August 23, 2016

Pegler’s market report – 23.08.16: Shoppers shrug off Brexit vote with spending spree

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (23.08.16) Business on page 21 under the title Pegler’s Market Report:

Shoppers shrug off Brexit vote with spending spree

Britain’s shoppers went on a spending spree in July, bolstering the economy and defying fears that June’s Brexit referendum would dent confidence.

Retail sales soared by 5.9pc compared with the same month a year earlier, according to the Office for National Statistics. The jump reverses June’s slowdown and indicates renewed confidence among households.

Falling prices in shops are another factor that encouraged shoppers to buy more, while the drop in the pound also makes prices in British shops cheaper for foreign tourists visiting the UK.

The impact of the lower pound may not all be positive, however – the price of imports will rise as a result, and economists believe this could push inflation above 3pc by the end of next year.

Newly installed Asda boss Sean Clarke has been left in no doubt about the challenge ahead of him after the supermarket chain reported a 7.5pc drop in like-for-like sales in the second quarter, its worst fall on record.

In common with its “big four” rivals – Tesco, Sainsbury’s and Morrisons – Asda has been hit by price deflation in the grocery sector, as well as stiff competition from the fast-growing discount chains Aldi and Lidl. But while Tesco and Morrisons have made strides in turning around their fortunes, Asda continues to lag the group on sales growth.

The troubled Co-operative Bank lost another £177m in the first half of this year as PPI compensation jumped and revenues fell – but the bank managed to slash its costs, so losses were not quite as bad as last year.

Bosses said the fallout from the Brexit referendum could delay the bank’s recovery if demand for mortgages falls and the economy slows down. Lower interest rates will also squash the margin it earns on lending, harming its profitability.

Kingfisher, the home improvement retailer behind B&Q and Screwfix, has beaten market expectations by posting a lift in summer sales on the back of seemingly insatiable demand from Britons who want to do it themselves.

The tools-to-taps retailer, which also owns DIY chains in France, Poland, Spain and Russia, posted £3bn sales in the three months to July 31, a 3pc rise on a like-for-like basis.

By David Pegler, Brighton Capital Management