Time for a recap.

UK benchmark borrowing costs have hit a three-month high today, as City traders brace for a possible increase in borrowing in this month’s budget.

Chancellor Rachel Reeves is also considering raising capital gains tax as high as 39%, in a scramble to raise funds for crumbling public services.

Analysts have calculated that tax rises worth £25bn woud be needed to avoid further austerity.

Inflation across the US has weakened to 2.4%, its slowest pace in more than three years.

UK surveyors have reported that national house prices are rising again, helped by hopes of lower interest rates.

Renters, though, are facing higher tenancy costs as some landlords sell up.

UK lenders have reported that the default rates on secured loans to households increased in the third quarter of this year, and are expected to increase again in the final quarter

Shares in pharmaceuticals group GSK have rallied after it agreed to settle US litigation over its heartburn treatment Zantac.

TSB bank has been fined £11m for mistreating customers.

Rachel Reeves is considering raising capital gains tax as high as 39% in the budget, the Guardian can reveal, amid a scramble to raise funds for crumbling public services.

Treasury modelling being reviewed by the chancellor and seen by this newspaper shows officials are testing a range of 33% to 39% for capital gains tax (CGT). The wealth tax is paid by about 350,000 people and is levied on the sale of assets including second homes and shares but at significantly lower rates than wages.

Whitehall sources say there is growing concern about the limited options for tax rises to fill a hole the Institute for Fiscal Studies (IFS) thinktank says is as big as £25bn, ahead of the budget on 30 October.

“Some very big tax decisions are being left until very late in the day,” one senior source claimed. Another said the Treasury’s tax-raising plans were in “complete disarray”.

Here’s the full story by my colleague Anna Isaac:

Here’s some snap reaction from financial experts to today’s US inflation report.

Neil Birrell, chief investment officer at Premier Miton Investors,says:

“It’s hard to know if it’s US jobs data or CPI that is more important overall, but today it’s undoubtedly the CPI as it came in a little higher than expected, particularly core inflation. However, this shouldn’t be enough to worry markets or indeed the Fed.

Although there’s more data to be released before the next Fed meeting, this will probably firm up views that a 0.25% cut is appropriate. As we know, one rogue number can get people worried or excited in equal measure, but there’s nothing to do that today.”

Here’s Mahmoud Alkudsi, senior market analyst at ADSS:

“Inflation appears to still be cooling off from the elevated levels seen earlier in the year, with September’s year-on-year CPI coming slightly above the forecasted 2.3%. This has continued to the disinflationary pattern we have seen in the last several months, although not at the pace the markets had predicted. This pattern comes contrary to the unexpectedly strong job market data reported earlier in the month. These developments may give the Federal Reserve conflicting views when considering the pace of its interest rate cuts.

Slowing inflation has fueled expectations of a monetary policy pivot from the data-driven Federal Reserve. It appears that interest rate cuts could potentially fulfill the inflationary element of the Fed’s dual mandate, whilst possibly risking the overstimulation of the jobs market.

Patrick O’Donnell, senior investment strategist at Omnis Investment, suggests the report could weigh on markets today:

“A higher print than consensus forecasts on headline inflation today. Hot on the heels of the employment report last week, this will further pressure bond yields higher in the short-term. The read-through for equity markets is also negative at the margin.

Core CPI is still relatively elevated right now but we expect rental prices to continue to drag this measure down into 2025. For setting policy, the FOMC will remain more focused on growth data and the labour market, and we expect significant revisions to the report last week. Geopolitical developments and earnings season are going to be the key market drivers right now.”

The number of Americans filing for for unemployment benefits last week has jumped to their highest level in a year.

The Labor Department has reported that applications for jobless claims jumped by 33,000 to 258,000 last week.

That’s the most since early August 2023 and well above the 229,000 analysts were expecting.

Rising jobless claims could be a sign of softness in the labor market, but this may also be due to the stormy weather that has hit the US:

Newsflash: US inflation fell last month to its lowest in over three and a half years, but was higher than expected.

The annual US CPI rate has dipped to 2.4% in September, the smallest 12-month increase in consumer prices since February 2021, in the final set of inflation data before next month’s presidential election.

That’s down from 2.5% in August. Economists had forecast a larger drop to 2.3%.

The Bureau of Labor Statistics also reports that core inflation (excluding food and energy) rose by 3.3% over the last year.

The energy index decreased 6.8 percent for the 12 months ending September. The food index increased 2.3 percent over the last year.

On a monthly basis, prices rose by 0.2% in September alone.

Despite fears of a possible ‘buyers’ strike’ on UK debt, Chester Ntonifor, BCA Research’s Global Fixed Income Strategist, is recommending that clients buy more.

Ntonifor has advised investors to upgrade UK gilts to overweight, and downgraded European credit to underweight.

Chester explains:

“in our view, non-US bond yields will remain under pressure since their central banks will cut interest rates by more than is currently priced, as we suggested last week. This is becoming more apparent in the UK, which we upgraded to overweight today…

Quite simply, economic surprises in the UK are collapsing relative to those in the US. Elsewhere, we remain underweight JGBs, and maintain overweight positions in Canadian, European, and Kiwi government bonds.”

UK government borrowing costs have hit a three-month high today, as bond traders ponder whether Rachel Reeves will announce an increase in borrowing in this month’s budget.

The yield (or rate of return) on UK 10-year debt has risen to 4.231% today, the highest since 3 July.

Bond yields move inversely to prices (when one rises, the other falls); today’s moves suggest investors are seeking a higher interest rate for holding UK debt.

The move comes after Citigroup economist Ben Nabarro warned there was a risk of a “buyers’ strike” (a run on government bonds) if chancellor Rachel Reeves announced a rapid increase in investment spending.

Reeves has been mulling whether to change the way the national debt is measured to account for the value of assets such as roads, schools and hospitals. That could give the chancellor room to borrow as much as £50bn more than currently planned without breaking fiscal rules.

Yesterday, Nabarrro explained:

“If the rules are changed and there is a material risk, or the possibility is entertained that Rachel Reeves could invest something like £50bn next year, then I think it’s a conceivable risk [of a buyers’ strike].

“I don’t think it’s inherent in changing the fiscal rules at all. But it does require us to put some guardrails around that fiscal headroom and making clear it’ll only be spent in part; that it’ll be increased over time, and is policed by institutions. If that is the case then I think the risk is very low.”

Other advanced economies’ bond yields are also rising today, including the US and Germany, but not quite as quickly as the UK.

Inflation in Ireland has dropped to just 0.7%, a three and a half-year low.

Ireland’s Central Statistics Office has reported that annual inflation fell to its lowest since March 2021, down from 1.7% in the year to August.

The decline in annual inflation was driven by cheaper clothing and footwear (where prices fell by 7.5% over the year), and a 2.6% drop in housing, water, electricity, gas & other fuels.

In September alone, consumer prices fell by 0.9%, including a drop in the cost of transport (-5.2%) and recreation & culture (-2.2%).

On an EU-harmonised basis, Ireland’s annual inflation rate was 0% in September (meaning the cost of living was unchanged over the year).

More UK households have defaulted on their mortgages in the last quarter, new Bank of England data shows, and the situation is likely to worsen in the run-up to Christmas.

UK lenders have reported that the default rates on secured loans to households increased in the third quarter of this year, and are expected to increase again in the final quarter (October-December).

This is the seventh quarter in a row in which lenders have reported a rise in default rates on secured loans, as this chart shows:

However, default rates for total unsecured lending slightly decreased in the last quarter, helped by a drop in defaults on credit cards.

Karim Haji, global and UK head of financial services at KPMG, says:

“These latest figures suggest that many households are still struggling in the current environment.

Unsecured lending demand, while stable, remained elevated compared to the first quarter of the year. A fall in default rates for unsecured lending is an encouraging sign and reflects the cautious approach to credit being taken by households.

TSB bank has been fined almost £11m for failing to treat struggling customers fairly when they fall behind on their loans.

The Financial Conduct Authority has fined TSB £10,910,500 for failing to ensure customers who were in arrears were treated fairly.

The watchdog has found that TSB risked agreeing unaffordable payment arrangements with customers in difficulty or charging them inappropriate fees, because it lacked suitable systems and controls to secure fair outcomes.

The bank has paid almost £100m in redress to the 232,849 mortgage, overdraft, credit card and loan customers affected.

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

‘If you get into difficulty, you hope for – and we expect – fair treatment so a stressful situation isn’t made worse.

TSB’s woeful systems and controls exposed its customers to risk of harm and meant it missed opportunity after opportunity to do the right thing. While it did take action, it took us instigating a review before it acted effectively to address all the issues.’

The cost of building a new UK nuclear power plant at Hinkley Point is weighing on French energy firm EDF.

Bloomberg are reporting that EDF is holding talks with investors over funding for the Hinkley Point C nuclear power plant.

With the costs ballooning, EDF is seeking to raise as much as £4bn through a bespoke financial instrument which would give investors a stake in the Hinkley project, Bloomberg say.

Back in January, EDF warned that the plan was running behind schedule and could cost up to £35bn in 2015 prices.

Unilever has exited Russia, more than two and a half years after the invasion of Ukraine.

The consumer good giant has today completed the sale of its Russian assets to Arnest Group, which makes perfume, cosmetics, and household products.

The sale includes all of Unilever’s business in Russia and its four factories in the country, plus its business in Belarus.

Hein Schumacher, CEO of Unilever, says:

“Over the past year, we have been carefully preparing the Unilever Russia business for a potential sale. This work has been very complex, and has involved separating IT platforms and supply chains, as well as migrating brands to Cyrillic.

“The completion of the sale ends Unilever Russia’s presence in the country.”

Unilever, whose brands include Marmite, Dove and Domestos, had been criticised for nor quitting Russia following the invasion of February 2022.

Last year, it was named as an international sponsor of war by the Ukrainian government after a law forced large companies operating in Russia to contribute directly to its war effort.

Shares in pharmaceuticals group GSK have jumped over 6.5% in early trading after agreeing to settle US litigation over its heartburn treatment Zantac.

GSK said last night that it has struck agreements with 10 plaintiff law firms who represent about 93%, roughly 80,000, of the US state court product liability cases pending against it over Zantac. The company will pay up to $2.2bn to settle the claims.

Relief that the litigation is largely resolved has pushed up GSK’s share price to £15.52, a three-week high.

That lifts its value by around £3.7bn, from £60.6bn to £64.4bn.

Derren Nathan, head of equity research at Hargreaves Lansdown, says:

“Pharma giant GSK has taken a giant leap towards drawing a line under the long-running legal battle concerning alleged cancer to heartburn remedy Zantac.

It’s agreed to settle around 93% of cases pending in the US State Courts for a payment of up to $2.2bn as well as an additional $70mn in a separate but related action. In sterling terms, it’s expecting to recognise a £1.8bn charge for the settlements, which also covers the remaining 7% of outstanding claims, with some analysts seeing scope for the final quantum to come in a little lower.

This is a significantly better outcome than initially expected, with some estimates standing at as much as $45bn just a couple of years ago. Since then, GSK and other drugmakers implicated in the case, Sanofi and Boehringer Ingelheim, have seen several key rulings go in their favour. GSK continues to accept no liability.

Tributes have been pouring in for Indian business tycoon and former Tata Group chairman Ratan Tata after his death yesterday.

Tata, who acquired several UK companies during his career including tea firm Tetley, Anglo-Dutch steelmaker Corus, and car brands British Jaguar and Land Rover, died aged 86 yesterday.

Indian prime minister Narendra Modi led the tributes, calling Tata “a visionary business leader, a compassionate soul and an extraordinary human being”.

Google and Alphabet CEO Sundar Pichai says:

He leaves an extraordinary business and philanthropic legacy and was instrumental in mentoring and developing the modern business leadership in India. He deeply cared about making India better.

During his long career, Ratan Tata expanded and grew his family conglomerate in a bold bold international expansion.

Harsh Vardhan Goenka, chair of conglomerate RPG Enterprises, dubbed Tata a “titan” who had left “an indelible mark on the world of business and beyond”.

N. Chandrasekaran, the current chairman of Tata Sons, says:

“Mr. Tata’s dedication to philanthropy and the development of society has touched the lives of millions. From education to health care, his initiatives have left a deep-rooted mark that will benefit generations to come.”

Tata was the largest international donor to US university Cornell, whose interim president Michael I. Kotlikoff says:

“Ratan Tata has left an extraordinary legacy in India, across the world and at Cornell, which he cared about deeply.

Ratan’s quiet demeanor and humility belied his international profile. His generosity and concern for others enabled research and scholarship that improved the education and health of millions of people in India and beyond, and extended Cornell’s global impact.”

Tata was also an animal lover, who ordered that stray dogs be allowed to lounge in the lobby of the Tata headquarters in Mumbai.

Chancellor Rachel Reeves needs to make £25bn of tax rises to avoid breaking Labour’s pledge not to return to austerity, the Institute for Fiscal Studies is warning this morning.

The IFS has calculated that taxes would need to rise substantially even if Reeves changes the UK’s debt rules to allow extra investment spending.

In the run-up to the election, Labour outlined plans for £9bn of tax increases, but the IFS said that if Reeves wanted to increase spending on public services in line with national income she would need to raise a further £16bn to meet her rule that day-to-day spending should be covered by tax receipts.

The thinktank says:

“Given the pledges she has made not to raise the main rates of income tax and corporation tax, or to increase national insurance or VAT at all, she might struggle to implement a tax rise on that scale.

“It would be bigger than the net tax rises implemented in July 1997 and October 2010 (both around £13bn-£14bn). In which case she might have to live with day-to-day spending on many public services falling as a fraction of national income.”

The shortage of rental properties means most surveyors expect rents to keep rising, as this chart shows:

The government’s renters’ rights bill will ban competitive bidding in the housing market, by preventing property owners accepting more rent than they have asked for.

RICS president Tina Paillet says:

“While the Renter’s Rights Bill aims to improve standards and offer better protections for tenants, we must ensure that these reforms do not discourage responsible landlords from remaining in the market.”

“Most importantly, the planned changes in the private rental sector fall short of tackling the core issue: increasing supply and making housing more affordable for tenants.”

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

The UK housing market is continuing to pick up, the nation’s surveyors have reported, but renters are being squeezed by a fall in properties available to them.

The latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey has shown that UK house price growth turned positive across the country for the first time in almost two years.

More surveyors reported rising house prices in their area than falling prices in September, which ends a run of negative or flat returns for this indicator stretching back to October 2022.

RICS reports that most parts of the UK are experiencing rising house prices, although the West Midlands, South West and East Anglia are lagging behind.

With borrowing costs expected to keep falling, prices are expected to rise across the UK in the year ahead.

Surveyors also reported that demand for homes, sales, and new listings all returned to growth last month.

RICS head of market analytics, Tarrant Parsons, says:

“The latest survey results once again convey a brighter picture for housing market activity, with the recent easing in mortgage interest rates continuing to support a recovery in buyer demand.

“Critical for the outlook, a further unwinding in monetary policy is anticipated over the months ahead, which should create a more favourable backdrop for the market moving forward. In keeping with this idea, forward-looking sentiment data from the survey points to sales volumes gaining impetus, both in the near-term and over the next twelve months.”

But renting a house in the UK is becoming harder, as demand continues to grow and outstrip supply.

RICS reports that demand from tenants increased again last month, while there was a drop in the number of properties listed for rent – possibly because landlords are fearful of capital gains tax (CGT) changes in the budget this month.

The group explains::

This trend is further influenced by some landlords listing their properties for sale before potential CGT rises. Unfortunately for renters, the continuing squeeze on supply will likely mean further rent rises and difficulties finding property.

The struggle to rent property has already led to a rise in rough sleeping last year. Homelessness charities warned yesterday that rough sleeping will head back towards record levels unless the government addresses a looming £1bn shortfall in frontline funding.

The agenda

• 9.30am BST: Bank of England’s credit conditions survey

• 10am BST: Post Office chief executive, Nick Read, to give evidence at the Horizon IT inquiry for the second day

• 1.30pm BST: US inflation report for September