The FTSE and major indexes across Europe dipped on Friday morning as a fall in inflation meant public borrowing figures came in at a lower clip than expected.
The FTSE (^FTSE) continued losses, dipping 0.4% at the open having closed 1.2% lower on Thursday. Frankfurt’s DAX (^GDAXI) also declined 1.1% and the CAC (^FCHI) in Paris was down 1.1%.
Concerns remain in equities markets about the ongoing conflict between Israel and Hamas, as tension escalates at the border with Lebanon.
Public sector net borrowing was £14.3bn in September 2023, 10% less than at this time last year. The year-on-year decrease in borrowing was driven by a large drop in debt interest payments from £7.9bn in September 2022 to £0.7bn in September 2023.
Public spending in the UK is particularly susceptible to inflation because a significant proportion of UK government debt is index-linked, meaning interest payments go up with inflation.
“We continue to be optimistic that the government will meet its target to halve inflation by the end of this year,” said Divya Sridhar, economist at PwC UK. “There are considerable gains to be made from a public finances perspective if this target is met.”
Meanwhile, net government debt marginally fell to 97.8% of GDP in September relative to its share of GDP in the previous month. This was more than 2 percentage points higher than in September 2022.
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“We had to borrow during the pandemic to protect lives and livelihoods, but since then [Russian president Vladimir] Putin’s invasion has pushed up inflation and interest rates,” said chancellor Jeremy Hunt. “This means we spent twice as much on debt interest last year as we did the previous year.”
“This is clearly not sustainable; we need to get debt falling and reduce public sector waste so that those delivering public services can get back to what they do best; teaching our children, keeping us safe, and treating us when we’re sick.”
Follow along for live updates:
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UK retail sales update for September from the ONS
Retail sales volumes fell by 0.9% in September, following a rise of 0.4% in August.
Looking at the quarterly picture, sales volumes fell by 0.8% in the three months to September when compared with the previous three months.
Non-food stores sales volumes fell by 1.9% in September; retailers reported that the fall over the month was because of continuing cost of living pressures, alongside the unseasonably warm weather reducing sales of autumn-wear clothing.
Non-store retailing (predominantly online retailers) sales volumes fell by 2.2% in September, following a fall of 0.9% in August.
Food stores sales volumes rose by 0.2% in September, following a rise of 1.4% in August.
Automotive fuel sales volumes rose by 0.8% in September, rebounding from a fall of 1.0% in August.
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Overnight in the US and Asia
Following a souring mood in Europe and the UK, markets across the US closed in the red on Thursday, as global jitters about the war in Israel persist.
The US also saw the largest one-week rise in 10-year Treasury yields in 18 months, ahead of remarks by Federal Reserve chair Jerome Powell.
The S&P 500 (^GSPC) closed 0.9% lower, the Dow (^DJI) was down 0.75% and the Nasdaq (^IXIC) fell almost 1%.
Over in Asia, Hong Kong’s Hang Seng (^HSI) fell 0.9%, the SSE Composite (000001.SS) was down 0.7% and Japan’s Nikkei (^N225) was 0.5% lower.
Rising yields typically have an outsized impact on tech-heavy indexes.
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Good morning! 🌞 It’s a grey Friday in London and European markets seem to be catching that mood after a heavy day of selling yesterday. We’ve got some routine updates to start us off today. Let’s get to it.
Watch: Inflation holds firm as easing food costs offset by fuel rises
