Investors bet UK interest rates could start falling by March; Warner Bros Discovery and Paramount in merger talks – business live

The cost of servicing the UK’s national debt hit a record high for a November last month, helping to push up monthly borrowing to over £14bn.

Debt interest payments last month rose to £7.7bn, the ONS reports in this morning’s public finances (see earlier post).

That surpasses all monthly November figures on record since 1997, but is slightly lower than October’s £8.1bn interest bill.

The cost was driven up by inflation, as the interest rate on some UK debt is linked to inflation – specifically the Retail Prices Index.

Divya Sridhar, economist at PwC UK, explains:

“High debt interest payments reflect the fiscal implications of swings in the Retail Prices Index (RPI). The latest inflation data released yesterday brings a welcome surprise as headline annual inflation fell faster than expected to 3.9% last month.

Due to lagged index-linked gilts, the fiscal benefits of this fall in inflation rates will be reflected in borrowing figures early next year.

The UK government borrowed more than expected last month, which may dampen the mood in the Treasury after Wednesday’s drop in inflation.

Public sector net borrowing (excluding the impact of public sector banks) has just come in at £14.3bn.

That’s the fourth highest November borrowing since monthly records began in 1993, and higher than the £12.9bn which economists forecast.

But it is a little lower (-£900m) than in November 2022, when the government was funding support programmes to lower energy bills.

Subsidies paid by central government were £2.2bn in November 2023, £3.1bn less than a year ago, the Office for National Statistics says.

So far this financial year (since April), the UK has borrowed £116.4bn. That’s £24.4bn more than in the same eight-month period last year and the second highest financial year-to-November borrowing on record.

November’s borrowing means the UK national debt is now estimated at around 97.5% of UK GDP, at £2,671.4bn.

That’s 1.8 percentage points higher than in November 2022, the highest since the early 1960s.

UK interest rates could start to be cut as early as March, some City investors believe, after Wednesday’s welcome drop in inflation.

The money markets are pricing in a sharp fall in UK borrowing costs, after the UK inflation rate dropped to 3.9% in November, a bigger fall than expected.

Bank rate is currently 5.25%, a 15-year high. Investors now see a 40% chance that rates will be cut in March 2024, to 5%, with a cut by May 2024 now priced in.

UK interest rates are seen falling below 4% by the end of 2024, with the money markets now pricing in almost 1.4 percentage points over the course of next year.

The drop in inflation is putting pressure on the Bank of England to rethink its position that it’s too early to consider cutting interest rates.

Having been criticised for not reacting quicker to the inflationary upsurge in 2021, critics now warn the BoE could be too tardy in responding to the drop in inflation in recent months.

Sanjay Raja, Deutsche Bank’s chief UK economist, called yesterday’s inflation report a welcome Christmas surprise, adding that it:

….raises further downside risks to the Bank of England’s inflation projections – raising the likelihood of a more dovish pivot in February.

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

Hollywood loves a romantic Christmas movie. But this year, the spotlight is on a possible coupling between two of the largest US media companies.

Warner Bros Discovery and Paramount Global are in early talks over a potential merger, according to multiple reports this morning.

News website Axios reported overnight that Warner Bros. Discovery’s CEO, David Zaslav, met with Paramount Global CEO Bob Bakish on Tuesday in New York City to discuss a possible deal that would bring together two of Hollywood’s “Big Five” studios.

The talks come as media groups struggle to improve their profitability as they battle Netflix in the “streaming war” to win eyeballs.

A merger could bring Warner’s Max streaming service together with current rival Paramount+, to better rival Netflix and Disney+.

Axios reports:

Zaslav also has spoken to Shari Redstone, who owns Paramount’s parent company, about a deal.

WBD’s market value was around $29 billion as of Wednesday, while Paramount’s was just over $10 billion, so any merger would not be of equals.

Axios says the pair discussed ways their companies could complement one another.

As well as a streaming tie-up, CBS News could be combined with CNN to create “a global news powerhouse” while CBS Sports’ footprint could be combined with WBD’s.

But….the talks between Zaslav and Bakish were “at an early stage”, the Financial Times says, meaning a deal might not materialise.

The FT adds:

The conversation was more of an expression of interest by Zaslav than an offer, according to one of the people familiar with the meeting between the two executives.

Also coming up today

There’s still time for a few important data releases before the markets shut down for Christmas, with the latest UK borrowing figures being released this morning.

We also find out how many Americans filed new unemployment claims this afternoon – a gauge of the health of the US labor market.

The agenda

• 7am GMT: UK public finances for November

• 11am GMT: CBI distributive trades report on UK retail sector

• 1.30pm GMT: US weekly jobless claims figures