5 March 2024
Market News
Bank of England ("BOE") Deputy Governor, Sir Dave Ramsden asserted this week that inflation pressures in the UK remain too high, emphasising the need for more evidence of easing before contemplating a cut in interest rates. Additionally, Ramsden suggested the possibility of the BOE selling all UK government bonds purchased under Quantitative Easing ("QE") to be more prepared for future crises. The move aims to safeguard public finances, as the Treasury underwrites losses incurred on these asset sales. Ramsden clarified that other liquidity tools would replace QE.
In February, the British Retail Consortium reported shop price data easing to its lowest levels since March 2022 at 2.5%, down from the prior 2.9%, primarily due to a fall in food prices. Kantar, the global data and consulting company, echoed this trend, noting a slowdown in British grocery inflation to 5.3% in the four weeks to 18 February. Cheap valuations have stimulated UK takeover deals, with the London market trading around 40% cheaper than global peers on a key merger and acquisition valuation metric.
The UK Chancellor, Jeremy Hunt, revealed plans to prioritise "smart tax cuts" in the upcoming Budget, albeit on a smaller scale than in November due to reduced fiscal space. National Insurance cuts are expected, estimated to cost around £4.5 billion, compared to income tax cuts. Job vacancies in the UK continue to decline, indicating a potential easing in the labour market, despite record-low unemployment. Adzuna data revealed a 15% decline from last year in the number of jobs advertised.
A survey by the British Chamber of Commerce highlighted that Red Sea tensions have impacted UK exporters and manufacturers, leading to rising container hire costs and delivery delays. A report by Allianz Trade identified the UK as having the highest proportion of "fragile firms" among major European economies, with insolvencies expected to rise in 2024.
BOE mortgage approval data for January surprised on the upside at 55,200 net approvals compared to a consensus estimate of 52,000, reflecting momentum in the UK housing market. A Reuters poll of property experts indicated that UK home prices are expected to flatline this year, rise 3% in 2025 and a further 4% in 2026. Zoopla reported a 15% increase in house sales in February compared to the same period last year, attributing the momentum to lower mortgage rates. While the market has been building momentum for five months, Zoopla does not anticipate further acceleration in house price growth in 2024.
Howden Joinery Group, the specialist kitchen and joinery supplier, saw its share price surge by approximately 5.5% last week after the company reported its final results. The company reported revenues of £2.3 billion, in line with their record performance in the previous year. The company also broadly maintained its gross profit margin at 60.8% despite higher cost inflation and a challenging economic environment. This maintained the strong cash generation for the company, resulting in a 1.9% increase in the dividend in comparison to last year. This resilient set of results in challenging conditions, boosted investor confidence, resulting in the increase in share price for the week.
Ocado, the technology-led software and robotics platform business, announced its final results last week which saw its share price close the week approximately 9.9% lower. The company reported revenue of £2.8 billion, a 9.9% increase compared to last year, largely driven by its Technology Solutions segment which saw revenue growth of approximately 44% compared to last year. However, despite reasonably positive numbers, the outlook for the company showed mixed reviews. Analysts raised concerns about ambitious mid-term targets and uncertainties related to the contingent consideration from the disposal of 50% of Ocado Retail Limited to Marks & Spencer.
Reckitt Benckiser Group, the global consumer goods company, saw its share price close the week approximately 11.7% lower after the company reported its final results. The company missed a number of key metrics, with revenue at £14.6 billion for the year compared to analyst expectations of £14.8 billion, operating profit at £3.4 billion compared to expectations of £3.5 billion and earnings per share of 323.4 pence versus consensus estimates of 331.6 pence. Analysts largely viewed the figures as negative and believe that investors might be concerned that this may not be an isolated incident
Market Commentary prepared by Walker Crips Investment Management Limited.
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