Corporate reporting in the UK seems to be finally starting to wind down for Christmas, but with inflation figures and the latest announcement from the Bank of England, there has still been plenty for British investors to dig their teeth into this week.
In this week’s FTSE Friday, we’ll be looking at the economic situation through three company-specific lenses:
- Debt
- Spending
- Inventories
But first, an overview of the events from this week.
November’s inflation figures (published on Wednesday) have climbed down slightly from the previous month, but both the retail price index and consumer price index are almost double the level they were at this time last year at 14% and 10.7% respectively.
On Thursday the Bank of England raised UK base rates to 3.5% - its highest level in 14 years. In a bid to stem the tide of rising prices, the UK’s central bank has now raised the rates nine times in a row, causing pain for borrowers (including those heavily indebted big British companies that we will look at in more detail below).
Neither the inflation nor the interest rate numbers will have come as much of a surprise. Although the BoE decision was split, making it hard to predict the next move.
Scenario One: Further interest rate hikes
One member of the BoE wanted to raise the rate by 0.75% this month, suggesting the hawkish policy could persist into the new year. Inflation is at an all time high and looks unlikely to climb down quickly in 2023 with the employment rate so high and wage growth so strong (albeit not in real terms).
Scenario Two: Freeze on rates
Two members called for a freeze on rate hikes during this months announcement and they have been supported by the fact that inflation seems to have peaked, suggesting recession could indeed be on the horizon. Falling house prices, putting extra pressure on the cost of living crisis add another rather gloomy string in the bow of those calling for a more dovish stance in the new year.
Either way, the state of the economy is impacting the UK’s listed companies. And conversely, we can use company reporting as both a leading indicator of the outlook for 2023.
Expenditure: A leading indicator
One of the first updates we will get on the health of the economy will come from UK company Christmas trading updates. Expenditure during…
