Public sector pay rises and debt interest costs push up UK government borrowing; Bitcoin nearing $100,000 – business live | Business

Shares in UK retailer JD Sports have tumbled to their lowest level in over two years, after it hit the City with a warning that profits will be lower than hoped this year.

JD Sports told shareholders that it has been hit by “much softer consumer demand and trading” in recent weeks, afer a strong back-to-school period.

The company blames elevated promotional activity, unseasonable weather and a cautious consumer, including suppressed demand in the US ahead of the election.

JD now expects pre-tax profits to only reach the lower end of its original guidance range of £955, to £1.035bn.

Régis Schultz, CEO of JD Sports Fashion, said:

“After a good start to the period, helped by strong back-to-school sales, we saw increased trading volatility in October, particularly in North America and the UK, reflecting elevated promotional activity and mild weather.

Against this backdrop, we maintained our commercial discipline, improving gross margin by 0.3%pts while still delivering 5.4% organic sales growth. In addition, we made further, strong progress on our long-term growth strategy including opening 79 new JD stores across the world.

We have performed well in the key trading events this year and we are well positioned for the upcoming peak season. The trading environment remains volatile though and, following October trading, we now anticipate full year profit to be at the lower end of our guidance range.”

Shares are down 16% at 94.5p, their lowest level since October 2022, at the bottom of the FTSE 100 leaderboard.

Investors forced to pay for ‘undeserved’ bonuses at three water suppliers

Jasper Jolly

Shareholders at Thames Water, Yorkshire Water, and Dŵr Cymru Welsh Water will be forced to pick up the tab for executive bonuses after the water regulator determined that the sector had awarded “undeserved” extra payments worth £6.8m.

Ofwat said on Thursday that it had used new powers to ensure shareholders at the three companies paid for bonuses because they had not “adequately reflected overall company performance issues”.

Water companies have faced a wave of public anger and political backlash in recent years over leaks and sewage overflows as they have also come under increasing financial strain.

Nine water companies will not be allowed to use customer funds to pay bonuses worth £6.8m. Six voluntarily said that shareholders would pay, but Ofwat had to use its powers directly in the cases of bonuses worth £1.5m from Thames, Yorkshire and Welsh.

More here.

Inheritance tax has brought in £5bn so far this financial year, even before the government hits farmers with the levy.

New figures from HMRC this morning show that inheritance tax receipts for April to October 2024 have risen by £500m year-on-year, to £5bn.

This increase is driven by “higher volumes of wealth transfers following recent IHT-liable deaths”, says HMRC, with the increase in values of assets such as homes and share portfolios meaning more estates are worth more than the IHT thresholds.

Fiscal drag is also pushing more estates into the IHT territory, as those thresholds have been frozen for several years.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says:

“Inheritance tax is on track for another record year with receipts so far hitting £5bn. With five months of the tax year yet to go it should easily outstrip last year’s £7.5bn.

It may be a tax that so far only hits a small proportion of the population but, after last month’s Budget, it’s about to be an issue for a lot more people, after the decision was taken to make pensions part of someone’s estate for inheritance tax purposes. This won’t kick in until 2027 but will be a major part of many people’s financial planning.

Over half last month’s borrowing went on servicing the UK’s national debt!

The public finances report shows that the interest bill on UK government debt increased by £0.5bn to £9.1bn, last month.

The increase was mainly due to rises in the Retail Prices Index (RPI) measure of inflation, which sets the repayment rates on index-linked gilts.

So far this financial year, the UK has spent £53.6 billion on debt interest, a £2.2bn drop on a year ago.

Today’s UK public finances report shows that public sector pay rises helped to lift government spending faster than revenues last month.

Spending increased by £3.9bn, year-on-year, increase in spending, to £88.5bn.

That, and a hefty £9.1bn increase in debt servicing costs (see here) helped to push the UK’s monthly budget deficit up over £17bn in October.

The increase in spending included:

• Spending on government goods and services increasing by £2.5bn to £36.9bn, as “pay rises and inflation increased running costs”

• Net social benefits paid by central government increasing by £0.5bn to £25.3bn, due to inflation-linked increases in benefits

Pay awards for public sector workers in Britain are set to overtake the private sector for the first time in four years, after Rachel Reeves’s budget at the end of October confirmed above-inflation pay rises for public sector workers.

On the other side of the ledger, government revenues increase by £2.9bn last month, compared with October 2023.

Tax receipts jumped by £3.8bn, to £61.3bn, including a £1.5bn rise in Corporation Tax receipts and an extra £1.4bn from Income Tax.

But ‘compulsory social contributions’ fell by £1.1bn, mainly due to the reductions in the main rates of National Insurance in early 2024 made by former chancellor Jeremy Hunt.

Bitcoin is heading close to the $100,000 mark for the first time, after hitting the latest in a series of record highs.

The world’s largest cryptocurrency has jumped to around $97,902 in early trading, meaning it has surged by 132% so far this year.

Bitcoin has rallied from below $70,000 since Donald Trump won the US presidential election two weeks ago, with traders calculating that the next administration will be more friendly towards crypto.

Trump recently pledged to make the United States the crypto capital of the world, and Bloomberg reported last night that the president-elect’s team is holding discussions with the digital asset industry about whether to create a new White House post solely dedicated to cryptocurrency policy.

Stephen Innes, managing partner at SPI Asset Management, says:

Meanwhile, Bitcoin is inching closer to a monumental $100,000 milestone, driven by mounting confidence that President-elect Donald Trump’s administration will usher in a crypto-friendly era.

Speculators rally behind the narrative, fueling a frenzy as the digital asset edges toward an unprecedented valuation.

October’s “disappointing” public finances figures underline the fiscal challenge that the Chancellor still faces, despite the big increases in spending and taxes announced in the Budget.

So says Alex Kerr, UK economist at Capital Economics, who warns that Reeves may need to make further tax rises in future years if she wants to increase spending.

Kerr tells clients this morning:

Overall, October’s borrowing figures underline the little wiggle room the Chancellor has to significantly increase day-to-day spending.

Despite raising day-to-day spending significantly this year and next, spending is set to rise by just 1.3% in real terms on average between 2026/27 and 2029/30.

And given that the Chancellor only had £9.9bn of fiscal ‘headroom’ against her fiscal mandate left over after October’s Budget, this suggests that if she does want to increase day-to-day spending further, taxes will probably need to rise too.

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

The UK government borrowed billions of pounds more than expected last month, adding to the pressures on chancellor Rachel Reeves.

Government borrowing jumped to £17.4bn in October to cover the difference between public sector spending and income, according to the first assessment of the public finances since last month’s budget.

That’s £1.6bn more than in October 2023 and the second highest October borrowing since monthly records began in January 1993.

City economists had expected a rather smaller borrowing figure, of around £12.3bn for October, after the UK borrowed over £16bn in September.

ONS deputy director for public sector finances Jessica Barnaby says that government spending – on services, and also on debt repayments – rose faster than tax receipts:

“This month’s borrowing was the second highest October figure since monthly records began in January 1993.

Despite the cut in the main rates of National Insurance earlier in 2024, total receipts rose on last year. However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall.”

The increase in borrowing lifts the UK’s public sector net debt to 97.5% of GDP, levels last seeen in the early 1960s.

But, if you use the new measure of public sector net financial liabilities (persnuffle), used by Reeves in her new fiscal rules, the national debt is smaller, at 83.7% of GDP.

The tax rises in Labour’s budget last month should help push down borrowing, expect they are being resisted by UK retailers, and farmers.

Chief Secretary to the Treasury Darren Jones says the government is committed to stabilising the public finances:

“We inherited a £22 billion black hole in our public finances from the previous government. At the Budget we addressed this, fixing the foundations and putting public finances on a sustainable footing to rebuild the country.

“This government will never play fast and loose with the public finances. Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth.”

The agenda

• 7am GMT: UK public finances for October

• 11am GMT: CBI industrial trends report for October

• 1.30pm GMT: US weekly jobless claims

• 1.30pm GMT: Philadelphia Fed manufacturing index

• 3pm GMT: eurozone consumer confidence report