And finally, stocks in New York have closed at fresh record highs, as investors take the Fed’s decision to slow its stimulus calmly.

The Dow Jones industrial average, the broader S&P 500 and the tech-focused Nasdaq all hit new highs.

• Dow: up 105 points or 0.3% at 36,157.58 points
• S&P 500: up 30 points or 0.65% at 4,660.57
• Nasdaq Composite: up 162 points or 1% at 15,811.58

While investors expected the Fed to start tapering today, they may be reassured by Jerome Powell’s patient message that it’s not time to raise interest rates yet.

The central bank has given itself some flexibility by not committing to a specific tapering timetable beyond December (although it may well continue cutting $15bn off its bond purchases each month).

Anna Stupnytska, Global Economist, Fidelity International, explains:

Not committing to a specific taper timeline has given the Fed some flexibility in adjusting the pace of purchases in 2022, allowing for an accelerated reduction if inflation proves to be stickier than expected, although the adjustment can occur in either direction.”

“With the policy announcement meeting expectations, the focus now shifts to the question of what this means for policy rates. At the Jackson Hole Summit in August, Fed Chair Jerome Powell explicitly acknowledged two different tests for tapering and rate hikes, breaking the link between the two. But as inflation has continuously surprised on the upside since then, the Fed’s thinking must have shifted towards a higher likelihood of an earlier lift off, potentially starting as soon as QE ends.”

“Powell - unsurprisingly - did not commit to any rate hiking timeline in the press conference, emphasising data dependency, the Fed’s focus on risk management and the need for optionality to address a range of possible outcomes. With inflation and labour market thresholds for tapering having been crossed, when it comes to raising interest rates the tolerance for progress in both areas under the FAIT remains uncertain. This leaves much room for interpretation, potentially allowing markets to run their own narratives until further clarification of the Fed’s reaction function emerges.”

On that note, goodnight. GW

Reaction to the US central bank’s decision to begin slowing its stimulus programme is flooding in.

Seema Shah, Chief Global Strategist at Principal Global Investors, says Jerome Powell dodged questions about when interest rates might rise:

“Powell was very careful not to make any mis-steps today, sticking carefully to his script that their focus is on tapering, not raising rates. That’s a shame, because interest rate hikes are all that markets want to talk about! Having started to probe whether central banks really can look through elevated pressures, today’s focus was always going to be on how much, if at all, Powell pushed back on market expectations for early and multiple hikes. In the event, Powell maintained some flexibility by emphasising the uncertain path for the economy - essentially sitting on both sides of the wall.

“We can sympathise with that. Supply chain bottlenecks are not in the Fed’s control, and so inflation is not entirely in the Fed’s control. Yet, inflation will be elevated for longer, inflation expectations are creeping higher, and the deficit in employment is down to labour supply – not labour demand – and so there are limits to what the Fed can realistically achieve by keeping policy rates unchanged for so long.

“The other question today is: will President Biden be impressed by Powell’s careful skirting around the issue at hand? At least we will get a clear answer to that soon enough.”

Simon Harvey, Senior FX Market Analyst at Monex Europe, says Powell’s patient stance on tackling inflation pushed the US dollar lower:

Once at the lectern, Chair Powell showed his experience by nullifying expectations, extending the theme initially displayed in the rate statement and the market reaction in doing so.

By completely avoiding any discussion on the future pace of QE purchases and rates, whether that be the Fed’s view on lift-off or current market implied rates, Powell opened the door further to give policymakers greater optionality. While this is unlikely to bring money market expectations back that much as Powell is known to sit on the dovish side of the spectrum, it is weighing on the dollar and supporting risk in FX markets.

Those pricing a more hawkish Fed in the coming months may have to wait until individual policymakers hit the wires in the coming weeks. But even then we expect hawkish members to err on the side of caution given the current level of uncertainty in the economic outlook

Candice Bangsund, Vice President and Portfolio Manager of Global Asset Allocation at Fiera Capital, says the Fed telegraphed today’s tapering well:

“As widely anticipated, the Federal Reserve announced a taper to its quantitative easing program – though no new definitive rate liftoff signal was provided at this week’s gathering. Chair Powell has been adamant that there will be some time between the end of quantitative easing and lift-off, and this is expected to remain the case following today’s meeting.”

“The markets have already fully discounted the QE taper since the Fed has been telegraphing that move for a while. However, the markets are now concerned that the current surge in inflation will force the Fed into raising interest rates sooner than expected and traders have rapidly ramped-up their wagers for Fed rate hikes. Leading up to the meeting, the markets were discounting a strong chance of two rate hikes by the end of 2022.”

“Our sense is that these hawkish-leaning expectations on the trajectory for rates are overdone and that Chair Powell will continue to err on the side of caution – and a more pragmatic approach to policy normalisation is likely to see those aggressive expectations reigned-in somewhat.”

Gurpreet Gill, Macro Strategist, Global Fixed Income, at Goldman Sachs Asset Management, says the outlook remains uncertain:

“The monthly pace announced today suggests the last taper will come in June 2022, but the range of possible outcomes is wide. Large surprises on the path of the pandemic, inflation, expectations for inflation, or wage growth could prompt a changed taper pace and impact the rate outlook.

“Yields on short-dated US bonds have risen to a lesser degree than elsewhere during the recent bout of hawkish market action. We think this is due to FOMC’s guidance that even its first rate hike would require maximum employment.

“If inflation stays far above target in 2022 however, we think the Fed may begin to say that remaining weakness in labour supply is structural and hint at rate hikes. If inflation begins to ease, the Fed may wait for a fuller labour market recovery before raising rates.

The US Federal Reserve has announced it is winding down the massive stimulus programme it put in place at the onset of the Covid-19 pandemic amid fears that the central bank may have to raise rates soon to control rising inflation.

Fed officials have been debating for months over whether and when to taper the stimulus programmes that it set up to head off the economic headwinds caused by the pandemic. They announced on Wednesday that they would begin cutting that stimulus by $15bn a month but left interest rates unchanged.

“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the Fed wrote in a statement.

“The sectors most adversely affected by the pandemic have improved in recent months, but the summer’s rise in Covid-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory.”

In March 2020 as the pandemic brought the global economy to a shuddering halt, the Fed moved to prop up the US economy by cutting interest rates to close to zero and started buying $120bn a month in Treasury- and mortgage-backed securities.

The initiative appears to have helped the US bounce back from a potential economic catastrophe. The unemployment rate has dropped from a record high of 14.7% in April 2020 to 4.8% in September.

But now the central bank is wrestling with concerns that its stimulus efforts, combined with cash injections from Washington, pent-up consumer demand and the unprecedented impact of the pandemic on the global supply chain, are driving up inflation.

Annual inflation is at a rate unseen in 30 years, according to US government figures released last month. Prices for US goods climbed by 4.4% in the year through September, according to the department of commerce’s latest personal consumption expenditures report, the fastest increase since 1991.

The rising cost of fuel is also adding to prices and causing misery for millions of Americans struggling to pay their utility bills.

Here’s the full story:

Onto questions...

Q: The markets anticipate you will raise interest rates once or twice next year - are they wrong?

Jerome Powell says the Fed’s focus at this month’s meeting was on tapering asset purchases, not on raising interest rates.

It is time to taper, we think, because the economy has achieved substantial further progress towards our goals.

We don’t think it’s time yet to raise interest rates. There is still ground to cover to reach maximum employment both in terms of employment and participation.

And turning to the question.... Powell predicts that supply chain disruption, and elevated inflation, will persist well into next year. But we should see inflation moving down by the second or third quarter of 2022, he predicts.

The timing of interest rate rises will depend on the path of the economy, so policymakers will be watching the data closely.

We think we can be patient. If a response is called for, we will not hesitate.

Q: So could maximum employment be achieved by the second half of next year?

Yes, it’s possible, if the pace made over the last year were to continue, Powell replies.

That’s significant, as “maximum employment” is a crucial target for the Fed before it starts to lift borrowing costs.

Powell then explains that the Fed has decided to taper its $120bn stimulus programme by $15bn in November (to $105bn), and again in December (to $90bn).

Similar reductions would likely continue in subsequent months, if the economy evolves as expected, implying that the bond-buying programme would cease by the middle of next year.

But the Fed would adjust the pace if economic conditions warranted, he adds.

On inflation, Powell says imbalances between supply and demand, and the reopening of the economy, have led to ‘sizable’ price increases in some sectors.

Bottlenecks and supply chain disruption are limiting how quickly demand can respond to supply, so inflation is running ‘well above’ the Fed’s 2% goal (indeed, it hit 5.4% last month).

Powell also admits that supply constraints have been larger and longer lasting than anticipated, but insists the drivers of higher inflation are predominantly due to factors caused by the pandemic.

And he acknowledges that poorer Americans will suffer most from the jump in prices of stable goods and services:

We understand the difficulties that high inflation poses for individuals and families, particularly those with limited means to absorb higher prices for essentials, such as food and transportation.

US Federal Reserve chair Jerome Powell is holding a press conference now.

He explains that the FOMC decided to leave interest rates near zero, and to start reducing the pace of its asset purchases “in light of the progress the economy has made” towards its goals.

Monetary policy will continue to provide strong support to the economic recovery, Powell says.

Powell adds that the Fed remains ‘attentive to the risks’, given the unprecedented disruption caused by the pandemic and the reopening of the economy, and will ensure that policy is well-positioned to address the full range of plausible economic outcomes.

The Fed also warns that there are risks to the US economic outlook, and that the Delta variant slowed the recovery this summer.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer’s rise in COVID-19 cases has slowed their recovery.

The US central bank also argues that the factors pushing up inflation are expected to be transitory:

Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain.

America’s central bank has decided to begin winding back the enormous stimulus programme it launched when the Covid-19 pandemic hit the US economy.
The US Federal Reserve is taking its first step towards withdrawing its emergency aid, following the recent increase in inflation over its target to 13-year highs.

Following its meeting this week, the Fed will start reducing its $120bn monthly bond purchases in the coming weeks, by $15bn a month.

It will cut its purchases of US government bonds (which had been $80bn/month) by $10bn per month in November and December. It will also cut $5bn off its mortgage-backed securities spending (which had run at $40bn/month), this month and next.

And looking further ahead, the Fed says:

The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.

The US central bank also left interest rates unchanged at near zero after its latest meeting, where they have been since March 2020 as the US economy reeled from the impact of the pandemic.

More to follow....

In the City, the FTSE 100 has ended the day down 26 points at 7249 points.

Darktrace was the top faller, down 5.1%, after investor Vitruvian Partners sold a third of its stake last night. Oil stocks also fell, tracking the losses on crude oil today.

European markets finished at a new record high, with France’s CAC up 0.34% and Germany’s DAX flat, as investors await the Federal Reserve’s monetary policy decision in an hour’s time.

David Madden, market analyst at Equiti Capital, says:

Stocks are a touch lower as traders await the Federal Reserve meeting. There is growing speculation the US central bank will announce the tapering of its bond buying scheme, which currently stands at $120 billion per month.

The minutes from the most recent Fed meeting indicated that tapering could begin as early as November, so if that is the case, the announcement could be made later.

Inflation in the US is at a 13 year high, of 5.4%. The unemployment rate has fallen to 4.8%, the lowest mark since the pandemic kicked in, so it is clear the labour market is improving. With these stats in mind, there is an argument the Fed should pull the trigger and start tapering the asset purchase scheme.

We’ll find out soon.....

Back in the US, the service sector has posted its strongest growth in three months.

But, just like in the UK, firms hiked their prices at a record pace in October. Plus, worries about worker shortages and unstable supply chains knocked business confidence to an eight-month low.

Purchasing managers surveyed by IHS Markit also reported a rise in new orders.

But with parts, materials and staff in short supply, firms struggled to meet these orders -- with the fastest increase in backlogs of work since data collection began in October 2009.

However, new business from abroad fell for the third successive month, seemingly due to “pandemic uncertainty in key export markets”.

Chris Williamson, Chief Business Economist at IHS Markit, says:

“The final PMI data add to indications that the US economy has picked up speed again in the fourth quarter.

After the Delta variant caused growth to slow in the third quarter, the easing of virus case numbers has been followed by a strong revival of economic activity, notably in the service sector, which looks set to be the driving force of the economy as we head towards the end of the year .

“While the service sector is seeing a waning impact from the pandemic, it’s a different story in manufacturing, where the supply crisis continues to cause havoc and dampen production growth. Supply delays worsened in October, which has in turn fed through to a further intensification of inflationary pressures.

Britain’s dominant services sector grew by more than expected last month despite a steep rise in inflationary pressures, according to a survey published as the Bank of England considers raising interest rates.

The latest snapshot from the closely watched IHS Markit and the Chartered Institute of Procurement and Supply (Cips) report showed activity in the services sector, which contributes about 80% to economic growth, gained momentum in October.

However, staff shortages and stretched supply chains contributed to a jump in inflationary pressures, with operating expenses and the prices charged by services firms rising at the steepest rate since records began in July 1996.

The development comes as Threadneedle Street’s monetary policy committee (MPC) wil consider raising interest rates on Thursday for the first time since the Covid pandemic began, amid growing concern over high levels of inflation.

Economists said the decision to raise rates from a record low of 0.1% was “on a knife-edge”, with the rate-setting panel likely to take the latest snapshot from the service sector into account....More here.

BMW earned bigger profits than expected in the third quarter of 2021 after a focus on more expensive cars and electric vehicles helped the German premium carmaker to ride out a global shortage of computer chips.

Profits before tax rose to €3.4bn (£2.9bn) between July and September, a 38% increase compared with 2020 and a 52% increase on 2019, before the coronavirus pandemic hit, BMW said on Wednesday.

BMW achieved the profit rise in spite of a 12% year-on-year decline in overall vehicle sales to 593,000, as it switched production to higher-margin cars such as the x7 sport utility vehicle. Revenues rose by 4.5% to €27bn.

Carmakers have been caught out during the global shortages of computer chips, which are made from semiconductors, as demand for electronics soared after the short-lived plunge as the coronavirus first hit.

Carmakers rely increasingly on computer chips to control everything from air conditioning to electric car batteries but they cut orders in anticipation of lower sales, leaving them exposed when sales recovered.

Oliver Zipse, BMW’s chief executive, said the company was “overcoming difficult situations”, including the lingering effects of the coronavirus pandemic and the situation with semiconductor supplies. More here:

In the US, companies added more jobs than expected last month.

Private payroll operator ADP reports that employment rose by 571,000 in October, ahead of forecasts for a 400,000 gain.

Services firms across the United States hired 458,000 more workers, while goods producers took on 113,000 more staff.

Leisure & Hospitality drove the hiring, with 185,000 new jobs.

Trade, Transportation & Utilities added 78,000 employees, while Professional & Business payrolls expanded by 88,000

That could indicate that Friday’s non-farm payroll (the official employment report) will be strong, except the two surveys don’t always align very well.

Victoria Scholar, Head of Investment at interactive investor, explains:

Friday’s non-farm payrolls report is expected to see 450,000 jobs added in October, a sharp increase from last month’s meagre 194,000 gain, which was the lowest reading of the year and sharply below market consensus for a gain of 500,000. September’s figure was weighed down by a sharp drop in public sector employment, with private payrolls actually increasing 317,000.

Although the Fed will no doubt be paying close attention to this week’s labour market figures, a single data point is unlikely to change the central bank’s course of action, with the likelihood remaining for the Fed to cut its Treasury bond buying by $10bn per month and downsize its mortgage-backed security purchases by $5bn a month, starting this month and winding up the entire stimulus programme by June.

There’s a sense of ebullience in the markets this week with the Dow topping 36,000 for the first time driven by strong corporate earnings and a feeling that the economic recovery is strong enough to warrant tapering from the Fed. US futures are pointing to a flat open with the Nasdaq poised for some slight outperformance while the Dow looks set for some profit taking after yesterday’s record high.

Reminder, we get the Federal Reserve’s decision at 6pm UK time...

Online ticketing platform Trainline has seen passenger bookings bounce back after the easing of lockdown rules and today announced plans to hire 150 staff to fuel its growth in Europe.

Despite reporting a sales recovery, its shares are down by 10% – the biggest FTSE 250 faller so far today.

There may be a tough climb ahead after the government’s announcement in May that a new state-owned body called Great British Railways will sell tickets in England, a railway shakeup that could threaten Trainline’s dominance in the booking arena.

The group’s net ticket sales have jumped to £1bn, reaching 54% of its pre-Covid levels in the six months to September. Trainline posted revenues of £78m, up from £31m a year earlier, with leisure travel and the recovery of commuter journeys leading the surge.

The firm, which sells about 70% of its digital train tickets in the UK, narrowed its interim pre-tax losses to £10.3m from £44.7m a year ago.

Chief executive Jody Ford said:

“Our consumer business returned to growth in August versus pre-Covid levels, with train travellers increasingly opting for digital tickets.”

The company has invested in two-click commuter bookings and integration into Google Maps. The share of e-ticket sales as a proportion of total UK consumer sales have doubled in the last 18 months to 40%, reported Trainline.

Ford said the firm sees a “significant growth opportunity” in Europe, as ticket demand in its top four domestic markets – France, Italy, Germany, Spain – returns to growth.

The owner of the IKEA furniture brand has warned it will raise prices due to the supply chain crisis and higher raw material costs, after rising costs hit its profits.

Pretax profit at Inter IKEA Group - which owns the brand and supplies products to its franchises - fell 16% in the 12 months to August. Earnings were 4% below 2019 levels, despite strong demand as people spend more time at home due to the pandemic.

Privately-held Inter IKEA said in its annual summary that:

“The global pandemic affected our operating income in FY21. The biggest cause was the steep increase in transport and raw material prices in the second half of the financial year,”

Inter IKEA also warned that supply chain problems will also hit operations in the current financial year (to August 2022):

Keeping IKEA stores and warehouses stocked has been a challenge. Supply chain disruptions led to a substantial drop in the availability of products that we have yet to recover from. We expect this will continue far into FY22,”

Reuters has more details here:

IKEA owner sees cost pressures rising after hit to profits

Staff shortages are also forcing meat processors in Great Britain to export carcasses destined for domestic consumption to the EU for butchering.

Beef producers are exporting carcasses to Ireland for butchering and packing, says Nick Allen, the chief executive of the British Meat Processors Association, before the products are brought back to Great Britain to be sold in supermarkets.

Meanwhile, pork processors are looking into shipping pig carcasses to the Netherlands to be butchered, as first reported by the Financial Times.

This is despite the government announcing a post-Brexit immigration policy U-turn last month that would temporarily extend the seasonal worker visa scheme to include pork butchers....

More here:

Although demand did pick up in October, UK service sector firms face ‘burgeoning cost pressures’, says Martin Beck, senior economic advisor to the EY ITEM Club.

Costs were pushed up by supply-chain challenges and higher wages as companies responded to a shortage of staff, he points out:

October’s services PMI rose to a three-month high, providing some reassurance that the economic recovery is far from out of steam. But a record rise in cost pressures pointed to a supply-side still trying to keep pace with demand.

More evidence of inflationary impulses building may bolster those MPC members on the verge of voting for higher interest rates in November’s meeting. But tomorrow’s decision still looks to be on a knife-edge.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says rise in activity was partly due to a boom in export orders -- as pandemic savings were spent on holidays and hospitality.

But firms are worried that they can’t attract workers, he adds:

Escalating business costs remain deeply concerning as salaries rocketed along with fuel and energy costs and material shortages as a result of supply chain disorder. A third of supply chain managers reported stronger job creation as vacancies grew to meet fresh demand, but many struggled to find the right staff from ever-decreasing numbers of job seekers.

The seemingly likely rise in interest rates this week may take some of the heat out of the overinflating UK economy but will also result in additional pressure on some household budgets, threatening to cut off this stream of good fortune early next year.”

Growth across the UK’s service sector accelerated last month, as a rise in new business boosted companies - and forced some firms to hike wages to attract staff from their rivals.

The latest survey of purchasing managers from IHS Markit has found a “sharp and accelerated rise” in business activity at service firms during October.

This was driven by the strongest increase in new work since June.

Markit’s PMI survey found:

• The fastest rise in business activity for three months
• Cost inflation accelerates to its strongest in over 25 years
  
• Average prices charged by firms also increased at survey-record pace
• Service PMI rose to 59.1 in October, up from 55.4 in September, showing the fastest recovery since July

The reopening of the economy and looser international travel restrictions helped to boost demand, with new export sales rising at the fastest pace for just over three years.

But inflationary pressures kept mounting - which will concern the Bank of England as it deliberates whether to raise UK interest rates tomorrow.

Firms tried to juggle strong demand, shortages of staff and stretched supply chains last month -- which drove up their costs, and their own prices, at the fastest rates since the survey began in July 1996.

Around 30% of firms reported an increase in employment numbers during October, while only 13% signalled a reduction - which suggests the second-fastest rise in workforce levels since June 2014.

There was exceptionally strong demand in the hospitality, leisure and transportation sectors, following the relaxation of pandemic restrictions this year.

And some firms blamed a decline in employment on “unusually high staff turnover due to higher wages on offer from competitors”.

Some bosses also said it was extremely hard to find candidates to fill vacancies, despite efforts to boost starting salaries and conditions.

A survey earlier this week found that almost a quarter of workers are actively planning to change employers in the next few months, in a “great resignation” prompted by a high number of vacancies and pandemic burnout.

Tim Moore, economics director at IHS Markit, says the UK service sector emerged from its recent malaise, but staff shortages remain a challenge - as workers quit for higher pay elsewhere.

Many consumer service providers commented on unfilled vacancies after staff departures for higher wages, despite efforts to boost pay and conditions.

The impact of staff shortages was another rise in backlogs of work and greater willingness to pass on higher costs to new customers.

Business confidence fell to its lowest since July, as inflation hit optimism, Moore adds:

Comments from survey respondents also cited worries about prolonged staff shortages and constraints on growth due to the supply chain crisis.

In other property news, Land Securities has taken a 75% stake in MediaCity, the biggest tech and media hub outside London.

The 37-acre mixed-use site in Greater Manchester houses BBC North and ITV, alongside companies including Kellogg’s and Ericsson, with around 8,000 residents and workers at MediaCity.

Landsec is paying £425.6m (£207.6m cash, plus taking on existing debt) for the three-quarter share. MediaCity’s ‘Phase one’ development was completed 10 years ago, and LandSec says it will invest in the site’s Phase 2 expansion.

Although the deal isn’t huge, it’s interesting to see a commercial landlord focusing on mixed-use developments, and regions outside London, as the UK economy rebalances post-pandemic.

Earlier this week, Landsec announced it’s buying urban regeneration specialist U + I for around £190m.

Oli Creasey, head of property fund research at Quilter Cheviot, says:

Historically, LandSec has been known as a London Office & UK retail REIT, but new CEO Mark Allan has already outlined a change in strategic direction for the business, further shrinking the retail portfolio and investing more into mixed use development projects.

“LandSec already has a number of these projects on the books, but both of the REIT’s acquisitions this week come with further opportunities: the £750m second phase of development at MediaCity, plus a number of sites in the U and I portfolio.

“Of further interest is the spotlight on Greater Manchester. As well as MediaCity, one of the largest and most progressed sites in the U and I portfolio is Mayfield in Manchester, which has an estimated value of £1.5bn once completed. Both are mixed use – largely office and residential – and represent a departure from the company’s London focus. All five of their existing urban development opportunities are based in London.

“It remains to be seen whether the move North is specifically targeting Manchester, or other major cities generally, or indeed whether it is purely a coincidence. But we are encouraged to see that the company is putting its money to work and putting the new strategy into action. We acknowledge that both acquisitions will take time to bear fruit, but the gains could be significant for the patient investor.”

Here’s our news story on how average UK house prices defied expectations and continued to climb last month... despite the phasing out of the government’s stamp duty holiday.

But as Nationwide points out, the outlook is unclear, with the path of interest rates, consumer confidence and employment levels all likely to influence the market...

Retail chain Next has beaten expectations again, thanks to strong demand from online shoppers.

But the company also warns that rising inflation and supply chain disruption will weigh on sales growth.

Full price sales in the last three months (to 30th October) jumped by 17% compared with two years ago, Next reports.

That includes a 14% rise in the last five weeks - ahead of its forecast of 10% growth.

This puts Next on track to hit its target of £800m profits this year.

Internet shopping continued to drive sales growth - up 40% in August-October compared with two years ago.

But, the retailer also predicts that sales growth in the current quarter will slow, because:

• The effects of pent-up demand are likely to continue to diminish.
  
  
• Stock availability has improved but remains challenging, with delays in our international supply chain being compounded by labour shortages in the UK transport and warehousing networks. However, to date, stock limitations appear to be offset by strong underlying demand.
  
  
• Although consumer finances are in good shape, price increases in essential goods (such as fuel) may moderate demand for more discretionary purchases.

So it’s sticking with its forecast of 10.2% full-price sales growth in Q4.

The £14m of extra sales in the last five weeks generated an extra £4m of profit. However, it will be largely swallowed up by further digital marketing spending, and extra distribution costs. That will include more inbound air freight (as retailers try to cope with the delays and transport problems at the ports).

Shares in Next have dropped 3% in early trading (but are still up 15% this year, having ridden out the pandemic relatively well).

Freetrade analyst Gemma Boothroyd says Next faces a dilemma:

Next beat its sales forecast by £14m, but was quick to bring investor hopes back down to earth. It won’t be hiking up profit guidance, pointing some fingers at increased costs for digital marketing, air freight and online distribution.

Herein lies its double-edged sword: the better Next does at selling the products its customers love, the messier things get. Next shoppers prefer its website to the store, but scattered warehouses render that a costlier supply chain to manage.

Transporting those goods is putting a dent in Next’s bottom line too, and there’s hardly enough labour to move those products to begin with.

So as Next gears up for the holiday season, it’s got a decision on its hands. Should it ease up on marketing pushes to let stock issues iron themselves out? Or should it push full steam ahead and kick the snarled supply chain can down the line?

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

UK house price have hit fresh record highs, despite the prospect of the Bank of England raising interest rates in response to rising inflation.

Lender Nationwide reports that the price of the average house rose by 0.7% in October, up from 0.2% in September, extending the surge in prices since the first Covid-19 lockdowns ended last year.

The annual growth rate remained elevated at 9.9% in October, slightly lower than 10% a month earlier.

It means the average property price has risen by more than £30k since the pandemic hit early in 2020.

That lifts the price of a typical UK home over the £250,000 mark for the first time on Nationwide’s index (although the broader Land Registry data showed the average UK house price was £264,000 in August).

Robert Gardner, Nationwide’s chief economist, said demand for homes remained strong, despite the stamp duty holiday finishing at the end of September.

Indeed, mortgage applications remained robust at 72,645 in September, more than 10% above the monthly average recorded in 2019. Combined with a lack of homes on the market, this helps to explain why price growth has remained robust.

Gardner warns, though that the outlook remains “extremely uncertain”, as the government withdraws some of the pandemic support such as the job retention scheme (which ended a month ago).

If the labour market remains resilient, conditions may stay fairly buoyant in the coming months – especially as the market continues to have momentum and there is scope for ongoing shifts in housing preferences as a result of the pandemic to continue to support activity.

“However, a number of factors suggest the pace of activity may slow. It is still unclear how the wider economy will respond to the withdrawal of government support measures.

Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living.

The Bank of England will announce tomorrow whether it is lifting UK interest rates from their current record low of 0.1%, with some policymakers concerned that inflation is heading over 4% (twice its target), in the coming months.

Also coming up today

Investors around the world are bracing for tonight’s Federal Reserve meeting. America’s central bank is expected to lay out the timetable to slow the pace of its bond-buying stimulus programme, in response to the jump in inflation and the recovery in the jobs market.

The Fed is currently pumping $120bn a month into the US economy by buying government bonds (Treasury bills) and mortgage-backed securities; and could start to ‘taper’ those purchases by buying less each month.

Adam Cole, chief currency strategist at RBC Capital Markets, says:

In what may be the best (and longest) advertised meaningful policy shift, the FOMC will announce tapering at the coming meeting. Our economists expect the Committee to start with a reduction of $10bn in Treasuries and $5bn in MBS.

As the Fed has been suggesting, at this pace it would finish right around midyear. Of course, the taper will come with all of the caveats one would expect: the Fed reserves the right to adjust the pace given economic conditions, etc. But we also note this flexibility can work both ways, with the flexibility to taper more quickly to an earlier end if data point that way.

Don’t be surprised to hear Powell say during the presser (if it’s not inserted into the statement) that while “substantial further progress” has been achieved for taper, there is a different set of criteria for the nebulous terms to be achieved as it relates to hiking.

We also find out how services companies across the UK, eurozone and US fared last month.

The agenda

• 9am GMT: Eurozone services PMI for October
  
• 9.30am GMT: UK services PMI for October
• 12.15pm GMT: ADP survey of US private sector payrolls
• 2pm GMT: US services PMI for October
• 6pm GMT: US Federal Reserve rate decision
• 6.30pm GMT: US Federal Reserve press conference