October 2024 monthly update

Read our October monthly update – a roundup of the latest financial news and economic headlines.

Pound sterling falls and inflation declines more than expected

According to figures released by the Office for National Statistics (ONS) in October, UK inflation decreased sharply to 1.7% the previous month. This surpassed expectations of a fall to 1.9% from 2.2%. It also marks the first dip below the Bank of England (BoE) target since April 2021. The ONS report showed that lower airfares and petrol prices were the primary drivers behind the shift.[1]

The BoE made their first interest rate cut this August but held steady at 5% in September. Now, however, economists already expect a December cut due to the surprise slowdown.[2] This would be an additional cut if a widely expected lowering happens in November. Previously, traders estimated that the chance of two quarter-point rate cuts was 50%. After the ONS report was released, this bet rose to 75%. Although, the pound sterling did fall 0.6% against the dollar (at $1.30).[3]

Two consequences of note are that September’s inflationary figure is normally used to set benefit rises the following April, and the fall is a boon for the government since it came just two weeks before a ‘tough’ Autumn Budget. Furthermore, the yield on two-year government bonds fell 0.11% to 4.02% because they are sensitive to interest rate changes.[4]

Former Chancellor Hunt attempts to block OBR report release

Jeremy Hunt, former Chancellor of the Exchequer, has attempted to prevent the Office for Budget Responsibility (OBR) from publishing a report on the Conservative Party’s fiscal legacy. The review was launched after an audit by the current Treasury unearthed a £22 billion ‘black hole’ in the plans they inherited.[5]

The OBR has been investigating whether Hunt’s Treasury concealed information while the watchdog was creating its official forecasts ahead of the last Spring Budget. Government officials expect the report’s breakdown to validate at least some of Chancellor Rachel Reeves’ claims. If this verdict comes to pass, it is likely to be very contentious. Furthermore, Reeves may use it as rationale for her plans to levy £35 billion of higher taxes. The goal would be to use the additional income to fill the ‘fiscal hole’ and increase future public spending.[6]

Hunt wrote to Cabinet Secretary Simon Case, complaining that the report “will be used for highly political purposes” and has not been shown in advance to Conservative former Treasury ministers. Moreover, he clashed with the Chancellor at Treasury questions in the Commons. Hunt claimed Reeves invented “this fictious black hole” to obtain support for “the biggest tax-raising budget in history.”[7]

Reeves replied that Hunt was denying “the seriousness of the situation”. She believed by “lashing out at independent economic institutions”, Hunt showed he has “more in common with Liz Truss and Kwasi Kwarteng than perhaps we thought”.[8] This is a nod to how Truss and Kwarteng sidelined the OBR when announcing their ill-fated Mini Budget in September 2022.[9]

The Cabinet Office confirmed that Case received Hunt’s complaint and would respond in due course. Government insiders, however, reiterated that the OBR is an independent body. As such, no further action from the Cabinet Office should be expected.[10]

Cash ISAs jump in popularity ahead of Autumn Budget

The Financial Times reports that cash ISAs have seen a surge of interest recently. In their analysis, this is a sign of investor concerns about the Labour Party’s upcoming first Budget. With uncertainty about Chancellor Reeves’ fiscal strategy, savers have been prompted to move to tax-sheltered investments.[11]

Annual HMRC figures show that 12.5 million adult ISA accounts were subscribed to in 2022-23. This is up from 11.8 in 2021-22. The number of cash ISAs, specifically, jumped by 722,000.[12] Data from Hargreaves Lansdown showed that new business across the investment platform’s cash ISA accounts reached a record high last month.[13]

Alongside higher deposit rates, fears of higher Capital Gains Tax (CGT) levies partly account for the increase. CGT receipts rose 16.3% year-on-year to £572 million in the third quarter of 2024. Meanwhile, the monthly CGT received by the government in September was £192 million – the highest figure reported that month since at least 2008. The shift has already been affected by the previous government’s reduction of the annual CGT tax-free allowance from £12,300 in 2022-23 to £3,000 for 2024-25. The risk of further modifications has made investors nervous ahead of the Autumn Budget.[14]

Laith Khalaf, head of investment analysis at AJ Bell, commented on the phenomenon: “by holding too much cash, savers do themselves an injustice by shunning the higher long-term returns associated with stock market investment.”[15]