude, the international benchmark, was up 0.6pc towards $75 a barrel after rising nearly 2pc on Monday, while US-produced West Texas Intermediate was 0.8pc higher over $71.

Hezbollah claimed it fired a salvo of rockets at the base of Israel’s secretive 8200 military intelligence unit in the Glilot suburb of Tel Aviv.

Jim Reid of Deutsche Bank said oil had already pushed higher “amidst growing focus on Israel’s expected retaliation against Iran’s missile strikes earlier this month, which is still yet to materialise”. 

He added that oil prices “were reacting to several weekend developments, including the drone strike on the private home of Israeli PM Netanyahu”.

The Chancellor raked in a record £2.2bn in inheritance tax receipts in the three months to September, ahead of an expected raid in Rachel Reeves’ maiden Budget next week.

Inheritance tax brought in £736m for the Chancellor last month alone, according to the Office for National Statistics (ONS), taking the haul so far this financial year to almost £4.3bn – up more than 10pc compared with the same period last year.

Ms Reeves is reportedly considering a string of changes to the much-hated “death tax” which is typically charged at a rate of 40pc on assets above the threshold of £325,000 when someone dies. 

She is understood to be considering extending the current “seven-year” rule – under which gifts can be passed on free of inheritance tax – to 10 years and is yet to rule out the scrapping of relief for Aim shares.

Read why revenues are surging.

The number of professional roles being advertised in the UK has fallen as bosses decided to defer hiring until they see the results of the Chancellor’s tax-raising Budget.

Britain was among the nations suffering the largest declines in white-collar job vacancies amid fears about the economic outlook, according to industry data.

The UK suffered a 5.6pc drop in job roles being advertised, ahead of the global average of 5pc but behind drops of 21.8pc in Singapore, 12.1pc in the USA, 11.3pc in Australia and 6.9pc in Germany.

The decline in September is particularly concerning as September is typically deemed one of the busiest months for recruitment.

Toby Fowlston, chief executive of Robert Walters, which compiles the figures, said: “The UK is experiencing increased uncertainty as businesses hold back on hiring in anticipation of the Government’s Budget announcement.”

Bonds are being sold off around the world as markets bet that Donald Trump is increasingly likely to win the US presidential election.

The yield on UK bonds - which moves inversely to its price - rose three basis points to 4.17pc, while US Treasury yields climbed above 4.2pc for the first time since July.

Meanwhile, German bond yields - a proxy measure of government borrowing costs - have climbed four basis points to 2.32pc, touching the highest level in more than a month.

The rout spread to Asia, where the yield on Australian benchmark debt surged as much as 16 basis points. 

It comes amid increasing bets that Donald Trump - who has championed inflationary economic policies, such as tariffs - is leading the race for the White House.

According to Polymarket, the Republican candidate has a nearly 65pc chance of winning the November 5 election, compared to less than 36pc for Kamala Harris.

Higher inflation would likely force the US Federal Reserve to keep interest rates higher for longer after announcing a first reduction in four years in September.

 Robert Dishner, senior portfolio manager at Neuberger Berman in London, said: “With less than two weeks now until the US elections, concerns about the fiscal outlook and its potential upward pressure on inflation have become more acute.”

Halfords has cautioned that uncertainty about the economy and upcoming tax changes mean consumers are still holding back from making costlier purchases.

The retailer, which sells bicycles and car parts, said sales growth stalled over the six months to September 27, dipping 0.1pc.

This was partly due to there being significantly stronger demand during 2023, particularly for its garages which saw a big jump in vehicle-servicing sales.

Over the latest period, Halfords said there was still strong growth for services, maintenance and repairs, but tyre fitting was more flat with cost-conscious shoppers turning to budget ranges instead.

The company, which is expecting to make savings worth £30m this year, also said record levels of rainfall over the spring contributed to weaker retail sales, which dipped 0.7pc year-on-year, with leisure cycling demand coming under pressure.

However, shares were up 5.5pc as the retailer, which runs about 380 shops across the UK and nearly 550 garages, revealed there were signs of consumer sentiment improving.

It warned people were still spending cautiously, particularly on more expensive, so-called big ticket purchases.

Graham Stapleton, Halford’s chief executive, said consumers “remain cautious in their discretionary spending compounded by uncertainty around the contents of the upcoming autumn Budget”, but that the group was focused on “controlling the controllables”.

There was a scrap of good news for the Chancellor in the latest public sector finances figures, after the ONS revised its figures on debt.

It showed Britain’s debt did not breach 100pc of GDP after all last month, although at 98.5pc of GDP it remains at the highest level since the early 1960s.

Public sector net debt excluding banks edged down slightly to £2.77 trillion in September.

Mulberry shares have fallen after it said a sweetened £111m approach from Mike Ashley’s Frasers Group is “untenable”.

The London-listed fashion company said its board had decided to rebuff the higher proposed takeover in favour of focusing on boosting its business performance.

It said this also takes into account the view of its largest shareholder, Challice - a group controlled by Singaporean entrepreneur Christina Ong and husband Ong Beng Seng - which has already rejected the approach, saying it does not plan to sell to Frasers.

Shares were down 3.9pc as Mulberry said: “After careful consideration with its advisers... the board is unanimously of the view that the possible offer is untenable and that the company should focus its attention on driving the commercial performance of the business.”

Frasers now has until 5pm on Monday October 28 to make a firm bid or walk away, under City Takeover Panel rules.

The FTSE 100 has declined as investors wait to hear from the Governor of the Bank of England and other policymakers about the potential path for interest rates.

The UK’s blue-chip index was down 0.4pc while the midcap FTSE 250 dropped 0.2pc.

Andrew Bailey will give a speech in New York later, while fellow policymaker Megan Greene will be on a panel at the Atlantic Council.

Their speeches come after inflation dropped further than expected to 1.7pc in September, paving the way for more interest rate cuts.

In corporate news, HSBC was down 0.1pc after it unveiled an overhaul of its global structure as new boss Georges Elhedery looks to reduce costs and home in on the bank’s strongest divisions.

Amid soaring public borrowing, Liberal Democrat Treasury spokesman Daisy Cooper said: 

Today’s figures highlight the difficult position of our public finances after years of mismanagement under the previous Conservative government - but this can’t be an excuse for the Chancellor to make the wrong decisions at the Budget.

We need to see urgent investment in our NHS and public services which have been reduced to their knees and bold action to fix our crumbling schools and hospitals.

The burden of fixing the Conservatives’ mess mustn’t fall on hard working households, but on the big banks, social media companies and oil and gas giants that can afford to pay a small amount of their soaring profits to get our public services back on their feet.

Rachel Reeves has signalled plans to announce changes in the upcoming Budget to the fiscal rules, which provide discipline on borrowing and spending, to allow her to borrow more to finance projects in sectors such as housing, roads and energy.

Experts said the rules will need to be changed as government spending soars but in a way that does not spook financial markets and risk a re-run of the mini-Budget meltdown caused by former prime minister Liz Truss.

The Resolution Foundation economic think tank said Government spending so far this financial year was £11.5bn more than forecast by the OBR, which tallies with Ms Reeves’ claim of a £22bn “black hole” in the public finances.

The foundation’s senior economist Cara Pacitti said: “Today’s data highlights the scale of the public finances challenges facing the Chancellor as she grapples with overspending today, the need to avoid austerity in the future, and having to fund extra public service spending through tax rises.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, said he expects the Chancellor to target public sector net financial liabilities falling relative to GDP in five years, rather than public sector debt excluding the Bank of England.

He said: “Changing the fiscal rules in that way would give the Government about £50bn additional headroom to borrow.

“We think markets will be unruffled by that change because boosting investment should raise GDP, making government borrowing more affordable.”

HSBC has unveiled a sweeping overhaul of its bank separating its UK division from its Asia business amid growing geopolitical tensions between China and the West.

The lender on Tuesday announced that it will be “simplifying” its geographical governance structure, splitting its business into eastern and western markets.

Under the plans, which are being spearheaded by HSBC’s new chief executive Georges Elhedery, eastern markets will contain the Asia-Pacific region and the Middle East while western markets will contain its UK and continental European and Americas businesses.

It is the first major shake-up by Mr Elhedery, who was appointed in July and is HSBC’s first Mandarin-speaking chief executive.

Read on for details.

The FTSE 100 began the day lower as the latest official figures showed the “weak state” of the public finances.

The UK’s blue-chip index dropped 0.4pc to 8,286.78 while the midcap FTSE 250 fell 0.1pc to 20,893.48.

Alison Ring, ICAEW director of public sector and taxation, said: “Today’s data shows that the government spent £80bn more than it took in from taxes and other receipts in the six months to September 30. 

“This was the third highest on record, £7bn more than budgeted and £1bn more than in the first half of the previous financial year, emphasising the weak state of the public finances ahead of the new Chancellor’s first Budget next week.

“Public sector net debt hit £2,767bn, or 98.5pc of GDP, on track to exceed £2.8tn by the end of the financial year, although updated GDP estimates resulted in debt falling back below 100pc of GDP.

“While the Autumn Budget next week is technically about the plan for the next financial year, there will be significant attention on the updated estimates for the current financial year, and the extent to which the new Chancellor has been able to mitigate the £22bn black hole. 

“We hope the Chancellor will use the Budget as an opportunity to fix the underlying debt measure to allow for an increase in the investment the UK needs for growth, as part of a long-term fiscal strategy that puts the public finances on a sustainable footing.”

The impact of public sector pay deals on the public finances is likely to become more severe in the coming months, economists have warned.

The ONS said public sector pay deals were one of the reason that Treasury borrowing has overshot OBR forecasts by £6.7bn in the six months to September.

However, Alex Kerr of Capital Economics said that “it is worth noting that this is unlikely to be because of the public sector pay deals announced by the Chancellor in July as they are likely to come into effect from October”. 

He added that today’s release means borrowing “is on track to overshoot the OBR’s 2024/25 forecast of £87.2bn by £6.6bn”. 

He said: “This demonstrates the constraints on the Chancellor’s ability to increase day-to-day spending in the Budget next week without raising taxes. 

“Indeed, we expect her to increase current (i.e. excluding investment) spending by a net £25bn a year and to fund that by raising taxes by £25bn. 

“However, if the Chancellor changes the measure of debt her fiscal rule targets, she may be able to borrow to increase public investment by up to £53bn. For what it’s worth, we think she will raise borrowing and public investment by £18bn in 2029/30.”

The interest the Treasury has to pay on Government debt rose from £4.6bn a year ago to £5.6bn last month, according to the ONS.

Statisticians said this was owing to the interest payable in September last year being exceptionally low at £900m because of movements in the retail price index measure of inflation around that time, rather than September 2024’s interest being unusually high.

As the Government borrowed more than forecast by the OBR, Chief Secretary to the Treasury Darren Jones said:

We have inherited a £22bn black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers. 

Strikes cost at least £3bn last year, so it was the right thing to do to end those damaging disputes.

Resolving this blackhole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.

As public sector borrowing soared, ONS deputy director for public sector finances Jessica Barnaby said:

Borrowing this month was about £2bn up on last year, making this the third highest September figure on record. 

While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.

The Treasury’s borrowing has risen as Rachel Reeves scrambles to fill a £40bn black hole in the public finances.

The Government has borrowed £6.7bn more so far in this financial year than was forecast by the Office for Budget Responsibility (OBR), delivering the Chancellor less room for her sweeping spending and investment plans.

Public sector net borrowing excluding banks stood at £79.6bn in the six months to September, which was £1.2bn more the same point last year, according to the Office for National Statistics.

For the month of September, total public sector net borrowing excluding public sector banks was £16.6bn, which was lower than economists’ expectations of £17.5bn.

However, September borrowing was £1.2bn more than a year ago and it was the third biggest September deficit since records began in 1993.

Meanwhile, the public borrowing figure for August was revised down from £13.7bn to £13bn.

Public sector net debt excluding public sector banks reached around 98.5pc of the UK’s annual gross domestic product (GDP).

Public sector net borrowing excluding public sector banks was £16.6 billion in September 2024, £2.1 billion more than that time last year and the third highest September borrowing on record, behind 2020 and 2021.

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Thanks for joining me. Public sector borrowing has surged higher than official forecasts as Rachel Reeves prepares to plug a £40bn “black hole” in the Treasury’s finances in her Budget.

The Government has borrowed £6.7bn more so far this financial year than had been forecase by the Office for Budget Responsibility, according to the Office for National Statistics.

5 things to start your day 

1) Reeves tax raid risks £84bn black hole in public finances, say Truss-backed economists | The Growth Commission says higher duties would weigh on growth and leave the average person poorer

2) Rayner’s workers’ rights overhaul to cost employers up to £5bn a year | Government’s own impact assessment predicts businesses may be forced to raise prices and cut wages

3) Paddington producer targets £6.7bn listing in boost for London stock market | Floating of Canal+ would make it largest debut of year and meet threshold for FTSE 100

4) The little-known rail project giving Reeves a £500m headache | Transport bosses fear dire consequences if a crucial upgrade to Ely Junction fails to win funding

5) Ben Marlow: Self-driving cars are just another Silicon Valley obsession that no one needs | The problem with robotaxis isn’t just their safety concerns, but whether there is a market for them in the first place

What happened overnight 

Asian shares outside of China declined in cautious trading ahead of earnings reports both in the region and overseas, after Wall Street’s long, record-breaking rally ran out of steam.

Japan’s benchmark Nikkei 225 fell 1.1pc to 38,496.44. Australia’s S&P/ASX 200 dropped 1.6pc to 8,213.00, while South Korea’s Kospi slipped nearly 1pc to 2,579.56.

Hong Kong’s Hang Seng added 0.5pc to 20,576.07 while the Shanghai Composite rose 0.5pc to 3,285.49 following a cut to interest rates that took effect on Monday.

On Wall Street, the benchmark S&P 500 declined 0.2pc to 5,853.98. The Dow Jones Industrial Average of 30 leading US companies finished down 0.8pc percent at 42,931.60, while the tech-rich Nasdaq Composite index added 0.3pc to reach 18,540.01.

In the bond market, the yield on 10-year US Treasury notes rose to 4.206pc from 4.086pc late on Sunday.