Time to wrap up.

UK factories are struggling with the worst supply chain crunch since the 1970s, as fears over shortage of raw materials, parts and staff continue to soar.

Consumers have been hit in the pocket too, with Unilever hiking prices on its stable of food, personal care and cleaning products by 4% in the last quarter.

More increase are coming, as the marmite, PG Tips and Dove producer plans to keep passing on its rising costs.

UK government borrowing has undershot forecasts so far this year, giving chancellor Rishi Sunak more ammunition ahead of next week’s budget.

But economists suspect the chancellor will keep spending tight, in the hope of building up a fiscal warchest ready for the next election.

Shares in the struggling property giant China Evergrande tumbled after plans to offload a stake in one of its units for $2.6bn collapsed.

The failure increases the pressure on the group that has just days to avoid an official default on its debt.

Worries about Evergrande weighed on the London stock market, with mining shares sliding as investors worried about the knock-on impact on China’s economy.

Over in New York, WeWork has finally gone public, after its 2019 IPO collapsed.

US jobless claims have dipped to a new pandemic low...

...but eurozone consumer confidence has taken a knock this month.

Bitcoin has dipped back from yesterday’s record highs, but is still outperforming gold as a protection against inflation this year.

Hospitality bosses have warned that pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, which have hit a three-month daily high over 50,000 this afternoon.

The Turkish lira has slumped to a record low after a shock 200-basis point rate cut, following pressure from president Recep Tayyip Erdoğan.

Turkey’s inflation rate is already near 20%, and the weak lira will push up import costs.

Adeline Van Houtte, European analyst at The Economist Intelligence Unit, explains:

The weakness of the lira will exacerbate upward pressures on the prices of imported and internationally traded goods and services.

Combined with higher global commodity prices, including energy raw materials prices, and ever-rising inflationary expectations, this may keep the annual rate of inflation at around current levels over the next few months, notwithstanding a favourable base effect in the closing months of 2021.”

Barclays has brushed off concerns over rising inflation and the supply chain crisis, after almost doubling profits in the last quarter.

Households have been warned that Britain’s gas crisis will keep driving energy bills higher until 2023, and could leave only five or six of the strongest suppliers standing.

FirstGroup has announced the sale of its Greyhound bus service in the US to become fully focused on UK transport, as its Lumo train service operated its inaugural journey from London to Scotland.

And a consultation launched on regulating UK’s buy now, pay later credit industry:

Goodnight. GW

In the City, the FTSE 100 index has closed down 33 points or 0.45% at 7190 points.

That’s its lowest close since last Wednesday, as the blue-chip index slips back from last Friday’s 20-month highs.

Mining shares led the fallers, with Rio Tinto down 4.8% and BHP Group off 3.7%, reflecting concerns over China’s economy.

Housebuilders, a measure of UK economic confidence, also lost ground with Barratt down 3% and Taylor Wimpey dipping by 1.9%.

Danni Hewson, AJ Bell financial analyst, sums up the day:

“Mining stocks have been unable to shake investor concerns sparked by yet another twist in the Evergrande saga and their trajectory helped kept London’s blue-chip index firmly in the doldrums today.

This week’s slate of earnings reports from both sides of the Atlantic have added their own side of discomfort with company after company warning that supply issues and price hikes aren’t going to be a flash in the pan and are going to impact earnings going forward.

For businesses like consumer goods giant Unilever those prices can and are being passed on to the consumer, to a point. Its share price enjoyed a mild bump today after decent trading results and basking in the vicarious glow, Reckitt Benckiser was one of the FTSE 100’s biggest winners today.

European markets also closed lower, with Germany’s DAX and France’s CAC losing around 0.3%.

Eurozone consumer confidence has fallen this month, as the strong recovery earlier this year falters.

The latest gauge of consumer morale in the euro area dropped to -4.8 from -4.0 in September, the European Commission reports.

In the European Union as a whole, consumer sentiment fell by 0.9 points to -6.1.

It suggests people are less optimistic about the economic outlook, as supply chain problems persist and surging energy costs push inflation to a 13-year high.

Consumer confidence surged as vaccine rollouts allowed economies to unlock, unemployment dropped, and people returned to shops, hospitality venues and leisure activities again.

It hit a three-year high this summer, but has since eased back.

Bert Colijn, senior eurozone economist at ING, says consumer confidence still looks fairly strong:

Higher savings have on average created a buffer among households and unemployment continues to decline at a decent pace.

Already increasing inflation and higher gas bills on the way do cause some discomfort, but not yet enough to derail consumer confidence too much on average.

Mind you, we do expect some crowding-out effect of other types of consumption, especially for the lower-income households, but recovery effects are likely to be strong enough to not let this derail the recovery

US initial jobless claims have dipped to a new pandemic low.

Just 290,000 Americans filed new claims for unemployment insurance last week, a 6,000 fall on the previous week.

That’s the lowest level for initial claims since March 14, 2020, just before pandemic lockdowns drove jobless claims to record highs.

Stripping out seasonal adjustments, and jobless claims dropped by over 24,000 to 256,403 last week.

That’s closer to the pre-pandemic levels, when initial claims were in the low 200,000s.

It shows that US firms are still holding onto workers, with vacancies near record levels, despite the ongoing supply chain disruption, Delta outbreaks, and signs that consumer confidence has weakened.

The number of Americans receiving unemployment support for at least two weeks also dipped:

Back in the markets, the Turkish lira has hit a record low after Turkey’s central bank slashed interest rates more aggressively than expected.

The Central Bank of the Republic of Turkey (CBRT) startled investors by lowering headline borrowing costs to 16% today, from 18%, twice as big a cut as expected.

President Tayyip Erdoğan had been demanding further stimulus measures, despite Turkey’s inflation rate running at almost 20%.

Erdoğan dismissed two CBRT deputy governors last week, including Ugur Namik Kucuk who had opposed an earlier shock rate cut. In March he sacked the bank’s governor, Naci Ağbal, after it raised rates against his wishes (the third governor he has ousted).

The lira has sunk to around 9.5 to the US dollar, a record low - which will push up the cost of imports further, fueling inflation.

Erdoğan has argued that higher interest rates cause inflation, because companies pass on their increased borrowing costs onto consumers through higher prices.

Orthodox economics, though, says higher interest rates deter borrowing and encourage saving, leading consumers to spend less, and lowering inflation.

Pubs, bars, restaurants and hotels would be driven under if the government imposes “plan B” restrictions to curb the rise in Covid-19 cases, the head of the hospitality trade body has warned, amid concern that the industry cannot survive a second lost Christmas.

Kate Nicholls, the chief executive of UK Hospitality, which represents 730 companies operating 85,000 venues, warned businesses would be driven under by a tightening of restrictions over the key Christmas period.

“For the hospitality sector as a whole, the period between Halloween and New Year’s Eve is when you would earn 40% of your profits,” she said.

“We lost Christmas in its entirely last year, so it’s desperately important for survivability, getting you through the bleak months of January and February when people don’t come out as much.

“A lot of businesses are still fragile. Any knock at this point in time could have an impact on viability. People will just go to the wall. This idea you could shut down or have a restriction for a small period to save Christmas needs knocking on the head. There’s a danger you don’t save Christmas, you cancel it.”

Here’s the full story:

Concerns about shortages of raw materials, parts and workers in the UK have escalated, according to the latest industrial trends survey from the CBI.

Almost two-thirds of manufacturers said that a lack of material and components was likely to hit their output over the next quarter, the highest reading since January 1975.

Concerns about worker shortages also jumped. Two-in-five firms are worried about a lack of skilled labour, the highest reading since July 1974. Nearly a third are concerned about availability of other labour, a record reading.

Manufacturers also reported that costs growth continued to rise sharply over the last quarter, similar to July, which saw the fastest growth since 1980.

This led them to lift their own prices (as we’ve seen with Unilever today). Average domestic prices surged at the fastest rate since April 1980, with exports prices up at the most rapid pace since April 2011.

Looking ahead to the next three months, costs growth is set to speed up further, with both domestic and export price inflation expected to accelerate, the CBI warns.

The supply chain crisis appears to be weighing on business optimism, which was broadly unchanged in the quarter to October, after rising in the previous two quarters.

Anna Leach, CBI Deputy Chief Economist, said:

“From higher material costs to labour shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand.

Manufacturers are using key levers, such as hiring new workers and planning further investment in plant & machinery and training, to expand production. But with both orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.

Here are full details of the report:

Unilever’s price hikes will have hit a lot of consumers, points out Neil Wilson of Markets.com:

Unilever products are just about everywhere in just everyone’s homes. So, when they raise prices it usually affects a lot of people.

Unilever raised prices by an average 4.1% in the third quarter across all its brands, helping it to achieve underlying sales growth of 2.5% despite sales volume declining 1.5%. Turnover rose 4%. The company said it is taking action to “offset rising commodity and other input costs”.

The company’s prediction that inflation will keep rising should worry central bankers too, says AJ Bell financial analyst Danni Hewson.

Unilever reckons inflation is here to stay. That’s bad news not just for investors in the consumer goods giant but also for central bankers.

“The like of the Federal Reserve will have been hoping inflationary pressures would ease sooner rather than later as they walk the tightrope of keeping prices from overheating while not choking off the recovery by raising interest rates too far and too fast.

“However, given the breadth of costs Unilever is exposed to and the fact that dealing with input costs is bread and butter for a consumer goods company, a warning that inflation will be higher in 2022 carries weight.

It could also push cash-conscious consumers towards cheaper rivals, Hewson adds.

“For now Unilever hopes price increases, running at the highest rate in years, will keep margins flat year on year but the company faces its own balancing act of not increasing prices so much that its products are no longer competitive.

It is a real test of the strength of the company’s brands

Freetrade’s Senior Analyst Dan Lane says Unilever faces a ‘very tricky path’, despite success in some areas.

Unilever’s ability to pivot towards its ecommerce channels is paying off.

Moving even further into Beauty has also clearly been a shrewd move - the likes of Dove and Vaseline are more than holding up their end of the bargain in the skincare division.

The reality is Covid is going to leave a very tricky path ahead for Unilever though. The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.

For investors, there’s maybe the feeling the post-crisis quality growth story is in danger too.

If the world swings towards value stocks and investors dust off their attitude to fixed income the popular bond-proxies like Unilever could really suffer.

Consumer goods giant Unilever has lifted its prices, and warned that further inflation is ahead as it battles an “unprecedented” rise in costs.

Unilever makes food ranges including Carte d’Or and Magnum ice cream, tea brand PG Tips, Hellmann’s mayonnaise and Marmite, personal care products including Dove soap, and cleaning products such as Cif, Persil and Domestos.

Unilever lifted its prices by 4.1% in the last three months, as it passed on the impact of rising commodity and other input costs to consumers.

And it warned today that it doesn’t see these pressures easing.

Finance chief Graeme Pitkethly said:

“We expect inflation could be higher next year than this year.

These price hikes saw Unilever’s underlying sales grow by 2.5%, more than offsetting a 1.5% drop in sales volumes.

Commodity costs and wholesale food prices have been soaring this year, driven by rising demand, higher energy costs, and ongoing supply chain disruption from the pandemic.

The UN’s Food Price Index shows that global food commodity prices are up almost a third over the last year, with driven by cereals, vegetable oils, dairy and sugar prices.

Unilever’s CEO, Alan Jope, said the company will continue to raise prices in response to rising costs:

Cost inflation remains at strongly elevated levels, and this will continue into next year.

We have and will continue to respond across our categories and markets, taking appropriate pricing action and implementing a range of productivity measures to offset increased costs.

Shares in Unilever have jumped 2.7%, to the top of the FTSE 100 leaderboard.

European stock markets opened lower, with worries about China’s Evergrande’s dampening the mood.

The UK’s FTSE 100 is down around 0.3%, or 23 points lower at 7200.

Leading the fallers are mining stocks such as Rio Tinto (-3.6%), Anglo American (-3.2%) and BHP Group (-2.5%), which are all exposed to China’s economy.

Evergrand’s failure to sell a majority stake in its property services division is worrying the markets, says Victoria Scholar, Head of Investment at interactive investor:

Overnight in Asia, Evergrande slumped more than 13% sparking risk-off sentiment across the major indices, as the embattled Chinese property giant came back onto the market after a trading halt that lasted more than a fortnight.

Having already missed a couple of bond coupon payments, default risk remains with fears around what a collapse of the systemically entrenched business would mean for China’s financial system and its wider economy.

Recent reports of power shortages in China are another concern, she adds

Shares in Anglo American are under pressure, trading lower by more than 2% after reporting guidance towards the bottom end of the expected range for diamonds, iron ore and copper. Investors shrugged off higher production for the third quarter, focusing on the weaker outlook instead.

The stock has come under selling pressure in recent months, shedding 20% since the August peak on the back of declining iron ore and copper prices, on the back of some demand shocks from China from its steel production curbs, Evergrande’s default risk and now power shortages,”

UK government borrowing has fallen much more quickly than almost everyone expected, says Paul Dales, chief UK economist at Capital Economics,.

That means the fiscal outlook has improved ahead of next week’s budget.

But, the chancellor could still keep a very tight grip on the public finances, to try and bring down borrowing even quicker and build a fiscal war chest ahead of the next election.

Dales explains:

Public sector net borrowing of £21.8bn in September (consensus £22.6bn) was once again better than the £25.9bn the OBR forecast back in March. That means borrowing is now a whopping £43.5bn lower in the 2021/22 financial year so far than the Chancellor had expected. But we suspect Sunak will set himself some tight fiscal rules that mean there will be no major fiscal giveaway in next Wednesday’s Budget.

The rebound in the economy meant that tax receipts were £62.3bn in September, which was higher than the £56.1bn in August last year and the £58.5bn the OBR forecast for September this year. The £74.1bn of government spending was a bit higher than the £73.6bn recorded last September. That was partly due to the recent rises in RPI inflation, which raised the government’s payments on its stock of index-linked gilts, meaning that £4.8bn was devoted to debt interest payments in September.

But total spending was still much lower than the £84.9bn the OBR had forecast for this September. The government spent just £1.3bn on the furlough and self-employment income schemes as they closed. In total since there were created, £96.8bn has been spent on those two schemes.

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

British public borrowing has almost halved so far this financial year as the economy continues to recover from the pandemic, in a final healthcheck ahead of next week’s budget.

Government borrowing fell to £21.8bn in September, a drop of around £7bn compared with September 2020, and less than economists forecast.

That’s the second-highest September borrowing since monthly records began in 1993, reflecting the cost of the pandemic.

It means the UK has borrowed £108.1bn since April -- around £101bn less than in the first half of the last financial year, when the pandemic drove borrowing to record levels.

That’s also sharply lower than the £151.1bn which the Office for Budget Responsibility had expected to have been borrowed so far this year.

Borrowing so far this financial year has consistently undershot the forecasts from the OBR, which could give chancellor Rishi Sunak some flexibility on tax and spending.

In September, central government receipts rose to around £62.3bn, an increase of £6.2bn than a year ago -- as tax revenues were lifted by the recovery.

Spending by Central Government bodies dipped a little, down £1.3bn to £84.1bn.

Martin Beck, senior economic advisor to the EY ITEM Club, says the public finances have improved faster than expected:

“Stronger-than-expected tax receipts continued to account for the bulk of the borrowing undershoot, though spending has also fallen back more quickly than anticipated.

In both cases this reflects a much stronger recovery in activity than the OBR’s cautious forecast. These improvements are set to be sustained, and the EY ITEM Club expects full year borrowing to come in at just over £200bn, well below the OBR’s forecast of £234bn.

Overall, the UK’s national debt is now £2,218.9bn. That’s around 95.5% of gross domestic product (GDP), the highest ratio since the 98.3% recorded in March 1963.

Also coming up today

The crisis at Evergrande is looming over the markets again today. Stock markets are edgy after the Chinese property giant’s effort to sell a stake in its property services unit collapsed, putting more pressure on the company as it tries to avoid default.

Shares in China Evergrande Group, the parent company for the sprawling empire built by former steel industry executive Xu Jiayin, are down almost 12% in afternoon trading in Hong Kong as trading resumes after a two-week suspension.

Evergrande Property Services, one of its most profitable units, was off by 6.45%.

My colleague Martin Farrer explains:

Evergrande announced on Wednesday that it had formally abandoned plans to sell a 50.1% slice of Evergrande Property Services, and said there was “no guarantee” it could meet its financial obligations in order to stay afloat.

The company, which is China’s second-biggest property developer with thousands of projects, has debts of $305bn.

But it is running out of cash thanks to a government crackdown on lending, and a slump in property sales and prices, sending shockwaves through the Chinese economy and global financial markets.

Kyle Rodda of IG says:

Sentiment has turned slightly in Asian markets today, despite Wall Street’s positive lead, as market participants continue to focus on earnings beats over inflation pressures, slowing growth and policy risks.

News on the Evergrande front hasn’t helped risk appetite to be sure, with the company’s shares falling today upon return from a trading halt, with news a takeover deal for it property arm has fallen through adding to fears of a technical default as soon as tomorrow.

European markets are expected to open lower.

The agenda

• 7am BST: Public sector net borrowing for September
• 11am BST: CBI industrial trends survey for October
• 1.30pm BST: UK weekly jobless claims
• 3pm BST: Eurozone consumer confidence for October