UK mortgage approvals hit highest since 2022 mini-budget; City investors relaxed about gilt risks – business live

Just in: Ireland’s economy returned to growth in the last quarter, mainly due to the multinational companies based in the Republic.

Irish GDP rose by 2% in July-September, new data from the Central Statistics Office shows.

This was “driven mainly by an increase in the multinational dominated sectors”, the CSO reports.

Enda Behan, CSO statistician, explains:

This moderate growth was driven by an increase in the multinational dominated sectors of Industry and Information & Communication in Q3 2024. GDP is estimated to have fallen by 1.2% when compared with Q3 2023.

Results for year-to-date 2024 (January-September 2024) compared with the equivalent period of 2023 show GDP declining by 3.3%.

Newsflash: mortgage approvals in the UK have hit their highest level in over two years.

New Bank of England data shows that 65,647 mortgages for house purchases were approved in September, an increase of 689 compared with August.

That’s the highest level since August 2022 – the month before the mini-budget drove up borrowing costs and dampened demand for mortgages.

Approvals for remortgaging increased by 3,100 to 30,800.

Stephanie Daley, director of partnerships at mortgage advisor Alexander Hall, says momentum is buildling in the market:

“Despite the air of uncertainty caused by the looming Autumn Statement, the UK property market has continued to benefit from a robust level of mortgage market activity, recording a fourth consecutive month of positive growth where approvals are concerned.

This momentum is only likely to build further once the dust has settled on tomorrow’s Budget, as both buyers and lenders will have a clearer view of where they stand within the market.

Simon Gammon, managing partner at Knight Frank Finance, reckons budget nerves are holding the market back:

“The relatively small uptick in mortgage approvals during September is consistent with consumer confidence surveys showing how nervous people are about this week’s Budget.

I can’t remember a fiscal event with so much speculation in the build-up. All sorts of policies and potential tax rises have been floated in recent months, so it’s unsurprising that people feel hesitant about purchasing a new home.

The BoE also reports that the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages decreased by 8 basis points, to 4.76% in September.

That follows its cut to interest rates in August, down from 5.25% to 5%.

UK mortgage rates are unchanged again today, despite concerns that an increase in government debt could hurt borrowers.

Data provider Moneyfacts reports:

Rates were also unchanged yesterday, and dipped a little last Friday.

Looking ahead, Octane Capital CEO Jonathan Samuels has predicted that reductions in average morgage rates should help property activity to strengthen in the next 12 months.

Samuels reckons that lenders are holding back from aggressively competing on mortgage rates, largely due to budget uncertainty, saying:

“Investors are worried about the impact of this week’s Budget, largely stoked by the government’s talk of a ‘£22 billion black hole’ in public finances that they need to fix.

“With this in mind, mortgage lenders are waiting to see how the government’s announcement alters the market before they start dropping rates to gain market share.

“Obviously we hope Labour keeps tax increases to a minimum, but regardless of what happens the fundamentals of the market are getting stronger all the time.

Although BP’s profits have fallen, there is still concern that the oil giant is raking in more than $2bn per quarter.

Caroline Simpson, spokesperson for the Warm This Winter campaign, says Rachel Reeves should target energy companies in the budget:

“Another week and another set of obscene profits. This time it’s BP which has pocketed £44.5 billion since the start of the energy crisis.

“That’s why we urge the Chancellor in her budget tomorrow to get tough on profiteers who have made billions milking energy shocks that have left 6.5 million in fuel poverty by clawing back some of that ill gotten gain to fund a social tariff.

“We know 75% of voters would back such a move, particularly financial help for older and disabled people, and they also back getting companies like BP to pay for it.

“It’s also why we would welcome any moves to set the country on the right course with a programme of investment, reversing over a decade of neglect. From ramping up renewable energy to insulating and ventilating the nation’s leaky homes, we can and must upgrade our crumbling infrastructure and bring down everyone’s bills for good.”

[Reminder: Labour has pledged to toughen up the windfall tax on oil and gas profits made in the UK].

Izzie McIntosh, climate campaigner at Global Justice Now, argues that energy companies should be made to pay the full costs of their environmental damage:

“With another quarter comes another galling influx of profits for BP. The fossil fuel industry’s profiteering is only made possible through the destruction of the climate, felt most starkly by countries in the global south.

“As COP29 approaches, leaders of climate-vulnerable countries will be scrutinising the UK’s commitment to reigning in climate-wrecking companies like BP. If this government wants to be taken seriously by the global south and work effectively for a fair end to the climate crisis, it will tax these shameless profiteers to help fund global climate action.”

Tessa Khan, executive director at Uplift – which campaigns for a transition away from oil and gas production in the UK – also points to the costs of climate change:

“These profits are a good reminder that, despite complaints by the oil and gas industry that they are too heavily taxed, companies are in reality awash with cash. It is absolutely right that they pay their fair share while the UK transitions away from expensive oil and gas.

“BPs abandoning of clean energy and climate targets shows that it is operating with no regard for the public interest or the added costs that people in this country are now incurring, both on their energy bills and the impacts of climate change. Why should we have to pay for extra flood defences, or UK farmers be forced to cover the costs of poor harvests, when the companies driving these costs are raking in billions?”

UK shop prices are dropping at a faster rate, fuelling hopes of a Bank of England rate cut in November.

The British Retail Consortium has reported that prices were 0.8% lower this month than in October 2023 – compared to an annual fall of 0.6% in September.

Prices of non-food items in October were down 2.1% on a year earlier – unchanged from September – while food prices rose by 1.9%, compared with 2.3% the previous month.

Helen Dickinson, the BRC’s chief executive, said:

“Food inflation eased, particularly for meat, fish and tea as well as chocolate and sweets as retailers treated customers to spooky season deals.

This shop price deflation means prices are lower than a year ago, but the levels of prices are still much higher than before the infationary surge.

But…retailers are also warning that prices could be pushed up again, by geopolitical tensions, the impact of climate change on food supplies, and costs from Government regulation.

Dickinson is urging Rachel Reeves to help the sector:

Retail is already paying more than its fair share of taxes compared to other industries.

The Chancellor using tomorrow’s Budget to introduce a Retail Rates Corrector, a 20% downwards adjustment, to the business rates bills of all retail properties will allow retailers to continue to offer the best possible prices to customers while also opening shops, protecting jobs and unlocking investmen

Tomorrow’s budget is also expected to include a boost for low-paid workers – an increase in the minimum wage of up to 6%.

Rachel Reeves is expected to announce an increase above inflation and even higher than what had been predicted last month.

Younger workers will get an even bigger increase as ministers say that 18 to 20-year-olds should eventually be paid the same as older workers, the Times reported last night.

About 1.6 million people currently receive the “national living wage” of £11.44 an hour, the minimum wage for over-21s. It is expected to rise to more than £12.12 after ministers promised to “raise the floor” on wages.

Here’s the full story:

Profits at energy giant BP have fallen by a third, after earnings were hit by weaker oil prices.

BP has reported an underlying profit of $2.267bn for the third quarter of this year, down from $3.293bn a year earlier, and also below the $2.756bn it made in April-June.

This appears to be BP’s smallest quarterly profits since the fourth quarter of 2020, when earnings collapsed in the height of the pandemic.

But, it does beat City forecasts; analysts had expected just $2bn in underlying profit for the quarter.

BP blames the fall on weaker profit margins at its refining business, and weaker oil trading.

Chief executive officer Murray Auchincloss, who has been criticised for reversing some of BP’s green energy plans, says:

We have made significant progress since we laid out our six priorities earlier this year to make bp simpler, more focused and higher value. In oil and gas, we see the potential to grow through the decade with a focus on value over volume.

We also have a deep belief in the opportunity afforded by the energy transition – we have established a number of leading positions and will continue high-grading our investments to ensure they compete with the rest of our business. I am absolutely clear that the actions we are taking will grow the value of bp.

Despite the falling profits, BP is continuing to funnel cash to investors. It has announced it will buy back another $1.75bn shares in the next quarter, maintaining the pace of its buyback programme.

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

With a day to go until the budget, big investors seem relaxed about the prospect of chancellor Rachel Reeves’s first fiscal event – even though it may include billions of pounds of higher borrowing.

Although fears of bond vigilantes looms over the Treasury, after the mini-budget debacle two years ago, the mood in the City appears sanguine ahead of tomorrow’s statement.

The government has rolled the pitch ahead of the budget, with Reeves confirming last week that she’ll introduce new fiscal rules that could unlock £50bn of new investment – while also promising guardrails to ensure project offer value for money.

And that effort seems to have helped reassure the investors whose confidence the UK needs to maintain.

Peder Beck-Friis, economist at bond trading giant Pimco, says his firm still finds gilts (UK government debt) “attractive”, telling clients that Reeves is unlikely to spend any additional borrowing headrorom recklessly.

As Beck-Friis puts it:

“We expect the budget to maintain a tight fiscal path ahead, with the deficit continuing to decline.

While the new debt target may allow for more spending in the future – possibly in a second term – the government is likely to proceed cautiously, loosening policy only after establishing credibility or if market conditions change.”

Beck-Friis adds that the budget is “unlikely to undermine fiscal credibility”.

UK bond yields (the rate of return on government debt) has been rising since mid-September, with the 10-year bond yield hitting a near-four-month of 4.284% yesterday.

But, the gap betwen UK and US government borrowing has also been narrowing in recent weeks. At the start of the month, London was being charged more than Washington to borrow for a decade, but now yields are basically in line again.

Reuters has polled 10 bond managers, and found that most are “sanguine” about the risks of holding UK debt.

For example, Matthew Amis of investment group Abrdn says he is “Overweight UK gilts” versus other developed market government bonds, explaining:

“Inflation is well below the Bank of England’s forecasts. Despite the negative headlines around the UK budget, we think its bark could be worse than its bite.”

Cedric Scholtes, head of global sovereigns, inflation and rates at BNP Paribas Asset Management say that the UK is one of “our preferred markets.”

“While we anticipate the Chancellor to take advantage of the increased fiscal headroom from a recalibration of policy rules, we think HM Treasury will be mindful that increased borrowing not be excessive and (that it is) focused on financing investment.”

The agenda

• 9.30am BST: Bank of England money and credit data for September

• 11.30am BST: House of Commons Treasury questions with Rachel Reeves and ministerial team

• 1pm BST: US house prices index from Case-Shiller

• 2pm BST: JOLTS survey of US job openings