UK shop prices are dropping at a faster rate, fuelling hopes of a Bank of England rate cut in November.

The British Retail Consortium has reported that prices were 0.8% lower this month than in October 2023 – compared to an annual fall of 0.6% in September.

Prices of non-food items in October were down 2.1% on a year earlier – unchanged from September – while food prices rose by 1.9%, compared with 2.3% the previous month.

Helen Dickinson, the BRC’s chief executive, said:

“Food inflation eased, particularly for meat, fish and tea as well as chocolate and sweets as retailers treated customers to spooky season deals.

This shop price deflation means prices are lower than a year ago, but the levels of prices are still much higher than before the infationary surge.

But…retailers are also warning that prices could be pushed up again, by geopolitical tensions, the impact of climate change on food supplies, and costs from Government regulation.

Dickinson is urging Rachel Reeves to help the sector:

Retail is already paying more than its fair share of taxes compared to other industries.

The Chancellor using tomorrow’s Budget to introduce a Retail Rates Corrector, a 20% downwards adjustment, to the business rates bills of all retail properties will allow retailers to continue to offer the best possible prices to customers while also opening shops, protecting jobs and unlocking investmen

Tomorrow’s budget is also expected to include a boost for low-paid workers – an increase in the minimum wage of up to 6%.

Rachel Reeves is expected to announce an increase above inflation and even higher than what had been predicted last month.

Younger workers will get an even bigger increase as ministers say that 18 to 20-year-olds should eventually be paid the same as older workers, the Times reported last night.

About 1.6 million people currently receive the “national living wage” of £11.44 an hour, the minimum wage for over-21s. It is expected to rise to more than £12.12 after ministers promised to “raise the floor” on wages.

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Profits at energy giant BP have fallen by a third, after earnings were hit by weaker oil prices.

BP has reported an underlying profit of $2.267bn for the third quarter of this year, down from $3.293bn a year earlier, and also below the $2.756bn it made in April-June.

This appears to be BP’s smallest quarterly profits since the fourth quarter of 2020, when earnings collapsed in the height of the pandemic.

But, it does beat City forecasts; analysts had expected just $2bn in underlying profit for the quarter.

BP blames the fall on weaker profit margins at its refining business, and weaker oil trading.

Chief executive officer Murray Auchincloss, who has been criticised for reversing some of BP’s green energy plans, says:

We have made significant progress since we laid out our six priorities earlier this year to make bp simpler, more focused and higher value. In oil and gas, we see the potential to grow through the decade with a focus on value over volume.

We also have a deep belief in the opportunity afforded by the energy transition – we have established a number of leading positions and will continue high-grading our investments to ensure they compete with the rest of our business. I am absolutely clear that the actions we are taking will grow the value of bp.

Despite the falling profits, BP is continuing to funnel cash to investors. It has announced it will buy back another $1.75bn shares in the next quarter, maintaining the pace of its buyback programme.

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

With a day to go until the budget, big investors seem relaxed about the prospect of chancellor Rachel Reeves’s first fiscal event – even though it may include billions of pounds of higher borrowing.

Although fears of bond vigilantes looms over the Treasury, after the mini-budget debacle two years ago, the mood in the City appears sanguine ahead of tomorrow’s statement.

The government has rolled the pitch ahead of the budget, with Reeves confirming last week that she’ll introduce new fiscal rules that could unlock £50bn of new investment – while also promising guardrails to ensure project offer value for money.

And that effort seems to have helped reassure the investors whose confidence the UK needs to maintain.

Peder Beck-Friis, economist at bond trading giant Pimco, says his firm still finds gilts (UK government debt) “attractive”, telling clients that Reeves is unlikely to spend any additional borrowing headrorom recklessly.

As Beck-Friis puts it:

“We expect the budget to maintain a tight fiscal path ahead, with the deficit continuing to decline.

While the new debt target may allow for more spending in the future – possibly in a second term – the government is likely to proceed cautiously, loosening policy only after establishing credibility or if market conditions change.”

Beck-Friis adds that the budget is “unlikely to undermine fiscal credibility”.

UK bond yields (the rate of return on government debt) has been rising since mid-September, with the 10-year bond yield hitting a near-four-month of 4.284% yesterday.

But, the gap betwen UK and US government borrowing has also been narrowing in recent weeks. At the start of the month, London was being charged more than Washington to borrow for a decade, but now yields are basically in line again.

Reuters has polled 10 bond managers, and found that most are “sanguine” about the risks of holding UK debt.

For example, Matthew Amis of investment group Abrdn says he is “Overweight UK gilts” versus other developed market government bonds, explaining:

“Inflation is well below the Bank of England’s forecasts. Despite the negative headlines around the UK budget, we think its bark could be worse than its bite.”

Cedric Scholtes, head of global sovereigns, inflation and rates at BNP Paribas Asset Management say that the UK is one of “our preferred markets.”

“While we anticipate the Chancellor to take advantage of the increased fiscal headroom from a recalibration of policy rules, we think HM Treasury will be mindful that increased borrowing not be excessive and (that it is) focused on financing investment.”

The agenda

• 9.30am BST: Bank of England money and credit data for September

• 11.30am BST: House of Commons Treasury questions with Rachel Reeves and ministerial team

• 1pm BST: US house prices index from Case-Shiller

• 2pm BST: JOLTS survey of US job openings