Time for a recap….

Volkswagen has been forced to pay customers £21.5m in compensation on top of a fine of £5.4m for failing to treat struggling customers fairly, including repossessing vehicles from people who had attempted suicide or were caring for sick relatives.

The UK financial regulator, the Financial Conduct Authority (FCA), said 110,000 customers had suffered detriment because of the unfair actions of Volkswagen Financial Services (VWFS), which is wholly owned by the German carmaker.

Goldman Sachs has predicted that UK interest rates are on course to fall to 2.75% by next Autumn as the Bank of England reduces the cost of borrowing at each of its nine next meetings.

Economists at Goldman Sachs said their assessment of the long-term level of interest rates consistent with achieving the Government’s 2% inflation target meant the markets were under-estimating the likely extent of the action by Threadneedle Street’s nine-strong monetary policy committee.

In a research note, Goldman said:

“Our findings suggest that Bank Rate remains notably restrictive and – together with rapidly falling inflation and dovish MPC commentary – reinforces our view that the Bank of England will ultimately lower rates more than priced.”

China’s banks have lowered their key lending rates, as Beijing tries to stimulate its economy and hit its growth targets.

Gold has hit a new alltime high, of $2,740 per ounce, lifted by geopolitical fears and the possibility that Donald Trump wins the presidential election.

The number of UK homes being sold is up almost a third, year on year, so far this month, although the traditional autumn price bump has failed to emerge due to buyers being spoilt for choice, Rightmove has reported.

The owner of TikTok has sacked an intern for allegedly sabotaging an internal artificial intelligence project.

Transport for London (TfL) could be forced to pay back millions of pounds in low emission zone fines issued to Dutch lorry drivers after agreeing they had been issued unlawfully.

Goldman Sachs have cut their forecast for UK interest rates, and now predict that Bank rate will have fallen to 2.75% by next November.

The forecast comes in a new research note in which Goldman tries to estimate r* – the neutral real rate of interest which is expansionary nor contractionary while the economy is at full employment with inflation at target.

Goldman’s analysis has concluded that r* has trended down strongly in recent decades and has risen moderately since the Covid-19 pandemic. Their estimates suggest r* is around 0.75%, which implies a nominal neutral rate of around 2.75% with inflation at the 2% target.

Goldman’s economists suggest rates will fall to 2.75% by November 2025, down from 5% today.

Goldman says:

Our findings suggest that Bank Rate remains notably restrictive and—together with rapidly falling inflation and dovish MPC commentary—reinforces our view that the BoE will ultimately lower rates more than priced.

We remain comfortable with our forecast for consecutive 25bp cuts and lower our terminal Bank Rate forecast to 2.75% in November 2025 (from 3% in September 2025), notably below current market pricing.

The money markets are today indicating there’s a 98% chance that the Bank cuts rates at its next meeting in November, from 5% to 4.75%.

By next November, the markets suggests rates could be 3.75% or lower – ahead of Goldman’s new forecast.

UK consumer confidence has improved this month, as falling inflation helps households, in an encouraging sign ahead of next week’s budget.

S&P Global’s Consumer Sentiment Index (CSI) has risen this month, closer to July’s 37-month high

The CSI hit 47.3 in October, up from 46.0 in September. That’s the second-highest reading in over three years, exceeded only by July’s post-general election bounce.

Maryam Baluch, economist at S&P Global Market Intelligence, says:

“Consumer confidence is showing signs of reviving again after being hit by gloomy talk surrounding the Budget, which pulled sentiment off the recent post-election high seen in July.

Confidence is being supported first and foremost by the strong labour market, with the survey showing both job security and income from employment improving at some of the fastest rates seen since data were first collected in 2009. An easing of inflation worries, combined with expectations of a further lowering of interest rates, has also helped allay worries over the cost of living.

Households remain cautious in their spending, and report a further fall in savings to underscore how – despite both now heading lower – inflation and interest rates continue to squeeze household finances. However, attitudes towards making major purchases, such as cars or large domestic appliances, which is a good indicator of overall consumer spending, is running at one of the highest levels seen over the past three years, in a further sign of better things to come.”

German carmaker Volkswagen’s financial services arm has been fined by UK competition regulators for mistreating customers in financial difficulties.

The Financial Conduct Authority (FCA) has fined Volkswagen Financial Services (UK) Limited £5,397,600 for failing to treat its over 100,000 customers in financial difficulty fairly.

VWFS has agreed to pay over £21.5m in redress to around 110,000 customers who may have suffered harm because of its failings.

VWFS is one of the UK’s largest motor finance providers, and provides a range of products to help customers buy several well-known motor brands, including Volkswagen, Skoda and Porsche.

The FCA has found that it failed to treat customers in financial difficulty fairly and communicate information to them in a clear and fair way, if they fell behind on their repayments.

The FCA says:

This included in some instances (a) exacerbating stress and anxiety for customers who were already struggling with their mental well-being; (b) failing to understand individual customer circumstances resulting in cars being taken away from customers, some of whom used their cars for work; (c) further distress and upset caused to vulnerable customers who may have felt unsupported and unheard; and (d) forgoing other priority payments due to demands to pay arrears on car finance.

The FCA’s ruling cites one customer who fell into arrears, and explained their complex and worsening physical and mental health difficulties to VWFS. They received no empathy, but were “sarcastically” reminded how many days are in a month by VWFS’s agents, the FCS says.

In a second case, a customer took out car finance but later could not afford the repayments. They were told it would cost them £20,000 to give the car back.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, says:

“For many, a car is not a nice to have but a necessity for work or for family life.

Volkswagen Finance made tough personal situations worse by failing to consider what those in difficulty might need. It is right it compensates those who suffered. This fine and redress should send clear signals to lenders that they need to properly support those in financial difficulty.”

Gold is continuing to rally, and has hit a new alltime high early this morning.

The spot price of gold is up 0.4%, or around $10 per ounce, to $2,732.73 per ounce, meaning it has now risen by over 32% during 2024.

Analysts say the conflict in the Middle East, and uncertainty over the US presidential election, are pushing investors into safe haven assets such as gold.

Expectations of further interest rate cuts from major central banks are also supporting the price of gold (which doesn’t pay a yield to investors).

Ricardo Evangelista, senior analyst at ActivTrades, explains that several factors are pushing up the gold price, including the possibility that Donald Trump wins next month’s presidential election:

“Geopolitical instability, sluggish economic growth in key regions, a shift in central bank policies towards lower interest rates, and most recently, uncertainty surrounding the U.S. presidential election have all contributed.”

“Rumours that Donald Trump may be on the verge of winning the election have further fuelled demand for gold, driving it to historical highs. Faced with the possibility of a second term for the Republican candidate, markets are turning to gold, the ultimate safe-haven asset.”

The head of oil giant Saudi Aramco has declared that his company is fairly bullish on China and oil demand, especially following Beijing’s stimulus package.

Speaking on the sidelines of the Singapore International Energy Week conference, Aramco CEO Amin Nasser said:

“We see more demand for jet fuel and naphtha especially for crude-to-chemical projects.”

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

Banks in China have cut borrowing costs in the latest attempt to stimuluate growth across the Chinese economy.

The People’s Bank of China (PBoC) has announced today that its two benchmark lending rates are being cut, by a quarter of one percent.

China’s one-year loan prime rate – a reference for loans to businesses and consumers – has fallen to 3.1% from 3.35%.

The five-year LPR – the benchmark for mortgages – has been cut from 3.85% to 3.6%.

The LPR rates are set by a group of China’s major banks, and today’s reductions show they are passing on last month’s interest rate cut from the PBOC.

Becky Liu, head of China macro strategy at Standard Chartered says:

“The larger cuts confirm the PBOC’s stance of easing monetary policy more quickly, and echo the Politburo’s statement of cutting rates more forcefully.”

Some stocks rallied after the cuts were announced, with the Shenzhen SE Composite index gaining around 1.4% today.

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

Sure, the rate cut wasn’t a shocker, but the market is banking on the idea that the combined impact of all these recent measures could at least stem the economic bleeding.

However, the reality seems to be that the Chinese Communist Party is desperately trying to harness the wealth effect from local equities to keep morale high. It’s a classic case of “hope floats” until the actual economic recovery kicks in—whenever that might be. Just look at Friday when Xi Jinping sent PBoC Governor Pan Gongsheng to pump some life into the markets with a pep talk, and guess what? It worked.

Mainland and Hong Kong-listed stocks surged, the kind of response Beijing was banking on.

It’s the latest in a flurry of attempt to stimulate the world’s second-largest economy, after growth slowed to an 18-month low last week. Last month, China announced wide-ranging measures including interest rate cuts and more liquidity for the banking system.

Beijing is attempting a difficult balancing act – trying to revive growth while also implementing structural reforms, and managing financial stability risk.

China’s property sector remains in a slump, with sales down sharply this year despite efforts to boost sentiment.

And while cutting lending rates may provide some help, it will be difficult unless Chinese consumers feel confident enough to borrow – at a time where consumer confidence is near an all-time low….

The agenda

• 7am BST: German producer prices inflation report for September

• 3pm BST: The Conference Board’s leading economic index for the US