August 7, 2018

Pegler’s market report – 07.08.18: The UK raises interest rates

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (07.08.18) Business section under the title Pegler’s Market Report:

The UK raises interest rates

The Bank of England’s Monetary Policy Committee voted unanimously to raise interest rates by a quarter of a percentage point to 0.75pc last Thursday.

The increase took the UK base rate to its highest level for almost a decade, an outcome widely anticipated by analysts, although the 9-0 vote in favour of the 25-basis point increase was more hawkish than many had predicted.

The economy had done just about enough for the Bank of England to justify a hike however many analysts think that the BoE are unlikely to raise rates further in the next few months, given the “risks on the horizon”, the most ominous of which being Brexit.

Recent data indicated that the first-quarter slowdown in UK growth was temporary, and therefore the BoE slightly raised its GDP forecasts. It now expects the UK economy to grow 1.5pc this year, compared with 1.4pc forecast previously, and then by 1.8pc in 2019.

Apple beat Amazon and Google to reach the landmark $1 trillion valuation last week, the first company to ever reach such heights.

Despite the recent rollercoaster ride, the five key tech stocks, known as the “Faangs” – Facebook, Amazon, Apple, Netflix, and Alphabet-owned Google – have reached breath taking heights. The total value of the five companies amounts to a staggering 19pc of total US GDP. But their surge in value will prompt fears by some of a re-run of the dotcom boom of the late 1990s, when technology businesses dominated the stock market before coming crashing to earth.

Next’s share price tumbled, despite the retailer reporting a 2.8pc rise in full-price sales in the second quarter. Some investors were disappointed that the retailer failed to upgrade its profit expectations for the year after the better-than-expected quarterly performance. Taking a cautious stance, Next said it would wait to see how the rest of the summer goes before moving guidance.

Growth was driven by online sales, which were up 12.5pc in the 12 weeks to July. This offset further weakness in store-based sales, which were down 5.9pc. So far this year, Next’s online sales are up 15.5pc, while in-store sales are down 5.3pc.

Lloyds Banking Group reported a 23pc jump in first-half profits despite taking another £550m hit from the payment protection insurance (PPI) scandal. Pre-tax profits rose to £3.1bn on revenues that were up 2pc at £9.5bn. Lloyds also increased its net interest margin – the difference between the interest it pays savers and what it earns from borrowers – to 2.93pc from 2.82pc a year earlier. The group plans to pay an interim dividend of 1.07p a share, up 7pc year-on-year.

This week investors can expect results from other financial giants – HSBC, Standard Life Aberdeen, Prudential and Legal & General. The Office for National Statistics (ONS) will also publish its first estimate of the UK economy’s growth in the three months to June.

By David Pegler, Brighton Capital Management