Closing post
Time to wrap up…
The day before the Budget, the government sold £4.5bn of five-year bonds at an interest rate of 5.036%.
City analysts said the jump in borrowing costs was a reminder of the pressures on the public finances, with investors hoping for a quiet budget from John Healey tomorrow.
Ion Jauregui, analyst at ActivTrades, says:
“I think the market will want a relatively dull budget with credible fiscal control, sensible spending commitments and greater breathing space. There is very little room for error here. With gilts yielding 5.35% 10-year, inflation proving sticky and the Bank of England remaining concerned about inflation, the market will not look kindly at any sign of slippage. I don’t think we should get too excited by the yield fall recently. It appears to be being done more as a precaution.
In other news…
Banking giant HSBC has reported a 32% rise in third-quarter profits to $9.6bn (£7.2bn), alongside plans to give $2.7bn to shareholders through dividends and buybacks.
The results, which knocked HSBC’s shares down by over 5%, sparked new calls for a bank tax in the budget.
It also pushed HSBC’s value below Shell, which is now the most valuable company in London.
The number of UK businesses in financial distress has hit its highest level in more than two decades, as pressure grows on the chancellor to provide more support to the private sector.
The chancellor was also lobbied to tax the super-rich, to fund more cost of living support.
UK shop price inflation has risen to the highest level in two and a half years, according to the British Retail Consortium, which warned that “the dam is starting to break” when it comes to retailers trying to limit price rises for customers.
French consumer confidence has hit its lowest level in 13 years…
…while there’s been a small pick-up in morale in the US.
HSBC loses crown of London's most valuable company
Trading has closed on the London stock market, and HSBC has ended the day as the FTSE 100’s top faller.
Traders remained unimpressed with the bank’s financial results this morning, with its 32% jump in profits a little below expectations.
By my calculations, that means HSBC has slipped to second place on the list of the most valuable companies on the Footsie, with a value of £221.8bn.
Shell, which dipped by 1.8% today, has a market capitalisation of £224bn.
Photos: Tax the super-rich!
A group of campaigners gathered in Parliament Square today to urge the government to tax the super-rich in tomorrow’s budget.
Campaigners from civil society organisations including Tax Justice UK, Patriotic Millionaires UK, and Positive Money came together to call on prime minister Andy Burnham and chancellor John Healey to tax the richest to fund support for those suffering from the cost of living squeeze.
Faiza Shaheen, executive director at Tax Justice UK, said:
With his first Budget, Andy Burnham doesn’t have to wait for an election to improve people’s lives and get on with his mission of ending neoliberalism. If his words are to be trusted, his Chancellor needs to fund widespread cost of living support, at the same time as long-term investment that breaks the cycle of essentials in Britain costing too much. And that starts with taxing extreme wealth and profiteering companies - so cash goes into public services and every corner of the UK, rather than offshore accounts and shareholders’ pockets.
The UK stock market is hoping for a budget that “does no harm”, reports Sue Noffke, manager of the Schroder Income Growth Fund.
That may sound rather unambitious, but after two tax-raising budgets from Rachel Reeves the City would prefer a fiscal event that was light on fireworks, but with some growth-friendly measures.
Noffke explains:
After two years in which businesses have absorbed significant increases in costs and taxation, another broad increase in the corporate burden would risk undermining the investment and growth the Government wants to encourage.
“There are, however, areas where policy could make a positive difference. For housebuilders, we will be looking closely at the detail of the Your First Home scheme and whether it can provide a meaningful stimulus to new-build demand and housing supply. More broadly, additional investment channelled through public financial institutions into areas such as infrastructure, defence, AI and energy could create opportunities for UK-listed companies, particularly if it succeeds in crowding in private capital.
“Ultimately, UK companies need greater policy stability and confidence to invest. A relatively uneventful Budget that delivers that would not be a bad outcome.”
Updated
We have some better economic news from the US.
US consumer confidence has risen in October for the first time in four months, as Americans grow more optimistic about the job market and business conditions.
The Conference Board’s gauge increased 7.5 points to 91.7, the highest since June and beating forecasts.
“Consumer confidence advanced in October, driven primarily by improved perceptions of current and expected business conditions,” said Fergus McCormick, senior economist, global indicators at The Conference Board, adding:
“The recovery was in line with retail gasoline prices easing from September to October. Yet, despite the increase in October, consumer confidence remained on the long-term downward trend that’s persisted over the past few years. Consumers planned less spending on services and durable goods over the next six months. This likely reflected higher price levels and persistent inflation, which eroded consumers’ purchasing power.”
Britain’s logistics industry has been cheered by reports that chancellor John Healey will retain the current freeze on fuel duty in tomorrow’s Budget.
This wouldn’t be a terribly surprising development – it’s become a modern tradition that a chancellor lays out plans to raise fuel duty in future years, only to bottle it when the moment arrives.
Ben Fletcher, chief executive of business group Logistics UK, says:
“Logistics businesses across the UK will be hoping that today’s media reports about the continued freeze in fuel duty prove to be accurate. Retaining the current 5p per litre cut in tomorrow’s Budget would be a pragmatic measure that keeps trade moving, supports growth in every postcode and avoids adding further inflationary pressures at a time of rising costs for consumers and businesses. We believe the case for maintaining the current Fuel Duty rate is clear as businesses continue to face significant cost pressures and economic uncertainty.”
Back in the markets, Wall Street has opened higher as tech stocks rebound from their recent losses.
The Nasdaq share index has gained 1%, up 250 points at 26,420 points. AI cloud computing operator Nebius is leading the risers, up almost 9%.
The S&P 500 share index is up a more modest 0.5%.
Oil falling amid hopes of Middle East de-escalation
The rise in government bond yields has been driven by inflation fears, due to the jump in the oil price this year.
And there are encouraging signs today that energy prices are falling.
Brent crude is down 1.6% at $113.91 a barrel, driven by a diplomatic push to de-escalate tensions between Saudi Arabia and Iran.
Yesterday, representatives from Saudi Arabia, Turkey, Pakistan and Iran met in Tehran; Iran’s Foreign Minister Esmaeil Baqaei said the talks were a step toward regional security cooperation.
According to Reuters, Iranian Security Council chief Mohsen Rezaei on Tuesday met Supreme Leader Ayatollah Mojtaba Khamenei, with state media reporting that Khamenei had emphasised the importance of pursuing Iran’s interests and maintaining its conditions for ending the war.
Over in the US, new home sales have stumbled as Americans have wrestled with higher interest rates.
New single-family home sales decreased by 0.6% in September to an annualized rate of 676,000, according to figures released today by the federal government.
If Chancellor Healey can deliver the dull budget the market expects on Wednesday then the UK will be rewarded with lower gilt yields, says Matthew Amis, investment director, rates management at Aberdeen Investments:
“It’s been a year of negative gilt headlines. The rise in oil and gas has put pressure on gilt yields, which has impacted everything from Government borrowing to mortgages. In all this negativity what hasn’t been reported is that gilt yields have surprisingly held up okay. When we look at gilt yield moves we don’t simply view them in isolation. We have to view them vs our US and European peers. If UK yields move in isolation, the UK has a problem. If yields move in line, yes the yield move is a negative but it’s a global story.
Since the political volatility of May, gilt yields have been relatively well behaved. Against both Germany and US, gilts have remained in recent historic ranges. The big move has been against France. If Chancellor Healey needs any reminder of what can happen to gilt yields if you lose control of the fiscal message then the French OAT move is exactly that. In May, UK 10 year yields were approximately 1.30% higher than French yields, going into the budget they now trade only 0.30% higher; a huge move.
The UK bond market is pretty quiet ahead of tomorrow’s budget.
The yields on long-dated gilts are down slightly, having already dropped back from the multi-year highs struck earlier this autumn.
LSE marks 40th anniversary of the Big Bang
London’s stock market has been marking the 40th anniversary of the Big Bang – the sweeping, Thatcherite deregulation of the London Stock Exchange.
The Big Bang brought several fundamental changes to the City, including the end of fixed fees for share trading, allowing firms to operates as both brokers and market-makers, and bringing in electronic trading.
It also allowed foreign firms to buy UK stockbrokers, paving the way for the takeover of UK banks by (largely) American rivals.
To mark the occasion, this morning’s opening ceremony at the London Stock Exchange rang its new bell for the first time. This bell, the LSE says, is “a symbol of its heritage, ambition and the market community.”
It’s unfortunate that the market promptly fell by 1%, but we can blame HSBC for that!
This morning’s expensive sale of five-year UK bonds underlines how little room for error the Chancellor has, says Ion Jauregui, analyst at ActivTrades.
“I think the market will want a relatively dull budget with credible fiscal control, sensible spending commitments and greater breathing space. There is very little room for error here. With gilts yielding 5.35% 10-year, inflation proving sticky and the Bank of England remaining concerned about inflation, the market will not look kindly at any sign of slippage. I don’t think we should get too excited by the yield fall recently. It appears to be being done more as a precaution.
“Investors will want crystal-clear transparency. The extra £20.4 billion of funding proposal for the National Wealth Fund and the British Business Bank could help to boost long-term growth, but as borrowing is not expected to begin until 2028-29, this should not cause any issues for gilts. Investors will still want to know what borrowing needs are going forward, the credit risk and if the investments actually give value for money. As long as this is properly accounted for and is financially credible, then the markets should be comfortable. However, if it is seen as an exploit or abuse of accounting rules to disguise fiscal risks, gild yields may rise high again.”
UK borrowing costs could come under more pressure if bond investors are unimpressed by tomorrow’s budget.
The City is expecting a “low-key, low-vol event”, to quote Morgan Stanley analysts this morning.
Investors are expecting a drop in the UK’s fiscal headroom (the margin to keep within the borrowing targets), to around £15bn to £20bn, down from £23.6bn in March.
To achieve that, Healey will have to demonstrate spending restraint kicking in towards the end of this parliament, but the big questions about government spending will probably have to wait until next year’s Spending Review.
Berenberg say investors expect this Wednesday’s budget to keep the government’s fiscal consolidation plans on course, warning there is “a risk of a jump in yields if Chancellor Healey announces more borrowing than investors expect on 28 October.”
French consumer confidence slides
Over in France, consumer confidence has dropped to a 13-year low.
The monthly consumer morale gauge produced by statistics body INSEE fell from 85 points to 80 this morning, below forecasts.
INSEE said “household confidence has strongly worsened” this month, with people more pessimistic about their personal financial situation
The proportion of households believing it is a good time, in the current economic situation, to make major purchases fell, as did gouseholds’ opinion on their future ability to save.
EY lifts its UK partners' pay to £870,000
Accountancy firm EY UK has lifted the pay of its partners by over 10% to £870,000.
The increase is twice as large as the 5.2% average pay rise for EY employees last year.
EY’s partners are paid from its distributable profits, which rose to £702m before tax in the last financial year, up from £679m.
The firm has also boosted its staff bonus pot by 25%, and reported reported that its UK fee income rose by 2% to £3.86bn in the financial year ending on 3 July 2026.
Anna Anthony, EY UK & Ireland regional managing partner says:
“These are a solid set of results in a challenging market. We’ve continued to grow the business, while making significant investments in talent and technology to support our future growth and deliver high quality and innovative services to our clients.
“In FY26 alone, we hired 2,300 people across all parts of the UK, made over 3,700 internal promotions and progressions and announced a significant evolution of our global Alliance with Microsoft.
“We also recognised the contribution and performance of our people with our largest variable pay pool to date, whilst continuing to invest in training and development, with over 1.2m learning hours completed.
“With economic uncertainty, technological transformation and shifting expectations of business reshaping every sector, I’m proud of the steps we’ve taken to position our firm for the future while continuing to deliver for our clients, people and the communities we operate in.”
Britain issues costliest five-year debt since 2008
Britain has successfully sold more government debt this morning, but at the highest price since the financial crisis almost two decades ago.
The Debt Management Office sold £4.5bn of 5-year debt at an average yield of 5.036%, the highest since 2008, Reuters reports.
There was plenty of interest in the gilts – perhaps not surprising, given the lucrative yields the DMO was prepared to pay. Investors bid for 3.51 times as much debt as was available, allowing the DMO to pick the best offers (ie, the investors offering to accept lower yields).
The jump in interst rates which has boosted bank profits is also weighing on the housing market.
Zoopla has reported this morning that 35% of UK homes are in postcode areas where house prices are falling, up from 12% a year ago.
These price falls are “concentrated in London and the South East”, it says, where 85% of homes are in local markets with price falls.
This trend is due to higher mortgage rates which have increased the cost of buying and made buyers more selective – the number of sales agreed over the last four weeks is seven per cent lower than a year ago across the UK.
Richard Donnell, executive director at Zoopla, says,
“The extra cost of mortgages has made home buyers more selective while greater choice of homes for sale has increased the scope to negotiate on price. The impact is being felt by sellers in southern England where house price falls are most concentrated as average prices continue to rise across the rest of the country.
“There is still demand to buy homes, and those that are well priced and presented are selling just as quickly as last year. Getting the price right from the start is essential. Overpricing significantly reduces the chances of selling, so sellers should seek advice from local agents on buyer demand and the right asking price for their home.”
Record 738,000 UK businesses in ‘significant’ financial distress ahead of the Budget
Although HSBC has been raking in the profits, smaller businesses are finding life rather tougher.
The number of UK businesses in ‘significant’ financial distress has hit a record high of 738,144, according to the latest Red Flag Alert research from financial group BTG. That’s the highest level since the report began in 2004.
BTG found that the highest volumes of firms strugging operate in support services, construction and real estate and property services.
Julie Palmer, managing partner at BTG, says its a worrying sign ahead of the budget:
“Record levels of ‘significant’ financial distress underline just how many businesses are approaching the Autumn Budget with limited financial headroom. While firms will naturally be looking for clarity on taxation and economic policy, many of the pressures they face extend well beyond any single Budget announcement.
“My real concern is for consumer-facing sectors such as leisure and hospitality, particularly as we enter the run up to the vital Christmas trading period. Higher employment costs, rising inflation and interest rates will add real-world pressure to many domestic budgets. Add into that a forecast 26% rise in the January 2027 energy price cap and households are likely to concentrate on the essentials.
Photos: Healey perusing the budget statement
We’ll find out in around 28 hours what new taxes the chancellor has decided to impose on the UK banking sector.
These pictures from the Treasury show John Healey preparing for the budget in his flat in Downing Street in recent days:
You’ll note there appears to be a bottle of HP sauce behind Healey’s left ear, as the chancellor moves between his kitchen island and the dining table.
Frankly I’m surprised it’s not closer. The chancellor is rather fond of a dob of brown sauce, and even carries a bottle with him.
The Times reported that last week he bought a sausage roll from Greggs, pulled a bottle of HP Sauce from his briefcase and “permitted himself a moment’s indulgence” after announcing the approval of the Jackdaw gas field in the North Sea.
Updated
HSBC CFO’s, Pam Kaur, was asked by reporters why the bank’s shares were down today (they fell in Hong Kong first, and then in London).
Kaur suggested some reasons:
“I think in a high interest rate environment, there’s sometimes a market expectation that we upgrade guidances or we change our targets, and particularly from a banking NII perspective. So that’s all I can think of.”
Here’s Will Howlett, financials analyst at Quilter Cheviot, on the drop in HSBC’s shares this morning:
“HSBC’s third-quarter results have fallen a little short of market expectations. Revenue was weaker than anticipated, with pressure on net interest income and a slowdown in wealth, and that disappointment has translated into a slide in the share price.
“The numbers themselves are not disastrous. Profitability remains strong, with an 18.2% return on tangible equity, while loan losses were better than expected and HSBC has reiterated its target of delivering returns above 17% over the next three years. The bank is also returning another $1bn to shareholders through a buyback.
“The issue is that HSBC has set a high bar for itself. Following a strong run for the shares, investors have become accustomed to robust results, so even relatively modest misses can prompt a sharper reaction. Today’s fall therefore looks more like disappointment against high expectations than a significant deterioration in the underlying business.”
The 6% drop in HSBC’s share price this morning has made rather a dent in the FTSE 100 share index.
The ‘Footsie’ is down 108 points, or 1%, at 10,659 points.
HSBC is the largest member of the share index (it’s on track to lose that crown by the end of the day!), ahead of Shell and AstroZeneca.
At the close of play yesterday, HSBC was worth almost £234bn, ahead of Shell at £228.75bn.
Consumer goods maker Reckitt Benckiser (-6.3%) are also pulling the FTSE 100 down, after it lowered its financial guidance for the year this morning.
HSBC shares drop by over 6%
The City is not impressed with HSBC’s financial results, having expected even higher profits.
Shares in HSBC are down 6.7% in early trading, and appears to be pulling the rest of the banking sector down too.
That’s because the 32% jump in profits is slightly below analyst forecasts (although $9.6bn should hardly be sniffed at!).
Chris Beauchamp, chief market analyst at IG, says:
“You don’t usually get fireworks from HSBC results, and these are no exception. There are signs of some improvement overall, and a boost to the buyback is welcome, but it’s clear why the market wasn’t really inspired by these numbers.
HSBC seems to be doing ok, but ok doesn’t really cut it in a world where inflation is back on the menu and growth may start to slow. At least it’s not exactly rolling in profits this time around, providing some useful air cover ahead of a UK budget that will may include another raid on banks.”
How cost-cutting and lower legal bills boosted HSBC's profits
One strong argument for higher bank taxes is that the financial sector has been benefitting from the increase in interest rates in recent years.
That has allowed them to swell their net interest income (NII) by raising the rates charged on borrowers by more than those paid to savers.
However, NII is only a small factor behind the jump in HSBC’s profits in the last quarter. NII rose by 6%, or $500m, to $9.3bn – which HSBC attributes to “deposit growth and the benefit of reinvestment of our structural hedge at higher yields”.
HSBC also profited from a cost-cutting drive – operating expenses fell by 12%, or $1.3bn, to $8.8bn.
It also benefitted from a $1.4bn drop in legal provisions – this was the sum it set aside last year to cover a claim related to Bernie’s Madoff’s Ponzi scheme.
HSBC was also quizzed about the impact of last week’s Google Cloud outage.
CFO Pam Kaur says:
“We do apologise to the impacted customers for any inconvenience. But the services did return fairly quickly to normal during the same day. This issue also had broader market impact.
“Now we have a robust process in place where we investigate every incident to share any learnings and to do read-across to ensure that similar incidents don’t happen in the future. And we are very much utilising our risk management capabilities and indeed building upon them to identify, report and manage risk across the organisation.
Updated
HSBC: won't comment on press speculation on job losses
HSBC has also been asked about the impact of AI on the jobs market, after rival Barclays announced 5,000 job cuts last week.
The Financial Times reported earlier this month that HSBC is planning sweeping job cuts in its UK wealth management business, but the bank dodged the question today.
CFO Pam Kaur told reporters:
“We know that AI will change how work is done across industries, and of course it will impact some roles. It’ll transform other roles, and it will change them, while creating entirely new roles. So beyond that, there’s nothing specific in a number-term that I want to share or indeed have to share at the moment.
“For the wealth management business, the UK is a home market and we are a leading wealth manager. I’m not going to comment on press speculation on job losses, but what I can tell you is that in terms of customer engagement and serving the needs of our customers, we absolutely focus on the workforce we have, both in terms of skilling it and building on it. And we are also hiring in multiple areas in the UK.”
Updated
TUC: HSBC profits make it “blatantly obvious” banks can afford more tax
The TUC are also urging the Chancellor to increase taxes on banks in tomorrow’s Budget, arguing the sector could pay tens of billions of pounds more.
Rather than simply reversing Jeremy Hunt’s cut to the bank surcharge from 8% to 3%, the TUC argue that the surcharge – additional corporation tax – should be increased further.
That would provide funding to pay for a social energy tariff that brings down energy bills for those on low and middle incomes.
Hiking the surcharge to 16%, they say, would deliver £24bn over four years.
A 35% surcharge, which would be the same level as the windfall tax the Conservatives imposed on energy companies, would yield £60bn over four years.
TUC general secretary Paul Nowak says:
“Some in the finance lobby have tried every which way to stop tax rises in the Budget. But these results make it blatantly obvious banks can afford to contribute more.
“It’s not just HSBC. Barclays announced bumper profits last week too. And Britain’s big four banks have made more than £200bn in profit over the last five years.
“With Trump and Putin’s illegal wars rumbling on, working people have another cold, hard winter ahead. Households and businesses are going to need more support - and it’s time for the Chancellor to make the banks pay a fairer share.”
NEF: HSBC profits hard to swallow as households face rising costs
HSBC’s jump in profits is prompting fresh calls for new bank taxes in the budget.
As the Guardian reported earlier this month, Healey has decided to tap the financial sector for additional revenue. One way would be to reverse cuts to the bank surcharge made by former chancellor Jeremy Hunt – which would raise upwards of £2bn a year.
Abhijay Sood, economist at the New Economics Foundation, argues that Healey should go further!
“It’s not surprising that HSBC have made such significant profits in the last quarter, but it will be difficult news to swallow for households struggling with rising mortgage costs. Like other big banks, its profitability has depended on keeping interest rates on savings accounts low, and a “stealth subsidy” from taxpayers via the Bank of England due to quantitative easing.
“While the rumours of a bank tax change in the Budget are welcome, it is unlikely to go far enough. While banks are making over a billion pounds a week of profit, NEF analysis suggests that the restoration of the bank surcharge to 8% would raise just £1.8bn a year from them.The chancellor should go further by clawing back the stealth subsidy, and use this to fund inflation-busting investment and keep the essentials of life affordable for ordinary people.”
Updated
HSBC 'very encouraged' by Burnham's growth agenda
HSBC CFO Pam Kaur is speaking to the media now.
On the issue of a bank tax (which John Healey could announce tomorrow), Kaur expresses support for what Andy Burnham’s government are doing, saying:
“We only have 24 hours to go. We are very encouraged by the government’s growth agenda, particularly how we can lean-in to support not just specific sectors like UK innovation, infrastructure. and the UK trade deals, but also in terms of how we are the connector for the UK with the rest of the world, given the success the government has had with many of these international trade deals.”
But Kaur also said HSBC would have to ‘respond to customer behaviour’:
“Now, obviously, as our customers make their business investment decisions, we will respond accordingly, because that’s what we do as banks. When the lending demand goes up, we lend more. We are ready with the right risk appetite to do so. We’ll just have to see how businesses and customers react.”
Announcing today’s financial results, Georges Elhedery, HSBC’s group CEO, said:
“Our performance shows that in a more complex world clients continue to turn to us to navigate uncertainty and seize new opportunities.
It also reflects consistent execution of our strategic priorities with pace, precision and discipline.
As we simplify HSBC, we are creating greater capacity to invest, grow and deliver strong returns for our shareholders.”
Introduction: HSBC profits jump 32%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
As he puts the finishing touches to tomorrow’s budget, John Healey may note that another bank has reported a jump in earnings.
HSBC is handing $2.7bn (£2bn) to shareholders after a 32% surge in profits, that will further assure the Treasury that the UK’s top banks can shoulder a tax hike in the budget, my colleague Kalyeena Makortoff reports.
The London headquartered bank reported this morning that profits grew nearly a third to $9.6bn in the July to September quarter - slightly below consensus estimates - helped by higher interest rates, lower loan losses and smaller legal provisions compared to last year.
It meant the bank could hand $2.7bn to shareholders. That included another $1bn share buyback, as well as an interim dividend of $0.1 per share, that the bank said would mean distributing another $1.71bn to its investors.
Net interest income - the difference between what banks charge for loans versus pay out for savers’ deposits, rose to $9.3bn from $8.8bn year on year. However, that was apparently lifted by its hedging strategy and a growth in deposits in Hong Kong, while UK deposits stayed flat.
HSBC is following Barclays, which last week reported a 12% jump in profits
The agenda
Morning: UK holds auction of Treasury Gilt 2032
1pm GMT: US house price index
2pm: US consumer confidence report
2pm: US new homes sales data
Updated
