February 7, 2017

Pegler’s market report – 07.02.17: Bank of England upgrades and further signs of inflationary pressures

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (07.02.17) Business under the title Pegler’s Market Report:

Bank of England upgrades and further signs of inflationary pressures

The Bank of England has upgraded its growth forecasts for the next three years as policymakers acknowledged the UK’s economic performance had been “markedly stronger” than its gloomy predictions following the Brexit vote. Growth in 2017 is now projected to be only slightly weaker than 2016, estimated to grow by 2pc this year. This is up from a forecast of 1.4pc in November and just 0.8pc last August.

The BoE report also highlighted a more gradual slowdown in consumer spending, measures announced by the Chancellor in the Autumn Statement, and stronger outlook for the global economy would all generally support UK output. The general tone of the Bank of England’s analysis reinforces most commentator’s belief that the next move in interest rates will be up – but this may not happen anytime soon. Conversely, if the UK economy suffers any major downward lurch during the Brexit process, the Bank of England would likely react by trimming interest rates further, although it is unlikely they would go lower than 0.10pc.

Meanwhile, growth in Britain’s services sector slowed for the first time in four months in January, as businesses battled the sharpest rise in costs in more than five years. The numbers were brighter across the Eurozone in general with output growth maintained at December’s five-and-a-half year high and job creation accelerating to a near-nine year record.

This theme of increasing UK inflationary pressures, which has been mentioned in previous weeks, is still very much in the news. British energy supplier Npower will hike the standard cost of gas and electricity by almost 10pc from next month, adding £109 to the average dual fuel bill of 1.4 million energy customers.

US Nonfarm payrolls increased by 227,000 jobs in January, the largest gain in four months and better than forecasts of 175,000. These jobs numbers together with other economic data released within the last week continues to demonstrate the ongoing resilience and strength of the US economy.

Elsewhere, shares in banks and insurance groups have rallied, following reports that US president Trump will take steps to dismantle regulations brought in to prevent another financial crisis. Scrapping legislation that stifles businesses was a central plank of Mr Trump’s election campaign, playing to his image as a successful tycoon who made billions in the private sector.

In company news, shares in Johnston Press moved ahead despite reporting a fall in revenues. The publisher of the i newspaper and more than 200 regional titles, including a number of Sussex newspapers, said a precipitous fall in sales slowed in the fourth quarter to leave revenues down 14pc for the year on a like-for-like basis. The company said classified advertising for property, cars and jobs was hit particularly badly, as the long-term structural shift to Google and specialist online marketplaces such as Auto Trader continued.

By David Pegler, Brighton Capital Management