Fabrizio Freda, 66, who has run the New-York based Estée Lauder for nearly 16 years, will retire next June, the company said. His planned departure comes only a month after Tracey Travis, its chief financial officer, said she would step down after more than 12 years at the company.

Estée Lauder said it was “well advanced” in its search for a new chief executive and was considering internal and external candidates.

The news was accompanied by a forecast of lower sales than had been expected previously, which delivered an early shock to the company’s share price. The stock recovered earlier heavy losses to close down $2.11, or 2.2 per cent, at $92.86in New York on Monday. The shares have slumped by nearly 75 per cent since hitting a record high of $370 at the end of 2021 as prolonged inflation and an economic slowdown in China have hit the demand for luxury products.

Estée Lauder now expects its annual sales to fall by as much as 1 per cent or to rise by 2 per cent, far worse than previous analysts’ estimates of a 6.4 per cent increase, according to data from the London Stock Exchange Group. Demand for even “affordable luxuries” such as lipsticks and perfumes, widely considered to be recession-proof, are being affected, with the group expecting further woes in China.

In a statement, Freda said: “For fiscal 2025, we anticipate continued declines in the prestige beauty segment in China, mainly reflecting persistent weak sentiment among Chinese consumers. We intend to drive share gains in a market that continues to hold strong long-term promise. In the rest of our business, we are planning to deliver improved performance across both developed and emerging markets.”

The company, which plans to focus on growing sales of skincare and high-end fragrance products, is in the midst of a turnaround plan that involves cutting costs and simplifying the business to be “more agile and faster to market”.

“From La Mer’s entry into night-specific consumption to The Ordinary’s expansion into new markets and more brands debuting in new channels like on Amazon’s US Premium Beauty store, we have a rich slate of initiatives to drive new consumer acquisition,” Freda said.

Estée Lauder reported sales of $15.61 billion for the year to the end of June, a decrease of 2 per cent from a year earlier, driven by declines in skincare and haircare sales. Total operating income fell by 36 per cent to $970 million. In constant currency terms, adjusted operating income decreased by 10 per cent to $1.64 billion.

Dana Telsey, of Telsey Advisory Group, a broker, said: “It’s not a surprise that Fabrizio is stepping down. It was a long-anticipated change of the guard, given the results over the past few years and the need certainly for newness.”

The Stein Group is one of the largest private sector employers in Cornwall, with a 650-strong workforce.

Stein’s Trading, which operates five restaurants in Cornwall and the south of England along with accommodation and retail operations, reported an operating profit of £63,000 in the 12 months to the end of December 2023, up 106 per cent against a £1 million loss in the previous year, the company said. Turnover dropped 5 per cent to just under £12 million.

The division is now looking to expand its restaurant portfolio and is seeking a restaurant site in central London.

Its sister operation, The Seafood Restaurant in Padstow, did not fare as well but posted an increase in operating profit of 32 per cent for the same period, though the company did not release more detailed figures for the business.

It said its “Summer of Shellfish” campaign had driven footfall, while outsourcing operations of Stein’s at Home meal kits, set up during the pandemic, to the home delivery brand, Dishpatch, in 2023, increased profit margins.

Stein, the founder, told The Times in February that the business reported losses in 2022 because it had been “clobbered” by the price of fish and gas prices.

Ian Fitzgerald, managing director of Stein’s Trading, said the restaurants weathered a challenging environment in 2023 to see an improvement. He added that with economic recovery seeming likely, the business was exploring expansion opportunities.

“The season started slow due to the late Easter, however, summer is performing well,” the company said on Monday.

Charlie Stein, Rick Stein’s son and an executive director, said that the company was planning celebrations for the restaurant in Padstow’s 50th anniversary next year.

“It is also the perfect time to evolve our restaurant concepts to appeal to a wider audience and we are actively looking to open our first site in central London,” he said. The company already has a restaurant in Barnes, southwest London.

“We can continue to be successful in the public markets,” he said. “We’ve got a great future as a company. We’ve got great people, we’ve got great client relationships and we’ve got great growth.”

That was despite the Scottish company booking almost $1 billion of exceptional charges in the first half of this year, which sent it deeper into the red as it recorded a pre-tax loss of $962 million.

It was hit by $815 million in impairments associated with historic acquisitions, alongside a further $140 million writedown relating to its decision to exit higher-risk, large-scale and turnkey projects in favour of reimbursable contracts that are less likely to turn lossmaking if conditions change.

Gilmartin said the writedowns had been a “prudent” measure and had come after he asked Arvind Balan, who arrived as Wood’s chief financial officer in April, to go through the balance sheet “line by line” to ensure that things were on track. There was no cash impact on the financial projections for 2024 or 2025 as a result of the impairments, he said.

“Investors understand that this is going to be a turnaround story and that it’s going to take a period of time for us to get to where we get to,” Gilmartin, 53, said. “For us and investors, it’s very simple. Continue to grow the way that we’re growing, continue to de-risk the company and get a clear line of sight to that significant free cashflow next year.”

• After two failed buyouts, what’s going on under the hood at Wood?

Sidara had three proposals rejected before Wood’s board decided to open its books at 230p a share. The Dubai-registered engineering consultancy walked away this month amid turmoil in global markets as weak jobs economic data from the United States sparked fears of an imminent recession. That came 15 months after Apollo Global Management, the private equity group, had decided not to move forward with its own 240p-a-share bid for Wood after completing due diligence on the company.

Wood noted $5.5 million of costs related to the approach by Sidara. It expects to take a further $5 million hit in the second half of the year in relation to the transaction.

Gilmartin said Wood’s staff had remained focused during the period of uncertainty. “We wouldn’t have achieved the results that we have in the first half if the team had become distracted by Sidara,” he said.

Its shares have fallen by 66 per cent over the past five years and are down by 20 per cent since the start of this year. Gilmartin indicated that his confidence in Wood’s prospects as an independent business had not wavered and pointed to research showing improved morale among its workforce.

The company is halfway through a three-year turnaround plan to strengthen its balance sheet and to improve profitability with better pricing and reduced operating costs.

Revenue was down 5 per cent to $6.2 billion, largely as a result of the projects division of the business shifting away from certain types of engineering, procurement and construction work.

The cash outflow in the period was $168 million, compared with $219 million in the first half of 2023. However, cash generation would continue to improve this year and the company would generate “significant cashflow” next year, it said. It has cut about $25 million of a targeted $60 million in cost savings.

Net debt remains above the company’s medium-term aim at $876 million, excluding leases, or 2.5 times adjusted earnings, compared with a range of between 0.5 and 1.5 being targeted.

Delivering better cashflow would allow for options around shareholder returns, Gilmartin said. Wood’s dividend has been suspended since the early months of the pandemic.

Wood’s headquarters are in Aberdeen and it is listed in London. It employs more than 36,000 people around the world working on engineering and operations across sectors such as energy, minerals, net zero and chemicals.

Ashley Kelty, an analyst at Panmure Liberum, the broker, said that the rise in margins was an encouraging step forward, but rising net debt was a concern. “The overall recovery is taking longer than management expected, having to deal with multiple takeover approaches has obviously knocked the business off track, but investors will hope that the company can now focus on delivery and generating free cashflow from 2025.”

John Wood Group’s shares closed up 2p, or 1.4 per cent, at 134½p.

Last week the National Institute of Standards and Technology, an agency of the US Department of Commerce, approved three algorithms for new post-quantum cryptography standards, the result of eight years of work by cryptography experts worldwide.

In the next phase, cybersecurity suppliers will develop ways to embed the technology in hardware, software and the applications that millions of people use every day.

The US government has said it expects companies supplying the federal government to begin protecting their systems between 2025 and 2030.

Britain’s National Cyber Security Centre said in a guidance post from its high-threat technologies team that the standards meant the next step in the “national migration” in cybersecurity systems could begin. “For some sectors, we expect it to take more than a decade,” they stated. “However, the scale of the effort means that work to prepare is a priority now. Larger organisations (and those that have bespoke IT or operational technology) should be planning.”

Ali El Kaafarani, the founder of PQShield, the Oxford-based quantum security specialist, said: “I don’t have any doubt that in 2025 you will not see any major bank not having published publicly their road map to become post-quantum secure in two, three or four years.”

BT has said it is managing the threat to its communications infrastructure and that any changes to its systems “are tested before deployment in live networks”.

Small businesses and consumers will see the software and devices they use refreshed as part of new product launches and updates.

The NCSC is encouraging companies to work with experts to avoid poorly managed and rushed migrations, and to have fully tested the algorithms before deploying them on live systems.

While a quantum computer capable of breaking existing security encryption is not yet known to exist, industry experts say hackers could steal encrypted data today and save it to be decrypted by a quantum computer in the future.

The US government has already estimated that it will cost about $7.1 billion to fund the migration on federal systems between 2025 and 2035.

Moody’s, the credit rating agency, has said that the migration is comparable in scale and complexity to the changes made to computer systems to cope with the potential chaos in coding when the year changed from 1999 to 2000, known at the time as the Y2K bug.

Some of the largest technology firms have already begun deploying the technology, with Google updating its Chrome browser and Apple doing the same to its Swift programming language and operating system.

El Kaafarani said patching software with the new security algorithms would provide some protection. “It is better than not having post-quantum cryptography at all. But it will only give you a certain level of security guarantees if you don’t have it in the hardware.”

On Monday, the gloss appeared to have come off. Estée Lauder said that it expected its annual sales to fall by as much as 1 per cent or to rise by only 2 per cent, well below analysts’ estimates of a 6.4 per cent increase. The demand for lipsticks and perfumes, widely considered to be recession-proof, has taken a hit, with the group expecting further woes in China.

Yet the picture is not universally gloomy. In Britain, the third largest cosmetics market in Europe after France and Germany, shoppers continue to splash out on cosmetics and skincare. The beauty industry was worth an estimated £26.7 billion in 2022 to the UK economy and this looks set to grow.

• Estée Lauder boss looks to exit as sales forecasts disappoint

“In 2024, we’ve seen that the European beauty market has continued to outperform other consumer segments and so you’re still seeing double-digit growth across the industry overall,” Ashley Wallace, an analyst at Bank of America, said. “To be able to get small joy out of purchasing some sort of beauty product has allowed the industry to remain relatively resilient.”

There is a notable difference, too, from the environment during Covid, when people turned to digital platforms to seek out beauty products to perk up periods in lockdown. Physical retail is coming back into fashion and some of the companies making the biggest gains have focused on their in-store customers as shoppers go in search of a more personalised experience.

Among them is Sephora, which closed its six British stores in 2005. Last year the beauty retailer returned to the UK and today it operates three stores in Manchester and London, with plans to open a fourth in Newcastle in September.

“We’ve seen the closure of many department store doors and those are the doors that traditionally people would go to to buy a lot of their premium beauty,” Sarah Boyd, the managing director of Sephora UK, said. “So, with Sephora entering the market, the whole shape of the market has changed quite a lot.”

Founded in Limoges, France, in 1970, Sephora sells a range of beauty and cosmetics brands, including its own products. Owned by LVMH, the luxury goods conglomerate, the company has about 3,000 stores in 35 countries and employs 46,000 or so people.

With its limited number of stores in the UK, more than 80 per cent of its sales in the country are made online, but it is intent on expanding its network of stores. “You can have access to our products online and, yes, we’re going to do a fantastic job of getting products to you very quickly,” Boyd said. “You can come and have that physical experience, which is why we’re seeing demand before the stores open.”

Space NK is another beauty retailer that has had success in the British market. Founded in 1991, it has more than 100 stores in the UK, the Republic of Ireland and the United States. It reported sales of £146 million for the year to March 25, 2023, and a pre-tax profit of £2.3 million.

Boyd puts the success of the British beauty industry down to the desire of brands and retailers to create consumer demand. “I think that idea of constant evolution and constantly pushing the boundaries is something that you see in the beauty industry perhaps more than some others,” she said.

Sephora and Space NK aren’t the only companies making strides, Wallace noted. L’Oréal has reported strong half-year results, particularly in its European division. The company, which owns the Maybelline and NYX make-up brands, achieved a 7.3 per cent increase in sales during the first six months of this year to €22.1 billion, with an 11.1 per cent growth in revenues in Europe.

“For L’Oréal, it’s a similar dynamic, where in Europe this continues to be one of the markets that has held up well and is delivering double-digit growth, well above the longer-term history of the beauty industry in Europe,” she said.

Of course, personal beauty budgets are finite and while some companies are thriving, others have struggled to persuade customers to open their wallets.

In February The Body Shop announced it had been put into administration only months after it had been bought by Aurelius, a private equity firm, for £207 million. The make-up and skincare brand made famous by Dame Anita Roddick for its focus on ethically sourced products had undergone restructuring as it sought to stay open after its sales slowed following the pandemic.

“I think there’s an interesting question about the retail experience and it always struck me that The Body Shop was always a brand that was best experienced in person,” Becky Willan, the chief executive of Given, a consultancy business, and a former environmental manager at The Body Shop, said. “At a time when direct-to-consumer is really booming and you have a whole new generation of people who are way more knowledgeable about ingredients than ever before, what does that mean for the in-person experience?”

Wallace argued that brands such as Space NK and Sephora, which place high importance on a customer’s in-store visit, had proved themselves in recent years. “I think compared with some other retailers that have pushed more the offline-to-online shift, there is a much bigger emphasis from Sephora to bring those customers back in store. Obviously during Covid there was a big increase in online penetration, which has almost completely unwound across the broader consumer landscape.”

In its half-year results LVMH singled out Sephora as one of its highest-growth brands, with “double-digit growth in revenue and profit”.

In contrast, some brands that have focused heavily on their online sales model and have moved away from innovations and a focus on customers have struggled. This month Morphe, an American beauty label, said that it had closed all its UK stores with immediate effect.

“You’ve had quite a number of retailers in the UK launch beauty as part of their online offering — you saw that happen at players like Farfetch and Asos — to see if the consumer was willing to put an extra lipstick or nail polish into their basket, as that was supposed to be a driver of incremental revenues for those players, “ Wallace said. “Actually, we’ve seen that those companies ultimately de-emphasise this strategy.”

Willan concluded: “Of the beauty brands that really thrive in this next chapter, some of them will be direct-to-consumer and totally digital, but I think recapturing the experience that you can only get through in-person interaction will be really important.”

Asked last year about his apprentice’s entrepreneurial track record, Sugar said, with characteristic bluntness: “He did do nail clippers, but basically he made all his money out of make-up brush cleaning. He’s a millionaire now. He’s a very nice boy. He’s learnt a lot from me.”

The business that Pellereau, 45, set up, Stylideas, brought in revenue of £5 million last year, and he expects it to reach nearly £7 million this year. Employing 14 people, it distributes its devices, gels and cleaning lotions through retailers such as Boots, Argos and Lookfantastic.

Pellereau’s bestselling invention, as Sugar said, is the StylPro make-up brush cleaner and drier, which does the job quickly, efficiently and at a price, £29.99, designed to be accessible to most people. In the five years since its launch, Pellereau has sold 2.5 million units, including almost a million through Costco, the wholesaler, in the United States.

“Ten years ago,” according to Pellereau, “make-up brushes were just any old sort of brush. Nowadays they are £10, £15, £20 and even £50, across 20 different types. If you don’t clean them, bacteria grows inside them and you are putting bacteria back on to your face.” With his device, you can “clean and dry a make-up brush in 30 seconds. That product changed my life almost as much as The Apprentice did.”

After the brush cleaner, his next bestseller was a bit left-field: a beauty products mini-fridge, which he designed after being asked to look at the idea by one of his retailers. The £59.99 gadget took off during the pandemic.

There are also the original curved nail files, which took the business to revenue of about £1 million in 2019 (but probably no further,because “you have got to sell a lot of nail files to have a business”), as well as various nail polish removers and brush cleaners, which are made in Britain. Most of the other devices, including its new range of red-light electrical beauty products due to be launched in September, are produced overseas, helping to keep costs down.

Beauty is a crowded market with lots of small players vying for shoppers’ attention. Only a few really gain traction, with one example being the Tangle Teezer brush, designed by Shaun Pulfrey, the hairdresser and launched in 2007. He built it into a business boasting turnover of £39 million before selling a majority stake in 2021 to a private equity buyer for a reputed £70 million.

For Pellereau, finding product ideas that resonate is an art rather than a science. For his bestseller, the reaction from early focus groups was not promising. “People were like, ‘Yeah, well, it’s not that big a problem is it? Maybe I’d pay £15.’ I thought, ‘I’m not sure I agree with that.’ So you make some more prototypes and show people and start small.

“There is a brilliant book called Little Bets [by Peter Sims] that has this philosophy of it’s not all about firing cannon balls at the beginning, it is about firing little bullets and trying different things. And that’s how you build great products.” His company did just that, with small-scale early sales and several product iterations, based on feedback. “We took a bit of a risk and then it worked.”

Innovators, such as writers and musicians, can stumble after their first big success. Pellereau admits to a difficult second album. “There is another product called a beauty blender, which is like a sponge that is used a lot along with a brush. The market was telling us we should do a sponge cleaner. So we spent ages making prototypes. The retailers were quite excited about it and they wanted to launch it at Christmas. We bought a lot [of stock], we didn’t follow the rule of start small and build up, we convinced ourselves into it.”

You can sense what comes next. “We launched it and it just sold very slowly. The bottom line was that people talk about wanting to clean things and reuse them, but actually they were just throwing these sponges away. Even though we were saying these are the number going to landfill every year and we all want to be more sustainable, they looked at it and said it was not a problem we have.

“So, yes, the second album, so to speak, we got wrong. It took a year to two years to recover from. It also changed my outlook to one where I think we can’t take these big bets and convince ourselves we are right. That is not the right approach. Our role as innovators is to listen, to understand and try to provide the best quality at the best price.”

He describes his customers as those “who have tight budgets and are looking to buy things in the £50 to £100 range, as opposed to £300 to £400”. Other companies’ fast-growing beauty devices, such as CurrentBody’s LED anti-ageing light mask, worn by the main character of the Netflix rom-com Emily in Paris , retail at £299. Pellereau’s newly launched StylPro Wavelength LED Face Mask, which he claims has twice the power level, has just gone on sale on the Lookfantastic website at £99.99. Its first review, written by a user called Ellie, gave it five stars with the headline “Obsessed!” She added: “It’s the perfect addition to my morning skin routine — an essential!” As far as Pellereau is concerned, “light technology is going to become a very big part of skincare”.

The facemask is one of six new products he has designed that will be launched formally in early September. They have been developed over the past two years and he’s now working on what he hopes will be selling well for Christmas next year. In some senses, the idea generation is becoming easier. “We are able to scrape things like TikTok, Instagram, Amazon and Google to see what people are talking about, what it is they are buying. We are able to make innovation a much more analysis-type approach, whereas previously it was, ‘Oh, I think a curved nail file would be a good idea.’ ”

The partnership with Sugar still pays dividends. The men meet monthly for board meetings and Sugar’s finance team provides support to Stylideas. Our interview takes place on the day that A-level results are released and when asked about his relationship with Sugar, Pellereau said “I feel a bit like he is that headmaster who people say actually quite likes you and you say, ‘Sorry, what?’ ”

Despite the absence of public displays of affection, much has passed between mentor and mentee. “I am an engineer, that is how I think and I always go too technical. Lord Sugar is fantastic at keeping things simple. Then there is [his advice on] how to deal with retailers, because they are very challenging to work with. He has been pretty insightful in that respect. And thirdly, there is working with suppliers. He was one of the pioneers on going to Asia.”

And his preferred alternative to the headmaster’s “very nice boy” summary of his efforts? “That I love technology, finding new things and helping to democratise them.”

Advanced Micro Devices, based in Santa Clara, California, plans to buy ZT Systems, a designer of equipment for cloud computing and AI.

AMD is the main rival to Nvidia in the design of graphics processing units, chips that can perform mathematical calculations on large data sets in parallel and at high speed. There has been a surge in demand for such GPUs from companies experimenting with AI-powered innovations.

Founded in 1969 and with a market capitalisation of about $247 billion, AMD said it was buying ZT Systems so that it could test and roll out its latest AI GPUs more quickly and at the scale required by cloud computing groups such as Microsoft. It will benefit from the addition of about 1,000 ZT Systems engineers to help to speed up its growth plans.

Lisa Su, the chief executive of AMD, said: “The main way [ZT Systems] is additive to the company is that we sell more GPUs.”

AMD planned to break off its server manufacturing business and would sell it once the deal had been completed, as it had no plans to compete with companies such as Super Micro Computer, Su, 54, said. At present, ZT Systems generates annual revenues of about $10 billion.

Nvidia is by far the dominant player in GPUs, with a market share of 88 per cent in the first quarter of the year, compared with 12 per cent for AMD, according to Jon Peddie Research, a computer graphics specialist.

Microsoft said in May that it planned to offer its cloud computing customers a platform of AMD artificial intelligence chips, which would compete with components made by Nvidia. The MI300X AI chips from AMD will be sold through Microsoft’s Azure cloud computing service, giving customers an alternative to Nvidia’s product, which can be hard to obtain owing to high demand.

AMD said it would acquire ZT Systems for $4.9 billion. It has agreed to pay for 75 per cent of the acquisition with cash and the remainder in stock. The company had $5.34 billion in cash and short-term investments as of the second quarter.

Frank Zhang, ZT Systems’ chief executive, will join AMD and will report to Forrest Norrod, its data centre chief.

AMD’s shares closed up by $6.72, or 4.5 per cent, at $155.28 in New York on Monday.

Figures set to be published on Wednesday will shape the narrative about how much fiscal firepower Britain’s first female chancellor has at her disposal for the budget on October 30. Analysts expect the Office for National Statistics to say that the government borrowed £1.9 billion in July, above the Office for Budget Responsibility’s projection but down sharply from the £14.5 billion figure in June, thanks to the usual influx in tax receipts during the month.

So far this year, borrowing has already exceeded the OBR’s forecasts by £3.2 billion. Nevertheless, conditions have improved since it last produced a forecast for the economy in March. Growth has been punchier than anticipated, the Bank of England has lowered interest rates for the first time in more than four years and inflation is back to about its target, although it did rise to 2.2 per cent in July, from 2 per cent.

Higher debt levels and weak underlying growth have increased the public finances’ exposure to changes in interest rates, making it difficult for chancellors to substantially cut taxes or to lift spending without breaching their fiscal rules.

Traders in financial markets believe that the Bank will cut rates twice more this year, taking the base rate down to 4.5 per cent from 5 per cent. There is, they think, a 50-50 chance that rates will fall at the Bank’s next ratesetting meeting on September 19.

Reeves has said that she will stick to the present targets of getting debt as a share of GDP falling in five years and of balancing the current budget. However, she has hinted at tweaking the debt definition used in the rules, which may release £16 billion of cash. Headroom against the targets was estimated at £8.9 billion after the budget in March.

Analysts at Investec said: “Significant deviations in [borrowing] from what the OBR had factored in for the March budget will affect the headroom Reeves has to work with when it comes to her own autumn budget.”

Alex Kerr, at Capital Economics, the consultancy, said: “We think borrowing overshot the OBR’s forecasts once again in July, perhaps by £2.4 billion. That would probably fuel the narrative of the difficult decisions the chancellor faces.”

James Smith, developed markets economist at ING, the Dutch bank, said: “The public finance backdrop is tight and we suspect Reeves will be looking at a range of tweaks to minor taxes and reliefs, as well as potential changes to the fiscal rules.”

The chancellor is expected to raise taxes in her inaugural budget after warning of a £21.9 billion government overspend, part of which was inherited from the previous Conservative government. The largest contribution to that overspend was Reeves’ own decision to grant a £9.4 billion pay increase for public sector workers. Train drivers are in line for a 14 per cent pay bump.

Unprotected government departments, such as local councils and the justice system, are facing about £20 billion of real terms budget cuts. The chancellor abolished several investment projects when announcing her “fiscal audit”.

Responding to GDP figures last week that showed the economy had expanded by 0.6 per cent in the three months to the end of June, Jeremy Hunt, the former chancellor, said that Reeves’ attempt to “blame her economic inheritance on her decision to raise taxes, tax rises she had always planned, will not wash with the public”.

It is unclear which specific taxes Reeves could raise, although there is speculation that she will look to increase revenues from capital gains tax. She has ruled out lifting the main rates of income tax, national insurance and VAT, as outlined in the Labour general election manifesto.

Before the next budget, the Bank will announce its latest interest rate decision and, more crucially, the amount of government bonds it plans to sell over the next year as part of its quantitative tightening programme. If the central bank decides to scale back disposals from the present pace of £100 billion a year, Reeves would receive a fiscal boost. Under the existing regime, the Treasury covers any losses that the Bank incurs when selling the bonds, which could reach an estimated £90 billion. Fewer bonds being disposed of would reduce Treasury payments to the Bank in the near term.

Before the election, no commitments could be made by Reeves and her colleagues unless they were “fully funded”, that is there would be no addition to public borrowing. This paranoia about additional borrowing has continued as Labour has moved from opposition into government.

On July 29, our new chancellor made a statement that allegedly uncovered a £22 billion “black hole” in the public finances. Despite subsequent analysis suggesting that half of this addition to the deficit was down to the chancellor’s own decisions, closing this “black hole” and reining in borrowing is likely to feature significantly in Reeves’ first budget on October 30.

Underpinning all this concern and anxiety is the notion that public borrowing is a “bad thing” to beavoided at all costs. This idea has been a damaging notion permeating British politics for manyyears. It is time to knock it on the head.

In the private sector, borrowing generally is regarded as part-and-parcel of a healthy economy.Businesses need to borrow to fund investment and to finance new initiatives. Households need toborrow for a mortgage to buy a house or to fund other large purchases. We rarely questionwhether this is a good thing or not.

Indeed, the most recent episode when excessive borrowing caused serious economic problemswas the 2007-09 global financial crisis, driven by excessive bank lending to the private sector. Inother words, private borrowing, rather than public borrowing, has been a bigger source ofeconomic instability in recent times.

So why are we so preoccupied with high public borrowing? The answer lies in the mists of time,nearly 50 years ago. In the 1970s, the government borrowed too much and this led to aneconomic crisis in the mid-1970s, with Britain forced to go to the International MonetaryFund for financial support in 1976.

The scars of that experience run deep in our national psyche. We received a reminder ofthis episode when Liz Truss’s government came to power and appeared to be taking an irresponsible financial course. The economic and financial problems created by Truss and Kwasi Kwarteng, her chancellor, in 2022 were short-lived, but they were a reminder of the difficulties that can be caused by bad decisions on public finances.

In some countries, there have been recent crises in which the lack of public sector financial disciplinehas played a part in creating broader economic and financial problems. Greece and the eurofinancial crisis in the 2010s come to mind, as well as Argentina and the troubles of other South American states. But these are countries that have little in common with Britain.

In a country like the UK, which has run broadly sound economic policies for more than 300 years, thekey issue is to maintain the confidence of financial markets. This means ensuring that theinternational and domestic financial markets will buy government bonds because they haveconfidence in the economic policies of the government in power. If that financial confidence ismaintained, the exact level of public borrowing or debt is not a significant issue.

Clearly, it helps if the government in power follows some basic rules. In normal times, the level ofpublic borrowing should be kept at about 2 per cent to 3 per cent of GDP, what I would describe as the “safety zone” for public finances. That has been the case on average since 1948-49, when UK publicborrowing has averaged 2.8 per cent of GDP. In today’s values, this would mean a budget deficit of£60 billion to £90 billion.

It also helps if public borrowing is used to finance investment rather than current spending overthe longer term, which is a principle the new chancellor supported in opposition. But these areguidelines, not “fiscal rules”. If these guidelines are turned into iron-clad fiscal rules, they canbecome a straitjacket that prevents sensible economic policy decisions.

There will be times when public borrowing should be allowed to breach these limits. Recentexamples when this has happened are during the global financial crisis of 2007-09 and in itsaftermath, while the pandemic in the early 2020s placed strains on public finances that could not be accommodated by normal “fiscal rules”. In these circumstances, higher-than-normal borrowing is needed to keep the economy stable. The broader stability of the economy is more important than slavish adherence to a fiscal rule.

I am not advocating an uncontrolled splurge of public borrowing, Instead, we need a more flexibleapproach that allows the government to borrow when it is sensible to do so. If governmentborrowing is inhibited by so-called fiscal rules, we can be denying the opportunity to invest intransport and other essential infrastructure necessary to support the future growth of theeconomy.

Nor am I arguing for an unsustainable build-up of public debt. The economy has coped withvarying levels of debt. Over the postwar period, our public debt-to-GDP ratio has fluctuated between30 per cent of GDP and 250 per cent and at present is at 90 per cent to 100 per cent, close to the long-term average for the past 300 years. There is no economic theory that can dictate the ideal level ofpublic debt, but if public borrowing is properly controlled, then the level of public debt normally will take care of itself.

I doubt if these words of advice — to be more flexible about public borrowing limits — will appeal toReeves. She is likely to see more flexible fiscal rules as diluting the control of the Treasury over her spending colleagues. It is so much easier for the Treasury to insist that proposal X or policy Y will breach Treasury fiscal rules, rather than having a reasoned argument in cabinet on its merits.

So we are probably stuck with rigid and restrictive fiscal deficit and debt rules under thisgovernment. Sound economic arguments for more pragmatism and flexibility about the level ofpublic borrowing are, sadly, likely to go unheeded.

Andrew Sentance is an independent business economist and a former member of the Bank of England’s monetary policy committee