May 16, 2017

Pegler’s market report – 16.05.17: Bank of England in the news

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (16.05.17) Business under the title Pegler’s Market Report:

Bank of England in the news

The Bank of England left interest rates unchanged at 0.25% but highlighted that inflation was heading towards 2.8% later this year – way above its 2% target for price rises. It also adjusted down its growth forecast for this year to 1.9% from 2%.

There was a warning that rising inflation would mean that pay could fall in real terms this year. “Wages won’t keep up with prices”, said governor Mark Carney. “This is going to be a more challenging time for households”. However, wage growth should pick up as the jobs market tightens in coming years, he added.

The Bank also suggested that interest rates could begin to rise in 2019, assuming a “smooth” Brexit which is not overly disruptive for the UK’s economy.

Financial markets were unperturbed by the Labour Party’s pledge to nationalise key industries, as it attempts to win over voters before next month’s election. According to a leaked copy of the party’s draft manifesto, Labour, under its leader Jeremy Corbyn, plans to nationalise rail and mail services and take some of the energy sector into public hands.

Markets were also not too unsettled amid the furore over Trump’s sacking of FBI Director James Comey last week. There is no doubt that something smells a little fishy in Trump using Comey’s handling of the Clinton email saga as a reason to sack the man leading the FBI investigation over his own ties with Russia. Political commentators have immediately drawn parallels with the Nixon scandal.

BT announced lower profits, reduced its outlook for dividend growth and cut 4,000 jobs in what chief executive Gavin Patterson described as a “challenging year”. For the year to the end of March, profit before tax was £2.35bn, down 19% from the previous year. The full-year dividend was increased 10% to 15.4p, but BT said it was reducing guidance for the coming financial year. The telecoms company has been plagued by negative news over the past year, including an accounting scandal in Italy and a £42m fine for “serious failings” at its Openreach division. Patterson and the company’s outgoing finance director will not receive annual bonuses this year.

Shares in Supergroup, the fashion retailer behind the Superdry brand, were softer despite recording a jump in sales on the back of the weaker pound. Sales rose by 27pc to £751m for the year to April. The recent fall in the value of sterling accounted for around a third of its growth across the retailer, which has shops in 62 different countries. However, Supergroup’s shares fell as analysts were disappointed by the lack of a profit upgrade and sounded a note of caution about the retailer’s drop in gross margins.

By David Pegler, Brighton Capital Management