All bets are off at the Bank
BRITAIN’S economy may have ‘turned the corner’ but hopes of early interest rate cuts, easing borrowing conditions for business and pressure on homeowners, are retreating.
america’s growth spurt and tightening labour market are keeping up pressure on prices across the atlantic. restoring inflation to the Federal reserve’s 2pc target is a struggle.
Headline consumer prices in the Us climbed 3.5pc in March following a 3.2pc rise in February. Closely-watched core inflation, which excludes volatile petrol and good prices, increased over the last three months at an annual rate of 4.5pc.
the door has slammed on a June interest rate cut. instead of six or seven reductions in Us rates this year markets are now forecasting just two, ending the year with a Federal Funds rate of 4.75pc-to-5pc.
the Us has direct impact on Britain. the pound fell, the FTSE 100’ s glorious progress toward 8,000 was stunted and gilt-edged yields ticked upwards.
Potentially, UK cost of living could trend down more quickly than the Us.
But a cautious Bank of England is unlikely to rush to cut rates even though the economy badly needs a boost amid sluggish output. the value of the pound does not dictate interest rate decisions.
Yet a cut in UK bank rate from 5.25pc, at time when borrowing costs in the Us are on hold, would risk weakening the pound and bond prices. Lower sterling raises import costs.
the Bank has overdone the monetary squeeze and ought to ease. But the Us’s enduring fight against inflation has put the kibosh on that.
Murphy’s law
TESCO continues to make ground at the expense of rivals.
in spite of price competition from German upstarts aldi and Lidl and the quality challenge from Waitrose and M&s, the nation’s most powerful grocer increased market share in the 2023-24 financial year, posted the highest pre-tax earnings for a decade and projects operating profits of £2.8bn in the current year.
the scale of profitability, when cost of living pressures were pressing, sparked dissonance – the Unite union accused it of ‘raking in mountains of cash’.
Better though that tesco’s buoyancy benefits investors in the UK through an uplift in dividends and a £1bn share buyback. in case Unite didn’t notice, some 220,000 colleagues will share a £70m ‘thankyou’ payment, worth 1.5pc of annual income, which would mean a full-time employee taking home an extra £300.
that is dandy but will look mean when the board pay report surfaces in the coming days. Chief executive Ken Murphy pocketed £4.4m in the previous year.
By the standards of food suppliers, Unilever’s profit margin is above 16pc, tesco cannot be accused of ‘greedflation’, with a margin of 4.1pc.
the group is bolstered by the difficulties of some competitors. asda and Morrisons have been squeezed by private equity ownership which has clobbered them with financing costs. on the plus side it has competed well by price matching with aldi, through its Clubcard loyalty card and a double- digit increase in sales from its upmarket ‘Finest’ range.
this may have drawn sales from Waitrose. one expects the new John Lewis/ Waitrose chairman, tesco exile Jason tarry, may have answers to that.
Murphy’s work on combatting shoplifting and assaults on staff, launched in the Mail on sunday, is paying off with rishi sunak’s decision to make attacks on shop workers a specific criminal offence.
supermarket staff, in the front line of a battle with bad behaviours, need support.
Mud Hut
AS A growth online distributor, Matt Moulding’s the Hut Group, now called THG, is judged on revenues and earnings before interest and depreciation.
so it is disappointing that sales in all three main categories – Beauty, nutrition and ingenuity (the tech arm) – dropped in 2023. all very complex – but adjusted earnings still reached £120.4m.
We are told Beauty perked up in the final quarter and investment in ai and automation should improve outcomes. Consolidated accounts show overall losses halved, at £248,372. Happy days postponed.