Key events
FTSE 100 hits record high
Boom! The UK’s blue-chip share index has hit a new alltime high.
The FTSE 100 has jumped at the start of trading to hit 8068 points, up 43 points or 0.55% this morning.
That comfortably clears the previous all-time peak of 8,047 points set in February 2023.
This extends yesterday’s rally, when shares were lifted by rising hopes that the Bank of England will cut interest rates twice this year.
Markets are also more buoyant as fears about an escalating conflict in the Middle East eased.
Jim Reid of Deutsche Bank explains:
Sentiment was bolstered by the lack of any further escalation in the Middle East.
Indeed, yesterday saw Iran’s foreign ministry spokesman say that Israel had received the “necessary response at this stage”. The apparent easing in tensions helped oil prices fall back.
The UK also borrowed more than expected in the 11 months leading up to March.
ONS has revised its forecast for borrowing in the 11 months to February up by £1.9bn, after raising its estimate for the cost of subsidising low-carbon electricity generators.
💷Slightly awkward UK public finances data this morning. 2023/24 budget deficit ends up somewhat higher than forecast.
• March borrowing at £11.9 billion (Reuters poll: £10.2 billion)
• Feb, Jan revised higher
• FY 2023/24 borrowing at £120.7 bln (OBR: £114.1 bln)— Andy Bruce (@BruceReuters) April 23, 2024
Michal Stelmach, senior economist at KPMG UK, points out that UK exchequer benefitted from a surge in revenues from taxing corporations and workers last year.
“Preliminary estimates for the 2023-24 financial year showed government borrowing at £120.7 billion. While this was higher than the OBR’s March forecast of £114 billion, it still marked a 5.9% reduction from a year earlier, representing the lowest deficit in four years.
“Corporation tax receipts totalled a whopping £102.8 billion, up by 19% relative to previous fiscal year. This reflected an increase in the main rate from 19% to 25%, continued strength in company profits, as well as a boost to banks’ net interest margins resulting from higher interest rates. Elevated pay growth has also supported income tax receipts, which brought in £25 billion more in 2023-24 despite the National Insurance cut which came into force in January.
Stelmach also warns that the “goldilocks fiscal outlook” faces a number of risks.
The recent repricing in market expectations of fewer interest rate cuts could already add around £6 billion to spending this year. Furthermore, the OBR’s projected cost of the National Insurance cuts – which relies on the assumption of a hefty 200,000 increase in labour supply – could prove an underestimate if participation continues to stall.”
Introduction: UK borrowing leaves limited scope for tax cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Jeremy Hunt’s hopes of being given more scope for large tax cuts later this year have been dealt a blow by the latest borrowing figures, just released.
Britain borrowed more than £120bn last year to balance the books; over £6bn more than the independent Office for Budget Responsibility had forecast, but £7.6bn less than the previous year.
And that looks to be a blow to Hunt’s ambitions to cut taxes in an autumn fiscal event, as well as pushing up the national debt to the highest since the 1960s.
Ruth Gregory, deputy chief UK economist at Capital Economics, says the chancellor appears to have limited ‘headroom’ to cut taxes and still meet his fiscal mandate (to have debt falling as a share of GDP in five year’s time).
She explains why Hunt may have limited scope for tax cuts:
March’s figures show that public borrowing in 2023/24 came in £6.6bn higher than the OBR predicted only a month ago, casting further doubt on the ability of the government to unveil big tax cuts at another pre-election fiscal event later this year.
Gregory adds:
Just based on the larger-than-expected 2023/24 budget deficit and the recent shift up in market interest rates, he may have even less fiscal ‘headroom’ (perhaps about £5bn) for tax cuts than the £8.9bn left over in March.
It also underlines why the International Monetary Fund was warning against pre-election giveaways last week:
The Office for National Statistics has also reported tha in March alone, the UK borrowed £11.9bn to cover the gap between government income and spending – higher than the £10.2bn which economists had expected.
ONS deputy director for public sector finances Jessica Barnaby says:
“Spending was up about £58 billion, with increased spending on public services and benefits outstripping large reductions in interest payable and energy support scheme costs. But with public sector income up £66 billion, overall, the deficit still fell.
“At the end of the financial year, debt remained close to the annual value of the output of the economy, at levels last seen in the early 1960s.”
Total tax receipts to HM Revenue and Customs rose by £39.1bn in the last year, to £827.7bn, including a £23.7bn increase in takings from Income Tax, Capital Gains Tax and National Insurance Contributions (NICs), while business taxes brought in £10.3bn more and VAT raised an extra £9.5bn.
Inheritance tax brought in £400m more than the previous year, while stamp taxes raised £4.3bn less.
Also coming up today
The UK’s stock market could hit a record peak today, after the FTSE 100 finished yesterday’s session at an alltime closing high of 8,023 points.
That has left the Footsie tantalisingly close to its intraday peak of 8,047 points, which it reached in February 2023.
And in the futures market, the FTSE 100 is currently on track to jump to 8070 points – taking it to a new peak! We’ll find out at 8am….
The agenda
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7am BST: UK public finances for March and 2023-24
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8am BST: Kantar’s index of grocery inflation for March
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9am BST: Eurozone flash services and manufacturing PMI report
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9.30am BST: UK flash services and manufacturing PMI report
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12.15pm: Bank of England chief economist Huw Pill gives a speech at the University of Chicago
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2.45pm BST: US flash services and manufacturing PMI report
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3pm BST: US new home sales for March
