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February 20, 2018

Pegler’s market report – 20.02.18: More inflation news and concerns over Toys R Us


in Insights Press Releases

As published in the Brighton Argus (20.02.18) Business section under the title Pegler’s Market Report:

More inflation news and concerns over Toys R Us  

New evidence of mounting US inflation has failed to derail the recovery from last week’s plunge in share prices, with global stock markets registering some much-needed gains. The consensus remains that there will be three rate hikes in the US this year, although some economists expect four given the strong economic growth and low unemployment rate.

UK inflation remained steady at 3 per cent in January – the same level as December but down from 3.1% in November.

The fact that UK inflation came in slightly above expectations would seem to strengthen the case for a rate rise in the coming months. Some market commentators think, that like the US, we could also see three hikes this year following the warning from the Bank of England that we should expect rates to rise faster and sooner than the markets are predicting.

Despite hopes of a pick-up in high street spending after a poor December, UK retail sales came in weaker than expected in January. Sales of gym wear improved but food sales fell, according to the Office for National Statistics.

UK house prices rose by 5.2% in the past year but by just 2.5% in London according to data from the Land Registry. It shows London as the worst performing region for the 13th month in a row. This now means that the average UK house cost £227,000 in December 2017 – £12,000 higher than a year earlier.

Toys R Us UK is moving closer into administration unless it can find new investors prepared to shoulder a £15m tax bill. Advisers to Britain’s largest standalone toy retailer, which employs more than 3,000 people in the UK, are racing to secure a rescue deal for the business, just days ahead of a 27 February deadline to meet a mammoth VAT demand. The Entertainer, a privately-owned chain, and Alteri Investors, an acquirer of distressed retailers, are understood to have held talks in the last fortnight about buying parts of Toys R Us UK, although their ongoing interest is unclear. Hilco Capital, which salvaged the music and entertainment retailer HMV in 2013, is also understood to have tabled a proposal.

Toys R Us UK has already been planning to shed up to 800 jobs through a process called a company voluntary arrangement (CVA), which was approved by creditors just three days before Christmas. In the UK, retailers including BHS, Focus DIY and JJB Sports have previously used CVAs to exit loss-making stores, although all three companies ultimately succumbed to the fast-changing retail environment. New Look is now working on a similar plan, while House of Fraser is seeking rent reductions from landlords.

Finally, tour operator TUI has reported a satisfactory first quarter trading update with seasonal losses down sharply and generally higher sales and earnings reported.

By David Pegler, Brighton Capital Management

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