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Following a 17.8% decrease in August 2024, profits in September 2024 plummeted by 27.1% from the previous year, reportedly the most significant drop since the 34.9% decline in March 2020, according to analysis.
In response, Chinese officials have intensified efforts to stimulate growth.
This rate hike surpasses the 1% (100 basis-point) rise anticipated by analysts and sets the bank’s benchmark rate at its highest level since February 2003, as reported by analysts.
Previously, the key rate had been raised by 1% (100 basis points) to 19% in September 2024.
It was reported that the annual seasonally adjusted inflation hit an average of 9.8% in September 2024, up from 7.5% in August 2024.
It is now anticipated the rate will stick at around the 8.0% – 8.5% range for the remainder of 2024. This is running above a July 2024 forecast of around 6.5% – 7.0%.
See more central bank interest rate moves here
As of 2024, the United Kingdom’s national debt has reached a staggering £2,685.6 billion, an amount equivalent to the nation’s GDP. This surge in debt, driven by persistent borrowing, has sparked significant economic and political debate.
The UK’s debt levels have fluctuated over time, influenced by wars, recessions, and policy decisions. However, the current debt level marks a significant peak not seen since the early 1960s.
The Financial Crisis of 2008 saw the debt-to-GDP ratio rise sharply as the government borrowed heavily to stabilize the banking sector and stimulate the economy. More recently, the COVID-19 pandemic necessitated extensive government borrowing to fund health services, furlough schemes, and business support measures, exacerbating the debt situation.
Government borrowing, or public sector net borrowing, is the amount by which government expenditures exceed its revenues. This borrowing is essential for funding various public services, infrastructure projects, and welfare programs.
While borrowing can be a tool for stimulating economic growth, especially during downturns, it also raises concerns about fiscal sustainability and the burden on future generations.
High levels of national debt can have profound economic implications. On the one hand, government spending can stimulate economic activity, create jobs, and drive growth. However, excessive borrowing can lead to increased interest payments, diverting resources from essential services like healthcare and education.
Additionally, high debt levels can reduce investor confidence, potentially leading to higher borrowing costs for the government and businesses.
The UK government employs various strategies to manage its debt. These include issuing government bonds to investors, which provide a relatively low-cost means of borrowing. The Bank of England also plays a crucial role, particularly through its monetary policies, such as setting interest rates and implementing quantitative easing programs.
The government’s fiscal policy, which includes tax and spending measures, is another key component in managing the debt.
Looking ahead, the UK’s debt trajectory will depend on several factors, including economic growth rates, government policy decisions, and global economic conditions.
While reducing the debt burden is a priority, balancing fiscal responsibility with the need for economic stimulus remains a delicate act. Policymakers must navigate this complex landscape to ensure long-term economic stability and prosperity for future generations.
Since the 1950s, UK debt has gone through several cycles. Post-World War II, debt was high due to reconstruction efforts.
The 1980s saw a decline in debt, thanks to privatisation and reduced public spending. However, the 2008 financial crisis caused a sharp increase, followed by more borrowing during the COVID-19 pandemic, reaching 100% of GDP in 2024.
The government raises funds by issuing financial instruments known as bonds. A bond represents a commitment to repay borrowed money in the future, typically with periodic interest payments until maturity.
UK government bonds, or ‘gilts’ are generally regarded as secure investments, carrying minimal risk of non-repayment. Institutions both within the UK and internationally, including pension funds, investment funds, banks, and insurance companies, are the primary purchasers of gilts.
Additionally, the Bank of England has purchased substantial amounts of government bonds in the past as an economic stimulus measure through a mechanism known as ‘quantitative easing’.
The government’s borrowing fluctuates monthly. For example, in January, when tax returns are filed, there’s typically a surge in revenue as many pay a significant portion of their taxes at once. Therefore, it’s more informative to consider annual or year-to-date figures.
In the financial year ending March 2024, the government borrowed £121.9 billion. The latest data for September 2024 indicates borrowing at £16.6 billion, up by £2.1 billion compared to September 2023.
The national debt refers to the total amount owed by the government, which stands at approximately £2.8 trillion. This figure is comparable to the gross domestic product (GDP) of the UK, which is the total value of goods and services produced in the country annually.
The current debt level has more than doubled since the period from the 1980s up to the 2008 financial crisis. Factors such as the financial crash and the Covid pandemic have escalated the UK’s debt from its historical lows to where it is now.
However, when considering the economy’s size, the UK’s debt is relatively low compared to much of the previous century and to that of other major economies.
As the national debt increases, so does the interest that the government must pay. This additional cost was manageable when interest rates were low throughout the 2010s, but it became more burdensome after the Bank of England increased interest rates.
The government’s interest payments on the national debt are variable and reached a 20-year peak in early October 2023. Approximately a quarter of the UK’s debt is tied to inflation, meaning that payments increase with rising inflation.
This situation led to a significant rise in the cost of debt service, though these payments have begun to decrease. If the government allocates more funds to debt repayment, it could result in reduced spending on public services, which were the original reason for the borrowing.
In conclusion, while the UK’s debt and borrowing levels present challenges, strategic management and informed policy decisions will be crucial in navigating the path forward.
The UK debt total vs GDP is now as of 2024 all but 100%
The U.S. 10-year Treasury yield increased by over 0.030% to approximately 4.24%. The benchmark rate peaked at 4.26% during the session, its highest since July 2024. This surge followed a 12-basis point leap on Monday 21st and a rise above 4.2% on Tuesday 22nd.
The U.S. 2-year Treasury yield also rose, reaching 4.06%, up by roughly 0.030%. Earlier in the day, it achieved a high of 4.072%.
Elevated Treasury yields are exerting pressure on the equity market, causing U.S. stock futures to drop. This downturn follows the S&P 500‘s first consecutive loss since the beginning of September.
Despite a half-point reduction by the Federal Reserve in September 2024, strong economic indicators and concerns about the deficit have contributed to the increase in the 10-year Treasury yield.
Traders are worried that the central bank might be reluctant to lower rates further, even though the Fed predicted additional cuts amounting to half a point by the end of the year.
The jury is out.
In a report published Tuesday, The IMF has reduced its growth forecast for China this year to 4.8%, which is 0.2 percentage points below its July projection. For 2025, the IMF reportedly anticipates growth to be at 4.5%.
The IMF has pointed out that the unexpected contraction of China’s property sector is among several factors posing risks to the global economic outlook.
‘The real estate market could face worsening conditions, potentially leading to further price declines amid a drop in sales and investment’, the report indicated.
The report referenced past property crises in countries such as Japan in the 1990s and the U.S. in 2008, suggesting that if China’s situation is not managed, property prices may fall even more.
According to the IMF‘s World Economic Outlook, this could undermine consumer confidence, leading to lower household spending and domestic demand.
This report also indicated that some buyers were holding off on purchases, awaiting details on tax revisions from the new government’s forthcoming budget.
The increase in asking prices was a just 0.3% for October 2024, significantly lower than the typical 1.3% monthly rise for this time of year, according to property website Rightmove.
There was a 12% rise in the number of homes listed for sale compared to the same period last year, marking the highest number per estate agent since 2014.
Despite the increase in supply, the property market’s overall activity remained robust, with a continued uptick in buyer demand. Year-on-year, prices saw a 1.0% increase.
The People’s Bank of China (PBOC) has announced a reduction in the one-year loan prime rate (LPR) to 3.1% and the five-year LPR to 3.6%.
The one-year LPR affects corporate and most household loans in China, whereas the five-year LPR is a reference for mortgage rates.
This adjustment was anticipated. The governor of China’s central bank reportedly on Friday 18th October 2024 hinted at a forum in Beijing that the loan prime benchmark rates would decrease by 0.20% to 0.25%.
In terms of quarterly growth, the third quarter experienced a 0.9% increase, which is higher than the 0.7% seen in the previous quarter.
Additional data released on Friday 18th October 2024, including retail sales and industrial production, also exceeded expectations, indicating a positive outlook for the world’s second-largest economy.
At its October meeting, the central bank decreased the deposit rate by 0.25%. This decision followed a slowdown in the euro area’s price increases to 1.8% in September 2024, falling below the central bank’s target of 2%.
The EU interest rate is now: 3.25%
This indicates that inflation, which is the rate at which prices increase over time, is currently below the Bank of England’s target of 2%, potentially leading to further reductions in interest rates next month.
The Office for National Statistics (ONS) reported that petrol and diesel prices saw a notable decrease, falling by 10.4% in September 2024compared to the same month the previous year.
Additionally, the cost of fares for domestic, European, and long-haul flights contributed to the lower inflation rate. While fares typically decrease after the summer peak, this year they have reduced more than usual.
With inflation dropping below economists’ expectations, the markets are anticipating a cut in interest rates at the Bank of England’s upcoming meeting in November 2024. The present rate stands at 5%, and a reduction of 0.25% is now deemed highly probable.
Prime Minister Keir Starmer, Chancellor Rachel Reeves, and Business Minister Jonathan Reynolds headed the one-day event at London’s Guildhall, with an attendance of approximately 200 executives from both the UK and abroad.
Notable attendees were former Google Chairman Eric Schmidt, Goldman Sachs CEO David Solomon, BlackRock CEO Larry Fink, and GSK CEO Emma Walmsley. Poppy Gustafsson, the newly appointed Investment Minister and co-founder of the British cybersecurity company Darktrace, were also present to advocate for the UK as a favourable business environment.
The UK government unveiled a relaxation of regulations and announced investment deals worth billions of pounds in sectors such as artificial intelligence, life sciences, and infrastructure, while Starmer proclaimed it’s ‘a great moment to back Britain.’
‘We will rip out the bureaucracy that blocks investment and we will make sure that every regulator in this country take growth as seriously as this room does,‘ Starmer reportedly told delegates.
UK Prime Minister Keir Starmer on Monday 14th October 2024 vowed to slash regulatory red tape to boost investment in the country.
“We’ve got to look at regulation across the piece, and where it is needlessly holding back investment … mark my words, we will get rid of it,” he reportedly told delegates at the UK’s International Investment Summit.
The government on Sunday 13th October 2024 announced the launch of a new industrial strategy, designed to focus on eight “growth-driving sectors.”
The prime minister reportedly restated that growth was the “No. 1 test of this government,” and reiterated plans for the U.K. to become the fastest-growing G7 economy.“
Starmer also outlined stability, strategy, regulation and improving Britain’s global standing as “four crucial areas” in his pitch for Britain.
“Private sector investment is the way we rebuild our country and pay our way in the world,” Starmer said
In a panel discussion with Starmer, Google’s ex-CEO Eric Schmidt expressed his surprise upon learning that the Labour party had shifted to ‘strongly’ support growth.
Schmidt is eager to see the execution of this approach and encouraged the government to increase investment in artificial intelligence to fulfill broader growth objectives.
The consumer price index (CPI) rose by 0.4% from the previous year, a slowdown from the 0.6% increase observed in August, as reported by the National Bureau of Statistics (NBS) on Sunday 13th October 2024. This increase was below the 0.6% rise economists had forecasted.
Month-on-month, the CPI remained unchanged, contrasting with the 0.4% increase in August and missing the expected 0.4% rise.
The producer price index (PPI) registered a year-on-year fall of 2.8% in September 2024, a sharper decline than the 1.8% decrease in the previous month and exceeding the 2.5% drop projected by analysts.
The figures fell short of expectations. China’s exports were predicted to rise by 6% year-on-year in September 2024, measured in U.S. dollars, as per reported analysts’ data. This increase would be less than the 8.7% rise seen in August 2024.
Imports were also projected to grow by 0.9% in September from the previous year, based on analysts’ data, which would be a slight uptick from the 0.5% growth in August 2024.
Exports have been a highlight for China’s economy amidst subdued consumer spending and a downturn in real estate.
According to reported analysis of the official data, China’s exports to the U.S., its biggest trading partner, went up by 2.2% in September year-on-year, while imports from the U.S. saw a 6.7% increase.
Both consumer and producer price indexes for September 2024 aligned with forecasts, indicating a decline in inflation towards the central bank’s 2% target.
Economists believe the Fed may have already achieved that target.
Last Friday, it was predicted that the personal consumption expenditures (PCE) price index for September 2024 would reveal an annual inflation rate of 2.04% upon its release later in the month.
Should economists’ estimates prove accurate, the figure would be rounded to 2%, aligning precisely with the Fed’s longstanding goal, marking a significant shift from the 40-year inflation peak over two years ago, which led to a series of substantial interest rate hikes.
The Fed favours the PCE as its measure of inflation, although it considers various factors in its decision-making process.
Inflation has significantly decreased over the past 18 months, and the job market has settled at a level that may represent full employment.
Persistent supply chain problems can escalate the costs of goods and services, potentially increasing inflation.
A constrained labour market may result in rising wages, which companies typically offset by raising prices for consumers.
International events, like geopolitical conflicts or other countries’ economic statuses, can influence inflation via alterations in trade and commodity costs.
Anticipations of higher inflation might prompt consumers to increase spending now, which can elevate prices and lead to a self-fulfilling prophecy.
The economy takes time to respond to monetary policy adjustments, leading to a lag between policy implementation and its effects on inflation.
These elements pose difficulties for the Federal Reserve in precisely managing inflation to meet its goal.
While managing inflation is challenging, recent data suggests that although prices haven’t fallen from their peak levels of a few years ago, the rate of increase is slowing down.
The 12-month consumer price index for all items stood at 2.4% in September, while the producer price index, indicative of wholesale inflation and a precursor to pipeline pressures, was at an annual rate of 1.8%.
The 0.50% cut in September 2024to a federal funds rate range of 4.75% to 5% was extraordinary for a growing economy, and it is anticipated that the Federal Reserve will revert to its standard quarter-point adjustment.
Excessive monetary loosening could trigger a surge in consumer demand just as it begins to reach a manageable rate.
Could we witness deflation if the 2% target is overshot?
Electric car sales in the UK are facing challenges despite the growth in the number of electric vehicles (EVs) on the roads. The Society of Motor Manufacturers and Traders (SMMT) has indicated that the proportion of EV sales has not surpassed 18%, with the market mainly propelled by fleet operators, not private consumers.
It has been suggested that the industry will struggle to meet the government target of 22% of new car sale in 2024 being ‘zero-emission vehicles’.
Contributing factors to this slowdown include the high costs, a limited public charging infrastructure, and range anxiety.
Nonetheless, September 2024 saw a record number of new electric car registrations, exceeding 56,000. Yet, the long-term viability of these figures is uncertain, as they were bolstered by substantial discounts.
And yet the electric car still remains an equally expensive option by direct comparison.
But there is a warning of a potential UK slowdown despite the August pick-up.
The gross domestic product (GDP) matched the 0.2% growth anticipated by economists.
Over the three months leading to August, Britain’s economic growth also registered a 0.2% increase, which was marginally below the expectations of economists.
A rebound in construction and a robust month for accountancy, manufacturing, and retail sectors contributed to a 0.2% boost in the economy, following a stagnation in growth over the prior two months.
However, the Office for National Statistics (ONS) noted that economic growth has been weaker relative to the first half of the year and of a potential slowdown.
The consumer price index (CPI), which measures the cost of goods and services throughout the U.S. economy, rose by 0.2% for the month, resulting in an annual inflation rate of 2.4%. Both figures were 0.1% than ‘forecast’.
When food and energy are excluded, the core prices saw a 0.3% increase for the month, leading to an annual rate of 3.3%. These core figures were also 0.1% above the ‘forecast’.
The report from the Bureau of Labor Statistics noted that the majority of the inflation rise – over three quarters of the increase was due to a 0.4% surge in food prices and a 0.2% rise in shelter costs.
The Fed suggests that subsequent adjustments will likely be more ‘modest’.
In his address, the central bank’s chief highlighted their goal to balance curbing inflation with maintaining a robust labour market, basing future decisions on data insights.
‘Moving forward, should the economy evolve as widely expected, our policy stance will progressively adjust towards neutrality. Yet, we are not bound to a fixed course,‘ he clarified during in his statement. ‘Risks are two-way, and our resolutions will be determined one meeting at a time.‘
The Federal Reserve believe, as noted in a recent update, that they are just millimetres away from that ‘elusive’ economic soft landing.
Hong Kong’s index fell by 1.5%, in contrast to the mostly positive performance of other global markets.
Beijing’s recently detailed economic stimulus plans did not meet the high expectations set after the central bank and other agencies announced measures aimed at revitalising the struggling property sector and accelerating economic growth.
The Shanghai Composite Index fell 6.6% reversing a 4.6% gain from Tuesday 8th October 2024 when it re-opened following a weeklong national holiday.
The CSI 300 Index, which follows the top 300 stocks in the Shanghai and Shenzhen exchanges, relinquished 7.1% – ending a 10-day winning streak.
In Shenzhen’s smaller market, the benchmark tumbled by 8.7%.
The Hang Seng index in Hong Kong dropped 1.5% – and this coming after a steep decline of over 9% the previous day.
This decrease sets the Reserve Bank of New Zealand’s interest rate at 4.75%, down from 5.25%. Economists surveyed by Reuters had anticipated this move.
Previously in August, the RBNZ made an ‘unexpected’ interest rate cut of 25 basis points. The central bank indicated that the extent of future reductions would hinge on its confidence in maintaining a low inflation environment.
In a statement, the central bank stated that it ‘assesses that annual consumer price inflation is within its 1% to 3% inflation target range and converging on the 2 percent midpoint.“
New Zealand’s annual inflation rate reached 7.3% in the June quarter 2022, its highest level in over some 30 years. NZ inflation has since dropped to 3.3% as of June 2024, but still remains above the central banks medium term target range of between 1% and 3%.
Analysts are expecting a further cut in November 2024.
Halifax, the UK’s largest mortgage lender, noted that the average house price climbed to £293,399 in September 2024, narrowly missing the record of £293,507 set in June 2022.
According to Halifax, house prices have been on an upward trend for three consecutive months as market conditions have improved.
Easier mortgage affordability, driven by robust wage increases and declining interest rates, has enhanced confidence among buyers, leading to a rise in the number of mortgages agreed upon over the past year.
Halifax has recorded a 4.7% increase in house prices compared to the previous year, marking the most rapid growth rate since November 2022.
U.S. Non-farm payroll numbers rose by 254,000 in September 2024, a jump from the revised figure of 159,000 in August and exceeding the forecast of 150,000.
The unemployment rate dropped to 4.1%, a decrease of 0.1 percentage point, while the household employment survey reported a substantial increase of 430,000 jobs.
Average hourly earnings grew by 0.4% for the month and saw a 4% rise compared to the previous year, outpacing the projected estimates.
Increase in VAT: Adjusting the Value Added Tax (VAT) rate could generate substantial revenue.
Pension Tax Relief: Limiting pension tax relief to the basic rate of income tax could raise around £15 billion per year. Pension tax relief raid.
Windfall Tax: Increasing the windfall tax on the profits of oil and gas companies could also contribute significantly.
General Tax Increases: N.I., Income Tax, Capital Gains Tax, Inheritance Tax,
Improving Productivity: Enhancing public sector productivity by just 5% could deliver up to £20 billion in benefits annually.
Green Taxes: Introducing or increasing taxes on carbon emissions and other environmental levies could help raise funds while promoting sustainability.
Digital Services Tax: Expanding the scope of the digital services tax to cover more online businesses could also be a potential revenue source.
Electric vehicle tax: new tax bands for electric cars
Reducing Public Expenditure: Identifying and cutting down on non-essential public spending could help balance the budget.
Stimulating Growth: Policies aimed at boosting economic growth, such as investing in infrastructure and innovation, could increase tax revenues indirectly by expanding the tax base. But this will take time to fully materialise.
Each of these measures comes with its own set of challenges and implications, so the government would need to carefully consider the economic and social impacts before implementation.
The Chancellor has recently pointed to a ‘black hole’ in the public finances, referencing the recent uncovering of an ‘unbudgeted’ £22bn overspend in the current tax year following her tenure commencement at No. 11 Downing Street in July.
The reality of this newfound deficit is subject to debate. However, given that the Chancellor has ruled out the possibility of borrowing for day-to-day expenses, it seems she very likely she might be compelled to raise taxes to offset these expenditures.
In its last year, the Conservative government cut taxes by £20 billion by reducing the National Insurance rate. Reversing this cut would be a direct way to increase revenue, taking us back to the financial situation before last November.
Currently, many people receive a 40% tax relief on pension contributions but are taxed at 20% when they withdraw. This ‘inconsistency’ could easily become a target for the Chancellor.
Additionally, employers’ National Insurance contributions are not applied to pension contributions or withdrawals, and individuals can even take a tax-free lump sum from their pension after having received tax relief on their contributions.
Understanding the complexities is not necessary to see that a chancellor in search of extra tax revenue may consider pension contributions as a significant source of additional income.
The UK budget is due on: 30th October 2024 – let’s see just by how much UK taxes are increased – because they will be.
The real estate sector emerged as the top performer in the Hang Seng Index on Wednesday 2nd October 2024.
Chinese stocks experienced a rally, climbing over 7% to complete their sixth consecutive day of gains.
Excluding the more volatile prices of energy, food, alcohol, and tobacco, the core inflation rate stood at 2.7%, marginally below the anticipated forecasts.
This inflation figure matched the predictions of economists.
Month-on-month, the preliminary harmonized CPI saw a slight decrease of 0.1%.
According to recent analysis, the last instance of the German harmonized CPI falling below 2%, the inflation target rate of the European Central Bank, was in February 2021.
