November 29, 2016

Pegler’s market report – 29.11.16: Consumers rack up debt at fastest pace since the pre-crash boom years

As published in the Brighton Argus (29.11.16) Business on page 21 under the title Pegler’s Market Report:

Consumers rack up debt at fastest pace since the pre-crash boom years

British shoppers are increasing borrowing at the fastest pace since 2006, according to new bank industry figures, as low interest rates combined with high consumer confidence is encouraging debt-fuelled spending.

Consumer credit rocketed at 7.2pc in the year to October, the British Bankers’ Association said, much faster than the 6.7pc growth in the 12 months to September and well above the 5.1pc growth witnessed a year ago.

Credit card debts climbed to £62.2bn in October, a rise of £221m compared to last month and up £2.3bn on the year. This is the highest level since late 2010.

The Chancellor’s plans to borrow more to increase spending, announced as part of the Autumn Statement, sparked a sell-off in UK government bonds. Increased resources for local and regional transport infrastructure, broadband, housing and innovation will boost business confidence at a critical moment. However, some commentators claimed that with Brexit and the US election results to digest, the Autumn statement has added an unexpected rise in the minimum wage together with a hike in employers’ national insurance and a restriction on using losses and offsetting interest costs. Adding the uncertainty around a supply of workers once we leave the EU it is likely to be a tough few years for those businesses which employ high numbers of people.

Going forward the UK will hold annual budgets in Autumn from 2017 and then provide additional spring fiscal statements.

Attention was also on the Office for Budget Responsibility (OBR) forecasts, which highlighted that public sector borrowing will increase by an additional £118 billion over the next five years, the majority of which it claims will be used to offset the costs of Brexit. Prior to the Referendum on June 23, the Treasury under George Osborne warned that leaving the European Union would result in 500,000 job losses. However, the OBR’s forecast goes against this, with employment expected to rise by half a million by 2021.

Domino’s Pizza is planning to grow its share of the UK market by adding an extra 400 stores to its long-term growth plans in the UK. The pizza giant told investors that strong sales in the UK meant it had boosted its target for UK stores by a third to 1,600, up from 1,200 outlets previously.

Outside the UK, Domino’s plans to open 400 stores in new markets including Iceland, Norway and Sweden as part of its international drive due to start before the end of the year.

The US dollar rally is pressuring all the global currencies and investors are turning their attention towards pricing political risks into Europe with a number of different electoral events to come over the next year.

By David Pegler, Brighton Capital Management