Capital Economics: Dismal backdrop for the Autumn Budget
September’s public finances, showing borrowing at a five-year high, highlight the poor performance of the public finances even though the economy hasn’t been terribly weak, says Ruth Gregory, deputy chief UK economist at Capital Economics.
They suspect Rachel Reeves will need to raise about £27bn in the Budget on 26 November, mostly through higher taxes.
Gregory explains:
The government borrowed £20.2bn on the main public sector net borrowing measure in September and £13.4bn (OBR forecast £12.2bn) on the current borrowing measure (which is what matters for the Chancellor’s fiscal mandate).
This means that after six months of the financial year, public sector net borrowing is already £7.2bn higher than the OBR forecast at the Spring Statement in March.
The overshoot in the Chancellor’s chosen fiscal mandate of the current budget is even greater, at £13.0bn. It would now take a big turnaround over the remainder of the year to put borrowing in 2025/26 back on track to meet the OBR’s forecast
Key events
Bank of England top brass appear at private markets inquiry
Over in parliament, Bank of England governor Andrew Bailey, and deputy governor Sarah Breeden, are appearing before the House of Lords Financial Services Regulation Committee.
They’re being questioned for an inquity into the growth of private markets in the UK following reforms introduced after the 2008 financial crisis. You can watch it here.
It’s a timely issue, given concerns about the growth of non-bank lending, and concerns about potential systemic risks, regulatory gaps, and the risks to market stability.
The committee explains:
In particular, the inquiry will examine whether the regulatory capital and liquidity reforms introduced after 2008 have reduced banks’ ability or willingness to lend, pushing risk away from the banking sector and towards private markets. It will also look into how much visibility the Bank of England has on the size of these private markets, their interconnections with the banking sector, and any potential spillover risks.
Back in the markets, gold and silver prices are sliding back from their recent record highs.
SPOT GOLD EXTENDS DECLINES, LAST DOWN NEARLY 2% TO $4,267.79/OZ
— First Squawk (@FirstSquawk) October 21, 2025
SPOT SILVER EXTENDS DECLINES, LAST DOWN OVER 5% TO $49.62/OZ
— First Squawk (@FirstSquawk) October 21, 2025
Kathleen Brooks, research director at XTB, says:
After a stunning rally, the gold price is unwinding on Tuesday. The yellow metal is down nearly $90 per ounce, and silver is also faltering, it was down more than 5% at some stage.
The reversal has been abrupt, there was no single event that has caused today’s sell off, instead it is most likely caused by a confluence of factors including stretched valuations and signs that US CPI [inflation], which will be released at the end of this week, could come in softer than expected.
Rathbones: taxes will need to rise by £25bn or more
Wealth manager Rathbones also predicts, like Berenberg, that Rachel Reeves is likely to need to raise £25bn or more in taxes in next month’s budget.
John Wyn-Evans, head of market analysis at Rathbones, says:
“The latest public sector borrowing figures continue to show strain on the country’s finances. Even allowing for some positive revisions to August’s dreadful borrowing, the government’s deficit so far this tax year amounts to £99.8bn, some £7bn higher than the projections of the Office of Budget Responsibility.
When we factor in the probable downgrade to long-term growth estimates from the OBR which will inform the Chancellor Rachel Reeves’s Budget decision-making, it looks as though taxes will need to rise somewhere in the order of £25bn or more. Much as many would like that number to be lowered by spending cuts, the mood within the Labour Party does not appear to support much hope on that front.
Andrew Wishart, senior UK economist at Berenberg, predicts Rachel Reeves may need to announce at least £25bn of tax rises and spending cuts in the November budget to address the “leaky finances”.
Having analysed today’s public finances, Wishart explains:
The government borrowed £13bn more than official forecasts predicted to fund day-to-day spending in the first six months of the fiscal year which began in April.
The government’s economic forecaster, the Office for Budget Responsibility (OBR), will almost certainly have to assume that much of that overshoot gets repeated in future years. Higher spending and borrowing than anticipated this year will add to several other factors pushing up the OBR’s borrowing forecast for 2029-30, the fiscal year by which the government has pledged to fund current spending (i.e. excluding investment) entirely with tax revenue.
Getting back on track to meet this target will likely require about £25bn of tax hikes and/or spending cuts in the 26th November Autumn Budget with another £10bn necessary to build a reserve for unexpected shortfalls, similar to the £10bn margin that was included in the March 2025 budget. Recent briefings suggest that, if anything, the Chancellor may even go further.
In the utilities world, Thames Water’s appeal to be allowed to raise bills by more than the regulator allows has been delayed again.
The referral to the Competition and Markets Authority (CMA) has already been deferred twice, while Thames Water tries to hammer out a rescue deal with its creditors.
And today, the company and Ofwat have agreed a third delay, while discussions continue between creditors, regulators and the company.
This means a longer delay before the CMA can ponder Ofwat’s decision to allow only (!) a 35% bill increase over five years.
Thames Water Utilities Limited (TWUL) explains:
This deferral is not a withdrawal of the request for the Reference and TWUL remains of the view that the Final Determination does not serve the interests of Thames Water’s customers, communities and the environment.
TWUL remains focused on delivering a recapitalisation transaction which delivers for its customers and the environment as soon as practicable.
Earlier this month the CMA allowed five water suppliers to increase bills by more than Ofwat had allowed, but still by not as much as they wanted:
OBR: Latest tax receipts data reduces UK’s borrowing overshoot
The UK’s fiscal watchdog, the Office for Budget Responsibility, has issued its verdict on today’s public finances.
They confirm that borrowing so far this financial year (£99.8bn) is £7.2bn over their March forecast, as this chart highlights:
But in better news for the chancellor, the OBR point out that newly revised estimates of tax receipts for the year-to-date have reduced the estimated borrowing overshoot compared to last month.
The OBR explains:
Central government accrued receipts and spending are now both close to the forecast profile for the year-to-date. Borrowing remains higher than in our March profile because of higher estimated borrowing by local authorities and public corporations.
The watchdog also predicts borrowing will be lower in the second half of this financial year (October-March), due to “a sharp rise in capital gains tax expected around the end-January due date, lower debt interest payments in the second half of the year, and lower growth in central government net social benefits which were unusually backloaded last year.”
Julia Kollewe
The Crown Estate has bought a chunk of farmland next to a major science hub in Oxfordshire where it plans to build labs, offices and up to 400 homes.
This is part of the organisation’s pledge to invest up to £1.5bn in science and technology over the next 15 years. The site, called Harwell East, could deliver up to 4.5m square feet of laboratory and advanced manufacturing space, offices and new homes.
It sits next to the Harwell science campus, where US biotech Moderna has just opened a major new vaccine research and manufacturing centre. More than 200 organisations are now on the site, which forms part of the “golden triangle” of Oxford, Cambridge and London.
The Crown Estate oversees the royal family’s ancient portfolio of land and property across England and Wales that includes the seabed around its coasts and £15bn of property, including in London’s West End. A slice of its profits are used to fund the work of the monarchy.
Dan Labbad, chief executive of The Crown Estate, said:
“The UK’s science, innovation and technology community is pushing the boundaries of progress in areas from AI to advanced manufacturing. But they need the specialised lab facilities and housing to realise potential.
“The ambition of Harwell East is to create the space for great science to flourish, and to fuel growth and success not just in the region but for the benefit of the whole country.” This comes after the Crown Estate came under mounting criticism.
Last week, Greenpeace threatened to sue King Charles’s property management company, accusing it of exploiting its monopoly ownership of the seabed and driving up the cost of offshore wind.
Allianz Trade: bankruptcies could surge if AI boom bursts
There could be a surge of company insolvencies if the artificial intelligence boom bursts, a new report today warns.
Allianz Trade, the trade credit insurer, has calculated that thousands of firms could be at risk across Europe and the US, if the enthusiasm about AI were to unravel.
In their latest Global Insolvency Outlook, Allianz Trade predict:
If the current AI-induced boom were to burst in a shock similar to the dotcom bubble of 2001-2002, we expect a surge of bankruptcies by +4,500 companies in the US, +4,000 in Germany, +1,000 in France and +1,100 in the UK. Over the last few years, business creation has accelerated, particularly in Europe where new registrations were 9% higher in 2021-2024 compared to 2016-2019, and in the US, where business applications are 36% higher.
Allianz Trade is concerned that the recent proliferation of new businesses, particularly in the tech sector, significantly heightens insolvency risks, through “multiple interrelated mechanisms”.
Firstly, startups and younger firms intrinsically face higher financial vulnerability and insolvency risk compared to established businesses that possess greater resources to weather economic downturns.
Secondly, these new market entrants often intensify competition through aggressive pricing strategies or innovative offerings designed to capture market share, creating pressure across entire sectors.
Third, a higher number of firms often leads to more fragile firms when the economic and financial cycle is weakening.
Allianz Trade also forecast that global business insolvencies will rise by +6% in 2025, and again by +5% in 2026, before a modest decline by –1% in 2027.
But in the UK, business insolvencies are forecast to dip slightly this year, to 26,750, and then ease again to 25,900 in 2026.
Nikkei hits record high as Takaichi
Japan’s stock market has risen to a new record high today, on relief that pro-stimulus politician Sanae Takaichi will become the nation’s first woman prime minister.
The Nikkei 225 index rose 0.3% to close at 49,316 points, a new peak, after Takaichi won a parliamentary vote to become PM. Shares were lifted by expectations that Takaichi will push for looser fiscal policy, echoing Shinzo Abe, her former predecessor who was killed in 2022.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains:
She will push for looser monetary policy and larger fiscal stimulus — if – of course – markets will let her. Because note that long-term Japanese yields are already near multi-decade highs, which suggests she and Abe (to whom she’s compared) do not share the same margin to manoeuvre.
