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UK public finances show bigger-than-expected deficit

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Theresa May and Philip Hammond.
Theresa May and Philip Hammond. Photograph: Carl Court/PA
Theresa May and Philip Hammond. Photograph: Carl Court/PA

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With this, we are closing the blog for today. Thank you for all your great comments, and have a good weekend. We will be back on Monday.

The eurozone consumer confidence figures from the European Commission are out. The flash estimate rose by 0.2 points to -8 in October from -8.2 the previous month, in line with market expectations.

In the wider European Union, consumer confidence edged down 0.1 point to -6.5.

To put this into context, consumer confidence in the eurozone averaged -12.30 between 1985 and 2016, reaching an all time high of 2.40 in May of 2000 and a record low of -34.30 in March of 2009.

Consumer confidence Photograph: European Commission
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According to Reuters, Burberry and US rival Coach are NOT in active merger talks, despite an earlier report from financial blog Betaville. Reuters cited two unnamed sources.

We’ve had some technical issues here, hence the long silence.

The Institute for Fiscal Studies has published its analysis of the UK public finance figures.

Thomas Pope, a research economist at the respected think tank, said:

At the half way point in the financial year, tax receipts have disappointed while central government spending has been slightly lower than official forecasts for the year imply. Overall, borrowing looks set to be higher than the OBR forecast in March, possibly by a reasonable margin. The trend so far suggests that, over the year as a whole, receipts could undershoot by £14bn.

The next few months might however contain some better news on receipts. The recent rise in income tax on dividend income is likely to have led to some owner-managers bringing forward their dividend payments. As a result we can expect strong growth in income tax receipts on dividend payments to arrive around the self-assessment deadline at the end of January. Therefore a better estimate for receipts this year is for an undershoot of £8bn, driven by with weak receipts from income tax and National Insurance on earnings, and from VAT on purchases.”

On 23 November, the new chancellor will present his response to a much changed economic outlook at the Autumn Statement. Borrowing looks likely to be larger this year than his predecessor expected in March, which will make the challenge he faces more difficult.


The full analysis is on the IFS website.

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Lunchtime summary

Let’s have a look at the markets. The FTSE 100 index is trading 25 points higher at 7051.89, a 0.36% gain. It has been hovering around this level most of the day.

Germany’s Dax has slipped 0.03% to 10,699.45 while France’s CAC is down 0.16% to 4532.31.

On currency markets, growing expectations of a Fed rate hike in December mean that the dollar is on course for its third consecutive week of gains, measured against a basket of currencies. The dollar index is up 0.27% at 98.581.

Amid worries over a “hard Brexit,” sterling is sliding against the dollar, losing 0.6% to $1.2182, as Theresa May attends her first EU summit. Against the euro, the pound is flat.

The UK public finances worsened unexpectedly in September, with the government borrowing £10.6bn rather than £8.5bn as forecast by the City. There was a rare fall in corporation tax receipts. This knocked the public finances further off course and will present a headache for chancellor Philip Hammond, who is preparing for the autumn statement on 23 November.

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Meanwhile, Brian Murphy, head of lending at the Mortgage Advice Bureau, says:

The data released this morning from HMRC suggests a healthy level of transactions for last month, given the context that the average property transaction will take 12 to 14 weeks to conclude, meaning that the data compiled for September completions is based on those who would have committed to their purchase in late June or early July, e.g. directly after the referendum result.

August completions reflect purchases which were started in May, which is typically a busy month as it’s the tail end of the Spring market, rather than June which generally sees the start of the summer holiday hiatus, and September 2015 was exceptionally busy due to pent up demand following the General Election.

Looking at the bigger picture... we would anticipate that by the end of the year, the total number of residential property transactions could stand at around 1.2m. This would certainly be in line with 2014 and 2015 levels, and a substantial increase on transaction volumes in 2011, 2012, 2013.

Here is some reaction to the fall in property transactions in September, reported earlier. Nick Davies, head of residential development at Stirling Ackroyd, says the slowdown in sales is due to a shortage of homes coming onto the market.

While the demand for homes continues to grow and interest rates are at a record low, the lack of properties available is reducing sales and driving up house prices. If government wants to support the property sector and help first-time buyers, they will need to increase the circulation of homes on the market.

In order to achieve this, they first need significantly step-up the construction of new homes - David Cameron’s Government built the fewest new homes of any administration since the 1920s. Theresa May must do better. More also needs to be done to encourage older people to consider downsizing, freeing up more homes for families and younger buyers. Reducing Stamp Duty rates would provide a greater incentive to move home, increasing the flow of properties onto the market and ensuring house prices remained stable.

Burberry shares jump on Coach merger report

Burberry shares have jumped more than 5% to £15.27 after financial blog Betaville (citing sources) reported that US rival Coach was working with investment bank Evercore on a potential merger with Burberry.

Burberry at Castleford Photograph: Burberry
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Property conference MIPIM UK, a three-day event (the UK offshoot of the annual Cannes conference) draws to a close today. It was attended by 3,000 investors, housing experts and developers. The conference focused on how the property market will be affected by the Brexit vote.

The organisers noted that Theresa May’s government has stressed the commitment to boosting housing and developing infrastructure.

Industry analysts say that despite uncertainty caused by the referendum, the weak pound is attracting international investors. Sir Howard Davies, chairman of Royal Bank of Scotland, echoed these comments when he opened the conference on Wednesday, saying sterling’s slide had made the UK more attractive to dollar investors.

But Davies also predicted slower economic growth post-Brexit, and noted that “the froth has gone off the London property market” as a number of banks are preparing to move operations elsewhere in the EU.

Guy Hands, the financier who founded buyout firm Terra Firma, was quite blunt in stating: “nobody has any real idea of what’s going to happen” the property market. But he pointed to Britain’s “chronic housing shortage,” estimated at about 1.2m homes.

He also challenged the notion that the eurozone could claim London’s financial crown, saying US banks were more likely to relocate to New York than Frankfurt or Paris.

Terra Firma Capital Partners Founder Guy Hands. Photograph: Bloomberg/Bloomberg via Getty Images
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The Unite union said it was “deeply concerned” about Bombardier’s Belfast workforce, which is involved in every Bombardier line of production.

Canadian plane and train maker Bombardier has announced another big round of redundancies, the second this year. The company said today that it would cut a further 7,500 jobs globally over the next couple of years, or 10% of its workforce. This includes 2,000 job losses in Canada.

Bombardier chief executive Alain Bellemare told Reuters:

We understand these are difficult decisions ... but in the end what we are going to be left with is a leaner, stronger organisation.

An employee works on a new regional transport train at the Bombardier plant in Crespin, near Valenciennes, northern France. Photograph: Benoit Tessier/Reuters
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