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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 headroom 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 between 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.
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.
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
We’ll be tracking all the main events throughout the day ...
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