Market report: Inflation to keep Bank of England on hold
Steve Clayton, head of equity funds, Hargreaves Lansdown: “Markets have opened higher in the UK and Europe this morning, with the FTSE 100 around 0.2% ahead and European indices similar after taking their cue from some upbeat trading in Asia. This is despite a lacklustre session on Wall Street last night that saw minor losses across the board in US stocks with each of the Dow Jones, the S&P and the Nasdaq indices registering modest falls. Amongst the largest US names there were gains for Tesla, Meta, Amazon and Apple, whilst Nvidia, Microsoft and Broadcom all gave ground last night.
This morning’s UK inflation data for August will have the Bank of England thinking long and hard. The headlines are that core CPI dipped to 3.6% last month, down from 3.8% a month previously. The broader measure, which includes some of the more volatile elements like energy, food, alcohol and tobacco came in at +3.8%, unchanged on the month. Airfares were the biggest contributor to the fall in the core data, whilst the cost of motor fuel and dining out were the most significant upward influences on inflation during August. The cost of goods rose by 2.8% in the year to August, its highest pace in a couple of years. Service sector inflation which has been stubbornly high of late eased back to +4.7% from a pace of 5.0% in the year to July.
The Bank of England will welcome the easing in the pace of service price rises, but the overall level of inflation remains elevated compared to the Bank’s target rate and these numbers were no better than forecasts. It is perhaps Sod’s Law from the Bank’s perspective that just as services pricing starts to ease, goods prices begin edging higher. Overall, the Bank looks likely to keep rates on hold when they meet tomorrow. Markets are currently pricing in just one more quarter point cut between now and the end of next year. Today’s figures are unlikely to change that outlook, suggesting that mortgage rates will remain stubbornly high for a while to come. On the other hand, the downward pressure on savings rates may well ease a bit.
President Trump has arrived in the UK for his second state visit and GSK are rolling out the red carpet. The pharmaceutical giant has announced a package of $30 billion of investments into US R&D and Manufacturing capacity. To be fair, the details look a lot less compelling than the headlines: that $30 billion is spread over five years and includes monies that GSK’s suppliers will be spending, along with the monies that GSK was already going to be spending anyway. There is a new $1.2 billion investment in the package and GSK are keen to stress that introducing AI technology into their manufacturing across the States is part of the plan. GSK will be hoping that in following AstraZeneca’s previous announcements of major spending in the USA, they will help to avoid any sector-specific tariffs that might otherwise be coming their way.
State visits are all about diplomacy and spreading the love between Britain and the visiting dignitaries and the US is playing its part accordingly with Microsoft, Open AI, Salesforce Google and other major US tech players stepping up to the mic to announce major investments into the UK. Between them the companies are promising over £30bn of investments into the UK covering AI infrastructure, quantum computing projects and other tech spending.
Barratt Redrow announced their full year results this morning, HL equity analyst Aarin Chiekrie highlights that while the results did not bring any major surprise, completions were down almost 8% to 16,565 new homes, as higher stamp duty, a slow planning process and a weak London market all sapped buyer demand. In their outlook, Barrat Redrow signalled an uptick in volumes for the year ahead, but with uncertainties around the upcoming Budget abounding, the Autumn selling season is unusually uncertain this year. Full details below.
Crude Oil markets are trading sideways, with Brent crude a few cents lower this morning, after rallying from $65 to $68.3 in the last few sessions. Gold is seeing a little profit taking after the record highs set by the yellow metal in recent weeks. The metal is currently trading around $3671 per oz, just below its all-time high of $3689.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Barratt Redrow’s full-year results didn’t bring any major surprises as the housebuilder saw aggregate completions fall by nearly 8% to 16,565 new homes. Hurdles, such as higher stamp duty, slow changes to planning approvals, and a softer market in London have all weighed on buyer demand. But these numbers were already built into market expectations after a short trading update back in July.
The outlook was a key focus, and an expected uplift in buyer activity should see Barratt deliver between 17,200 and 17,800 new homes in the period. This assumes a normal Autumn selling season, though. However, the unusually late timing of this year’s Budget, and the uncertainty it brings around taxation and buyer affordability, means these targets are anything but guaranteed.
Build cost inflation is expected to stay within a manageable 1–2%, supported by cost savings from streamlining overlapping operations as Barratt and Redrow move closer to completing their integration. On the balance sheet side, there’s plenty of cash on hand, and Barratt Redrow has a strong landbank to unleash when demand picks back up. It’ll likely be a year or so before major benefits start to feed through to profits. In the meantime, Barratt’s valuation isn’t overly demanding, a reflection of the tricky market conditions.”