Introduction: Gold at all-time high on rate cut hopes
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Gold has climbed to a record high for the second session in a row, as investors flock to the traditional safe haven asset amid hopes of interest rate cuts in the months ahead.
The gold price has hit $2,111.39 per ounce, taking it over the record set on Friday night and further above the previous record set in August 2020.
Gold has strengthened amid hopes that the cycle of interest rate increases over the last couple of years has now ended, and that central banks will turn their attention to cutting borrowing costs in 2024.
That has led to a weaker US dollar, which pushes up the gold price (as it’s priced in dollars).
As this chart shows, gold has climbed pretty steadily since the start of October, when it was changing hands at $1,820 per ounce.
Crypto assets are also on a charge, with bitcoin hitting $40,000 for the first time this year today, with some traders betting the US Federal Reserve could start cutting US interest rates next spring.
Kyle Rodda, senior financial market analyst at Capital.com, explains:
Markets are piling in on bets of Fed rate cuts next year, possibly as soon as March. That pushed gold and Bitcoin to critical levels, with the former busting to record highs and the latter hitting $US40,000 for the first time since May 2022.
Gold’s move boasted all the hallmarks of a technical melt-up, as the break of previous all-time highs set off stops and buy orders.
A lower interest rate environment would favour gold, which doesn’t generate a yield (unlike bonds, equities or current cash savings accounts).
Also coming up today
The UK economy will be under the microscope, as the Resolution Foundation thinktank holds an all-day event examining a better economic strategy for the country.
Its work has shown that British workers are missing out on £10,700 a year after more than a decade of weak economic growth and high inequality.
Resolution will hear from Labour leader Sir Keir Starmer, who is expected to warn that he would not “turn on the spending taps” if he wins the next election
The Guardian reports this morning that Starmer will say:
“Anyone who expects an incoming Labour government to quickly turn on the spending taps is going to be disappointed … It’s already clear that the decisions the government are taking, not to mention their record over the past 13 years, will constrain what a future Labour government can do.”
“This parliament is on track to be the first in modern history where living standards in this country have actually contracted. Household income growth is down by 3.1% and Britain is worse off.
“This isn’t living standards rising too slowly or unequal concentrations of wealth and opportunity. This is Britain going backwards. This is worse than the 1970s, worse than the recessions of the 1980s and 1990s, and worse even than the great crash of 2008.”
The agenda
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7am GMT: German trade balane statistics for October
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9.30am GMT: Resolution Foundation holds event examining UK economy in 2030
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2pm GMT: ECB president Christine Lagarde gives a speech at the Académie des Sciences Morales et Politique’s conference in Paris
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3pm GMT: US factory orders for October
Key events
Sellafield nuclear site hacked by groups linked to Russia and China
The UK’s most hazardous nuclear site, Sellafield, has been hacked into by cyber groups closely linked to Russia and China, the Guardian can reveal.
My colleagues Anna Isaac and Alex Lawson report:
The astonishing disclosure and its potential effects have been consistently covered up by senior staff at the vast nuclear waste and decommissioning site, the investigation has found.
The Guardian has discovered that the authorities do not know exactly when the IT systems were first compromised. But sources said breaches were first detected as far back as 2015, when experts realised sleeper malware – software that can lurk and be used to spy or attack systems – had been embedded in Sellafield’s computer networks.
It is still not known if the malware has been eradicated. It may mean some of Sellafield’s most sensitive activities, such as moving radioactive waste, monitoring for leaks of dangerous material and checking for fires, have been compromised.
Sources suggest it is likely foreign hackers have accessed the highest echelons of confidential material at the site, which sprawls across 6 sq km (two sq miles) on the Cumbrian coast and is one of the most hazardous in the world.
Here’s the full story:
And here are more details of Sellafield, which is Europe’s most toxic nuclear site, on the Cumbrian coast:
Haldane: New chancellor should split Treasury
Back at the Resolution Foundation’s conference into its Economy 2030 Inquiry, former Bank of England chief economist Andy Haldane has called for the Treasury to be split in two.
In what looks to be advice the Labour party if it wins power in the next election, Haldane says the ‘new chancellor’ should divide the Treasury into two parts – one focused on financial mattter, and the other on the economy.
Haldane, who left the Bank in June 2021 warning that inflation was rising, says the economic wing should be sighted in Darlington, and led by “a top economist” (suggestions welcome…).
My colleague Richard Partington has the details:
Former BOE chief economist Andy Haldane – in what could be seen as a direct pitch to Labour – says “the new chancellor” should split the Treasury in two. Into a finance function and an economic function.
— Richard Partington (@RJPartington) December 4, 2023
The CEO of @theRSAorg compares such a step toGordon Brown giving away power in 1997 to the BOE. “The most powerful thing that a powerful person can do is to give away power”
“We need similar degrees of boldness and audacity now from the new chancellor, whoever she or he may be”
— Richard Partington (@RJPartington) December 4, 2023
Haldane says the economy department should be placed in Darlington. With a new minister.
A triumvirate of ministers – PM, finance and economy – should lead on economic strategy. Supported by a new US-style council of economic advisers led by a top economist
— Richard Partington (@RJPartington) December 4, 2023
Jeremy Hunt earlier today dismissed this policy suggestion. He said the problem was that ultimately power resides with the Treasury. “You don’t want the department responsible for growth to have to negotiate for its budget every year with the Treasury”
— Richard Partington (@RJPartington) December 4, 2023
Bitcoin at 20-month high over $42,000
Bitcoin has continued its climb today, and has traded over $42,000 for the first time since last April.
Victoria Scholar, head of investment at interactive investor, says the “crypto winter” seems to be thawing (just as the UK enters a chilly patch), with bitcoin up over 50% in the last six months.
However, bitcoin is still some way shy of its record high of almost $69,000, set in November 2021.
She explains:
A combination of growing expectations for SEC approval for a bitcoin ETF, a more dovish outlook for the Fed and the countdown to next year’s bitcoin halving have provided a tailwind to the most widely traded cryptocurrency.
Other cryptos are also staging gains like XRP, Litecoin, Bitcoin cash and Ethereum which is up almost 3% today and over 20% in the past month. The crypto winter is thawing with positive price action coming back into play since the lows around a year ago. However there’s still a long way to go to retest the pandemic fuelled highs from 2021.”
Lloyds Bank has said it has received the £1.2bn it was owed by the Barclay family today.
This means Lloyds will play no further role in determining the ownership of the Telegraph group.
Lloyds says:
We are always keen to work constructively with customers who get into difficulty with their repayments to reach an amicable solution. We’d like to thank all parties for their role in reaching this point.”
Lloyds received the money after the Barclays agreed a deal with Abu Dhabi-backed RedBird IMI, which have lent them funds in return for a deal where they could take control of the Telegraph and Spectator.
But the British government blocked the transfer of the assets to RedBird IMI on Friday, while it investigates whether any takeover would have an impact on freedom of expression under the new owner.
Lloyds had been conducting an auction for the Telegraph Group after seizing it in June, when the Barclays were unable to repay their debts to the bank.
ONS: One in four cannot cope with 25% drop in income
The ONS have also warned that lone parents with dependent children are among those more likely to be hurt by the cost-of-living squeeze.
Renters, disabled people, and households with a Black, African, Caribbean, or Black British head are also among those who are least financially resilient, the statistics body says.
It has found that 27% of households have reported that they did not have enough savings to cover a 25% fall in household employment income.
But the risk is not spread evenly, the ONS reports:
The households that were most likely to report this, and therefore the least financially resilient, were lone parents with dependent children (55%), renters (48%), households with a Black, African, Caribbean, or Black British head (53%), households where the head had a routine or semi-routine occupation (46%), and households where the head had a limiting disability or longstanding illness (34%).
Reuters are reporting that electronics manufacturer Foxconn has halted production of iPhones at its factory near Chennai in India, due to heavy rain.
Foxconn has “yet to decide” whether to resume production on Tuesday, they add.
FOXCONN HALTS PRODUCTION OF APPLE IPHONES AT FACILITY NEAR INDIA’S CHENNAI DUE TO HEAVY RAINS || FOXCONN YET TO DECIDE WHETHER TO RESUME IPHONE PRODUCTION ON TUESDAY – SOURCES
— RedboxGlobal (@RedboxWire) December 4, 2023
Cyclone Michaung has already caused some flooding in Chennai, according to newspaper The Hindu, causing trains to be cancelled and prompting a holiday to be declared for all courts in the city.
As well as lifting inflation for mortgage-holders (see earlier post), higher interest rates are likely to lead to more loan defaults.
Credit rating agency S&P Global has forecast a further rise in U.S. and European default rates next year, following the rapid increase in global interest rates.
It says the key risks for 2024 are an extended period of high real-interest-rate levels, deeper than expected recessions taking hold, or that property markets in major economies start to buckle significantly.
In a new report, they say:
“Defaults will likely rise further, to 5% in the U.S. and 3.75% in Europe, above their long-term historical trends.”
“We expect see additional credit deterioration in 2024, largely at lower end of ratings scale, where close to 40% of credits are at risk of downgrades”.
In better news for mortgage holders, the average rate on fixed-term loans has dropped again today.
Data provider Moneyfacts reports that:
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The average 2-year fixed residential mortgage rate today is 6.03%. This is down from an average rate of 6.04% on the previous working day.
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The average 5-year fixed residential mortgage rate today is 5.64%. This is down from an average rate of 5.65% on the previous working day.
Full story: Spotify cuts almost 1,600 jobs amid rising costs
Jasper Jolly
Spotify is cutting almost 1,600 jobs as the music streaming service blamed a slowing economy and higher borrowing costs in the latest round of redundancies at big tech companies.
Daniel Ek, Spotify’s billionaire founder and chief executive, revealed that the company had decided to cut 17% of its workforce, the third and steepest round of redundancies of 2023.
Ek told employees they would receive a calendar invitation “within the next two hours from HR for a one-on-one conversation” if they were affected by the cuts, in a message to staff published on Spotify’s website on Monday. More here.
Motoring body the RAC has criticised UK fuel retailers for failing to pass on the full benefits of cheaper petrol and diesel to drivers.
Its Fuel Watch shows that the average price of petrol fell by 7.5p a litre to November 146.95p. However, the RAC believes that this is still 10p more per litre than it should be, with the average retailer margin per litre of petrol now 17p – well above the long-term average of 7p.
Drivers are now paying an average of £80.62 to fill a typical 55-litre petrol family car – £5 more than they should be, says the RAC.
The price of diesel fell by 7p in November to 154.40p, but this is said to be an ‘overcharge’ of 5p per litre, and means filling a 55-litre car is around £2.50 more expensive than it should be at £84.92.
UK mortgage borrowers, and those with children, face higher inflation
UK homeowners with a mortgage have been hit by a higher rate of personal inflation than renters, new statistics show, as rising interest rates pushed up repayment costs.
The Office for National Statistics has reported that the average owner occupiers still paying for their house experienced an annual inflation rate of 9.3% in September.
That is 2.1 percentage points higher than the rate experienced by private renters and was primarily because of mortgage interest payments, the ONS says.
It’s latest household cost index, which measures of how changing costs affect different subsets of the UK population, has also found that those of working age experienced a higher inflation rate (8.3%) than retired households (whose costs rose by 7.8% over the last year).
Households with children experienced a higher annual inflation rate of 8.4% in September 2023, compared with 8.1% for households without children.
Overall, UK household costs, as measured by the Household Costs Index (HCI), rose 8.2% in the 12 months to September 2023, the ONS says.
And it claims there was “little difference in annual inflation rates for high- and low-income households”, which were 8.3% and 8.2%, respectively in September 2023.
[However, poorer households may not have any spare resources to cover this increase]
The HCI’s are weighted to reflect spending habits. Poorer households spend a greater share on essentials like food and energy, while wealthier ones spend more on mortgages, which grew more expensive as UK interest rates hit 15-year highs.
Our first quarterly Household Costs Indices (HCIs), UK: January 2022 to September 2023 article gives an insight into inflation as experienced by different types of households and most closely reflects their lived experience.
➡️ https://t.co/oE1TlXIFDo pic.twitter.com/u3XzrVIWQw
— Office for National Statistics (ONS) (@ONS) December 4, 2023
Jeremy Hunt, chancellor of the exchequer, then takes the stage at Resolution Foundation’s event on the need for a new economic strategy for Britain.
And he gets a reminder of political mortality, with Zanny Minton Beddoes, editor-in-chief of The Economist, introducing Hunt as “at least for the moment” the man in charge of sorting out the UK economy.
Hunt presses for a clarification, can’t we say “subject to the next election”?
“Subject to the next election, blah blah blah”, Minton Beddoes concedes.
But then she asks Hunt for his view of why the UK is in such a mess – how much blame should the government take?
Hunt replies that it’s wrong to take the view that the UK has been an outlier.
We were been hit by the worst financial crisis since the second world war, he points out, adding that since 2010 the UK has grown faster than Spain, Portugal, France, Italy, the Netherlands, Austria, Germany and Japan.
Hunt says:
It’s absolutely right to say ‘why have we all fallen into this low-growth paradigm and what can we do to get out of it?’
But I don’t think this is something we are uniquely in a bad situation with respect to.
This is affecting all westen nations, and you have to have a plan to get out of it.
Q: We have been doing significantly worse, though, if you look at living standards over the last 15 years. Is there anything, with hindsight, you’d have done differently?
Hunt prefers to talk about what he’s doing now. He says productivity is the key to raising living standards, and points to his decision in the autumn statement to make ‘full expensing’ permanent (allowing businesses to offset investment against their tax bills).
That will help lift business investment by £20bn a year, Hunt says, closing half of the gap between the UK and France, Germany and the US.
The chancellor then claims that the UK has the most untapped potential to become the most prosperous 21st century economy.
Why? Partly because the UK’s introspection, and also because the UK’s potential in technology and innovation.
Q: But what’s your growth strategy?
Hunt says he wants to improve productivity, by increasing business investment
Secondly, you need a very clear view as to where the UK’s competitive advantage lies. Outside the US, it has the best higher education sector, and the best financial sector, he says.
He says it needs to focus on innovation, to create a world-beating technology sector and a new Silicon Valley.
Our Politics Live blog has more coverage, here:
Here are some more highlights from Resolution Foundation’s report into the UK economy.
It shows that the UK is the second-biggest services exporter in the UK, after the US, but ahead of Germany and France:
But here’s the damage caused by over a decade of relative economic decline:
Productivity growth has been half the rate seen across other advanced economies. Wages have flatlined as a result, costing the average worker £10,700 a year in lost pay growth. pic.twitter.com/E0SKOjqvHo
— Resolution Foundation (@resfoundation) December 4, 2023
Productivity growth has been half the rate seen across other advanced economies. Wages have flatlined as a result, costing the average worker £10,700 a year in lost pay growth. pic.twitter.com/E0SKOjqvHo
— Resolution Foundation (@resfoundation) December 4, 2023
Back in the crypto market, Bitcoin is still trading at an 18-month high.
Bitcoin is up over 7%, and has traded as high as $41,800, the highest since April 2022.
Rania Gule, market analyst at broker XS.com, say the prospect of bitcoin exchange-traded fund winning approval (as has been oft-rumoured) is one factor:
The cryptocurrency market is now eagerly anticipating the impact of both Fear of Missing Out (FOMO) and Fear, Uncertainty, and Doubt (FUD) regarding the expected approval dates for the Exchange-Traded Fund (ETF).
I believe developments in the Bitcoin ETF will influence the current upward trend, pushing it towards $50,000. This is especially true with signs of slowing inflation, and investors gaining confidence that the Federal Reserve has concluded its series of interest rate hikes. Attention has shifted to expectations of potential interest rate cuts next year, supporting the current rise in global markets.
Resolution Foundation’s Torsten Bell then shows the impact of the UK’s wage stagnation since the financial crisis of 2008.
He shows a graph showing that French middle-income households are now 9% richer than middle- income British households. German households are 20% richer.
Most people think of those countries as ones we’re similar too, but we are not any more.
Low growth + high inequality = a toxic combination for low-and-middle income Britain, says @TorstenBell. Low-income families in the UK are 27% poorer than their French and German counterparts (we’ve included Italy in this chart to make us feel a little better, Torsten adds…) pic.twitter.com/NPwb1jRkQP
— Resolution Foundation (@resfoundation) December 4, 2023
The squeeze is worse for low-income households, Bell says.
The typical poor French and German household is 27% richer than its UK counterpart, or about £4,500 per year.
That’s why many families struggled to cope with the cost of living crisis, as they didn’t have any spare money to cover the jump in prices of essential goods.
Resolution Foundation conference on UK economy underway
An all-day conference on ending Britain’s economic stagnation, organised by the Resolution Foundation, is starting now in Londons QE II centre.
It’s the culmination of three year’s work into the UK’s slow growth and high inequality, which is “proving toxic for low- and middle-income Britain”, they warn (costing British workers over £10,000 a year).
Resolution’s chief executive, Torsten Bell, begins by telling the audience one of the key lessons he learned when he was special adviser to Alistair Darling, the former chancellor who sadly died last week.
Bell says Darling taught him that “economic policy isn’t some abstract game”.
It’s not about your fancy charts…. it’s not about your theories. It’s about the bread and butter of people’s lives.
In 2008, in the financial crisis, Darling’s first thought was always about ordinary people who wouldn’t be able to into the shops and do their weekly shopping if their bank failed, says Bell.
He adds that he can see several people at today’s conference who were “thrown out of meetings” with chancellor Darling for “abstract discussion of fiscal rules”, because he wanted it to stop.
Out today: the Final Report of The Economy 2030 Inquiry, our hugely ambitious three-year project with @CEP_LSE, funded by @NuffieldFound – which we’re launching with an all-day conference! Attendees are grabbing copies of the report and getting ready for our great line up of… pic.twitter.com/7pDv7SnRZc
— Resolution Foundation (@resfoundation) December 4, 2023
Miles Brignall
Average house prices in the UK will fall by 1% next year as competition increases among sellers, Britain’s biggest property website has forecast.
Sellers were likely to have to price more competitively to secure a buyer in 2024, while mortgage rates would settle down though “remain elevated”, said Rightmove.
A year ago, Rightmove predicted that average asking prices would fall by 2% in 2023. On Monday, the company said the average was 1.3% lower than in 2022 as the property market continued to contend with significantly higher mortgage costs and a cost of living crisis that refused to go away.
The website records asking prices rather than the actual one properties are sold for. It said it was predicting that these would typically be 1% lower nationally by the end of 2024.
The market was continuing its transition to “more normal levels” of activity after the busy post-pandemic period, it added. More here.
