UK public finances show bigger-than-expected deficit

The ECB’s latest survey of economists’ long-term inflation expectations shows they remain near the central bank’s target – but GDP growth is expected to be weaker than previously thought.

Inflation is currently running at 0.4% but is expected to rise to 1.8% by 2021, in line with previous projections, the survey of 47 forecasters showed. Inflation has been below the ECB’s target of nearly 2% for years amid high unemployment, high debt levels, weak services and falling oil prices.

The economic growth outlook appears to have worsened, with economists now predicting 1.5% growth for 2018 and 1.6% for 2021, each 0.1% percentage points lower than three months ago.

However the growth outlook for this year has improved, with the survey predicting 1.6% expansion this year, above the previous forecast of 1.5% growth. It is still slightly below the ECB’s own forecast of 1.7%.

The other big news is that Britain’s competition watchdog will investigate online betting firms and whether they are treating customers fairly. They could face fines and be forced to change their practices. Alexandra Topping writes:

The Competition and Markets Authority will investigate allegations that online bookmakers are using the small print of contracts to change the odds on winning bets so less money is paid out, to limit the amount successful gamblers can bet and to deny some users access to promotions.

The companies have been issued with notices requiring them to give evidence. If companies are found to be in breach of consumer law, the CMA can take enforcement measures against them.

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Here’s our full story on BAT wanting to buy out US rival Reynolds, the main corporate story of the day.

Reynolds owns Pall Mall, the biggest US low-cost brand, Newport, the top-selling menthol cigarette, and Camel, a mid-market name that is the third-biggest seller in the US.

Turning to the UK’s public finance figures for September, out at 9.30am UK time, Investec analyst Chris Hare has sent us his thoughts.

The main measure of the government deficit, PSNB, came in at £10.5bn in August. This was a touch larger than we had expected, but still represents a year-on-year borrowing decline of £0.9bn.

Were borrowing to continue to improve at this pace for the remainder of the financial year we would be looking at an outturn of £64.7bn, close to £10bn above the OBR’s March Budget forecast of £55.5bn.

Over time, we expect a post-referendum slowdown in economic activity to weigh on tax receipts. So the fiscal year borrowing overshoot will probably be larger than described in the thought exercise above.

But in the near term, the post-Brexit vote economy seems to have held up rather well. So we are forecasting another (£0.4bn) year-on-year decline in borrowing, with a PSNB outturn of £8.9bn.

Portugal’s 10-year government bond yields are holding around 3.23%, near a six-week low of 3.16%, as analysts are expecting Lisbon to pass a crucial ratings review, according to Reuters.

Canadian credit ratings firm DBRS will review Portugal’s investment-grade debt rating after market close. A downgrade would mean that the country would not be able to participate in the ECB’s asset purchase programme.

But analysts were confident that DRBS will keep the rating unchanged, after the Portuguese government pledged budget deficit cuts for next year. However, the rating outlook could be lowered from stable to negative – and this would make a rating cut more likely at the next review in six months’ time.

European markets have defied spreadbetters’ predictions and opened higher, after yesterday’s pro-stimulus talk from ECB president Mario Draghi. Only the Italian market has turned negative.

• FTSE 100 in London up 0.09% at 7033.77
  
• Germany’s Dax up 0.07% at 10,708.46
  
• France’s CAC up 0.16% at 4547.24
  
• Spain’s Ibex up 0.2% at 9080.20
  
• Italy’s FTSE Mib down 0.16% at 17,113.36
  

The euro has fallen to its lowest level against sterling since the 7 October flash crash: it has dropped to 88.96p, down 0.2% on the day, as markets digest yesterday’s ECB comments, which pointed to more quantitative easing in December.

British American Tobacco has swooped on US tobacco firm Reynolds with a $47bn offer – a mega deal that would bring together Newport, Kent, Camel and Pall Mall cigarettes and create the world’s biggest listed tobacco company.

The UK group already has a 42% stake in Reynolds and wants to buy the remaining 57.8% for $47bn – $20bn in cash and $27bn in shares.

BAT shares rose 2.3% to £49.14 on the news.

BAT also said it had performed well in the first nine months of the year, driven by its focus on key brands Dunhill, Lucky Strike and Rothmans.

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

It’s the day after the European Central Bank’s monthly meeting. Markets reacted positively to the press conference, with stocks finishing higher, but are expected to open slightly lower today.

What did we learn yesterday? ECB president Mario Draghi hinted that the central bank could announce more QE in December. He also indicated that an abrupt end to the €1.7tn asset purchase programme was “unlikely”. However, the governing council did not discuss extending QE or tapering at the meeting. The euro jumped initially before hitting a four-month low.

Portugal’s government bond yields are hovering near six-week lows, ahead of a key review by Canadian ratings firm DBRS, out after markets close. Lisbon is expected to survive the test. If it were to be downgraded it would fall out of the ECB’s QE programme.

Asian and US stocks were mostly lower overnight as the price of oil slid, with the dollar hitting a seven-month high against a basket of currencies. The dollar index touched 98.564, the highest level since March.

The Hong Kong stock market closed as typhoon Haima drew closer. Japan’s Nikkei fell 0.3%, the South Korean exchange lost 0.37%, Australian stocks shed 0.2%, Singapore fell 0.6% and the Shanghai market was 0.06% lower.

The main piece of data today is the UK public finances, which are expected to show a a slight improvement. Economists are predicting that public sector net borrowing came in at £8.2bn in September, from £10.5bn in August.

We will also get consumer confidence figures for the eurozone for October at 3pm UK time.