Industrial production in the 19 countries sharing the euro rose 1.5% in August from July, according to Eurostat, and was much better than the 0.6% gain forecast by economists. This is in sharp contrast with UK manufacturing, which fell 1.6% in August, contributing to an overall economic decline of 0.3%.

In the eurozone, output of capital goods such as machinery rose 2.8% in August, suggesting companies ramped up investment. They also produced more consumer goods while energy output was cut.

Among the biggest economies, France’s industrial production rose 2.5%, while Italy’s increased by 2.3%, and output in Germany – normally the eurozone’s economic powerhouse – declined by 0.5%.

The pound is on a rollercoaster ride, hitting a daily high of $1.1065 against the dollar and is now trading at $1.1031, up 0.6%. It briefly dipped into negative territory earlier.

Remarks from the Bank of England’s governor Andrew Bailey sent the pound sliding last night, when he said the Bank’s emergency £65bn bond-buying programme would not be extended beyond Friday.

However, the Financial Times reported today that the central bank had told bankers privately that the facility could be extended if market conditions demanded it.

This appears to have given sterling a boost, while longer-dated government bond yields have risen, increasing government borrowing costs. The 30-year gilt yield is up 13 basis points at 4.91% while the 20-year yield has just topped 5%, rising 10 basis points. It is the first time this yield is back above 5% since the central bank’s announcement of its bond-buying programme on 28 September, which calmed nerves and warded off a mass collapse of pension funds.

Housebuilders and banks are leading losses on the FTSE 100, after Barratt, Britain’s biggest housebuilder, warned that the housing market was cooling rapidly.

Barratt shares fell more than 8% earlier and are now down 6.4% while Persimmon lost 4.4%. Barclays and Lloyds Banking Group fell 4.5% and 4% respectively, amid the worsening economic outlook. The FTSE 100 index is trading 3 points lower at 6,881.

Barratt said buyers were reserving an average of 188 homes per week between 1 July and 9 October, compared with 281 in the previous financial year. It said this reflected the “customer response to increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”.

Forward sales totalled 13,314 homes as of 9 October, about 2,000 homes less than this time last year. The company is now expecting adjusted pre-tax profits of £972.5m for the full year, in line with City forecasts but down on previous guidance and below the £1.05bn recorded last year.

David Thomas, the chief executive, said:

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We continue to see strong levels of interest across the country, however private reservations remain below the level seen in the financial year 2022 as customers react to the wider economic uncertainty.

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The company added:

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The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.

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Investec analyst Aynsley Lammin said:

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Clearly the sales rate has not been helped by lack of finished product and the end of Help to Buy, but the current macro uncertainty is obviously a significant factor.

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The independent housing market analyst Anthony Codling tweeted:

Whilst Liz Truss talked of growth, growth and growth, in its trading update today Barratt spoke of uncertainty, uncertainty and uncertainty. Whilst it is not a member of the apocryphal anti-growth coalition it seems the mini-budget has stymied Barratt's growth aspirations pic.twitter.com/ov2FMQElNK

— Anthony Codling (@anthonycodling) October 12, 2022

UK government borrowing costs have increased further, with yields (or interest rates) on bonds rising this morning.

The yield on the 20-year gilt, as UK government bonds are known, has topped 5% for the first time since 28 September when the Bank of England stepped in with an emergency bond-buying programme to calm the market and prevent a collapse of pension funds.

The 20-year gilt is now at 4.9%, up 6 basis points, while the 30-year yield increased 10 basis points to 4.8%.

UK pension funds should review their risks and funding gaps ahead of the end of the Bank of England’s emergency bond-buying programme on Friday, the Pensions Regulator said today.

Pension funds are racing to raise enough money to meet hundreds of billions of pounds in collateral calls on derivative positions before the deadline. The watchdog called on trustees to step up engagement with investment managers to quantify funding gaps and risks, and to review disposal plans.

The regulator also encouraged pension funds to consider appointing professional trustees and to discuss whether employers are able to provide cash to help plug gaps.

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As the Bank of England recently stated, insuring schemes against all extreme market outcomes might not be a reasonable expectation but it is important that lessons are learned from these recent events.

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Jacob Rees-Mogg, the UK business and energy secretary, said he had confidence in the governor of the Bank of England, Andrew Bailey, adding that he did not think there was a systemic problem in pension funds.

Asked on Sky News if he had confidence in the job being done by the Bank’s governor, Rees-Mogg said:

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Yes of course I’ve got confidence in the governor of the Bank of England. It is so important that we have an independent Bank of England with a respected governor. Andrew Bailey is a respected governor and the Bank of England’s independence is operating as it should. He must make the decisions in relation to market support.

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Rees-Moss is on BBC radio 4’s Today programme now, talking about the government’s plans to cap electricity generators’ revenues. He has denied that this is a windfall tax in all but name.

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What this is doing is rationalising the market in a way that energy companies have been in favour of to move to contracts for difference which provides them with security for pricing over the longer term.

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This is not a windfall tax. It’s clearly not a tax, it’s nothing to do with the profits these companies are making, it’s to do with the pricing structure that is agreed with the renewable companies to ensure that it is a good long-term approach, which is why all new contracts, over the last five years or so, have been signed on a contract for difference basis.

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Rees-Mogg also defended the government’s mini-budget, a package of unfunded tax cuts that sent the pound sliding and government borrowing costs soaring.

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The intervention a couple of weeks ago as a percentage of GDP is not that enormous.

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He said the market turmoil was down to the fact that the interest rate differential between the US and UK had widened.

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It’s much more to do with interest rates than it is to do with a minor part of fiscal policy.

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The former Bank of England deputy governor, Sir Charlie Bean, said he wasn’t surprised that the pound had fallen last night on the governor’s remarks – that the central bank would not extend its emergency bond-buying programme beyond Friday. He told BBC radio 4’s Today programme:

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Main market participants expected the Bank simply to extend its facility.

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If you say you’re going to keep on extending the facility, you take the pressure off the pension funds to do what’s needed, you also take the pressure off the government to do what’s needed and get the fiscal position in order. We shouldn’t forget that this is the prime cause of it [the market turmoil].

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The UK economy contracted by 0.3% in August because of a large drop in manufacturing, pointing to a further weakening of the economy in the third quarter and triggering fears of recession.

Meanwhile, the pound rose 0.3% to $1.0996 this morning on suggestions that the Bank of England could extend its emergency bond-buying programme.

Michael Hewson, chief market analyst at CMC Markets UK, said:

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The pound had another choppy day yesterday, rising as high as $1.1180, before sliding sharply on comments from Bank of England governor Andrew Bailey in Washington, that the central bank would not be extending its £65bn gilts programme beyond this Friday, and that pension funds had another three days to shore up their portfolios against further shocks.

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Having done so much to stabilise markets in the past few days, including the action to stabilise the linker market yesterday, this hard line could come back and bite the Bank of England hard if it serves to heighten volatility in the days ahead.

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However, the Financial Times is reporting that the central bank has signalled privately to bankers that it could extend its bond-buying programme past this Friday’s deadline.

The decline in GDP came after downwardly revised growth of 0.1% in July, according to the Office for National Statistics. Monthly GDP is now estimated to be at the same level as its pre-coronavirus levels, in February 2020.

It said: “There has been a continued slowing in the underlying three-month on three-month growth,” where GDP also fell by 0.3% in the three months to August compared with the three months to May.

Overall production, which comprises utilities, mining and manufacturing, was down 1.8% after a 1.1% fall in July, with manufacturing the main driver, declining by 1.6%.

The service industries slipped by 0.1% after growth of 0.3% in July because of declines in human health, with a drop in the number of hospital appointments and operations, as well as social work, arts, entertainment and recreation, partly due to fewer sports events. Output in consumer-facing services fell by 1.8%, with retail particularly weak, as the cost of living squeeze took its toll on households. Construction grew by 0.4%.

GDP fell 0.3% in August 2022, following revised growth of 0.1% in July 2022 https://t.co/vUKZr3BVEy

GDP fell 0.3% across the 3-months to August. pic.twitter.com/LKYZ0LkXP8

— Office for National Statistics (ONS) (@ONS) October 12, 2022

The chancellor, Kwasi Kwarteng, said:

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Countries around the world are facing challenges right now, particularly as a result of high energy prices driven by Putin’s barbaric action in Ukraine.

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That is why this government acted quickly to put in place a comprehensive plan to protect families and businesses from soaring energy bills this winter.

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Our growth plan will address the challenges that we face with ambitious supply-side reforms and tax cuts, which will grow our economy, create more well-paid skilled jobs and in turn raise living standards for everyone.

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Renewable power companies will have their revenues capped in England and Wales, after the government bowed to pressure to clamp down on runaway profits.

The announcement late on Tuesday night provoked immediate accusations that Downing Street had performed “another screeching U-turn” – having previously rejected calls to impose a windfall tax on power giants.

David Bharier, head of research at the British Chambers of Commerce, said:

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The 0.3% fall in monthly GDP for August 2022 is a warning sign that the economy was already stalling before the market turmoil of recent weeks.

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Our research indicates that business confidence is falling at an alarming rate. Volatility in the currency and bond markets following recent government announcements will have only exacerbated this.

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Financial markets continue to be shaky. Asian stocks hit two-year lows, as China has no immediate plans to ease its strict Covid curbs, while the dollar rallied, and wobbles in the UK bond market and pound dragged down investor confidence.

European markets fell for the fifth day in a row yesterday, amid concerns over the global economy as the IMF warned about the outlook, as well as warning that the “worst is yet to come”.

The Agenda

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• 1.30pm BST: US producer prices for September

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• 2.30pm BST: European Central Bank president Christine Lagarde speaks

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• 7pm BST: US Federal Reserve minutes of last meeting

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Industrial production in the 19 countries sharing the euro rose 1.5% in August from July, according to Eurostat, and was much better than the 0.6% gain forecast by economists. This is in sharp contrast with UK manufacturing, which fell 1.6% in August, contributing to an overall economic decline of 0.3%.

In the eurozone, output of capital goods such as machinery rose 2.8% in August, suggesting companies ramped up investment. They also produced more consumer goods while energy output was cut.

Among the biggest economies, France’s industrial production rose 2.5%, while Italy’s increased by 2.3%, and output in Germany – normally the eurozone’s economic powerhouse – declined by 0.5%.

The pound is on a rollercoaster ride, hitting a daily high of $1.1065 against the dollar and is now trading at $1.1031, up 0.6%. It briefly dipped into negative territory earlier.

Remarks from the Bank of England’s governor Andrew Bailey sent the pound sliding last night, when he said the Bank’s emergency £65bn bond-buying programme would not be extended beyond Friday.

However, the Financial Times reported today that the central bank had told bankers privately that the facility could be extended if market conditions demanded it.

This appears to have given sterling a boost, while longer-dated government bond yields have risen, increasing government borrowing costs. The 30-year gilt yield is up 13 basis points at 4.91% while the 20-year yield has just topped 5%, rising 10 basis points. It is the first time this yield is back above 5% since the central bank’s announcement of its bond-buying programme on 28 September, which calmed nerves and warded off a mass collapse of pension funds.

Housebuilders and banks are leading losses on the FTSE 100, after Barratt, Britain’s biggest housebuilder, warned that the housing market was cooling rapidly.

Barratt shares fell more than 8% earlier and are now down 6.4% while Persimmon lost 4.4%. Barclays and Lloyds Banking Group fell 4.5% and 4% respectively, amid the worsening economic outlook. The FTSE 100 index is trading 3 points lower at 6,881.

Barratt said buyers were reserving an average of 188 homes per week between 1 July and 9 October, compared with 281 in the previous financial year. It said this reflected the “customer response to increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability”.

Forward sales totalled 13,314 homes as of 9 October, about 2,000 homes less than this time last year. The company is now expecting adjusted pre-tax profits of £972.5m for the full year, in line with City forecasts but down on previous guidance and below the £1.05bn recorded last year.

David Thomas, the chief executive, said:

\n

We continue to see strong levels of interest across the country, however private reservations remain below the level seen in the financial year 2022 as customers react to the wider economic uncertainty.

\n

The company added:

\n

The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.

\n

Investec analyst Aynsley Lammin said: