Reading the financial results of UK economic ‘bellweather’ Next should be done with the knowledge that the company’s chief executive Lord Simon Wolfson is a Conservative peer. He’s not using his statement to take a pop at the government (Lord Wolfson is cautious about the outlook for the economy no matter who is in power), but he is definitely unconvinced about the current government’s approach to economic policy.
I can’t say I blame him. Additional taxation and consistently high interest rates, policy decisions which create more red tape for British businesses, and untenable public sector spending requirements, don’t do much to instill confidence.
Next says the outlook for the UK economy is “anaemic at best”. A statement that seems to have been backed up by a mega profit warning from Pets at Home. It’s not a good sign when people aren’t willing to splurge on their pets like they did in the days of plenty.
Is this downbeat retail outlook a side effect of the continued high interest rates? It surely can’t be helping. In August, food price inflation rose for the fifth month in a row to 5.1%. Although a decline in the pace of growth of other items (airfares for example) left overall inflation unchanged from the 3.8% July figure.
With inflation still uncomfortably high, the unsurprising decision by the Bank of England this week was to keep interest rates firm at 4% and to slightly curb the quantitative tightening programme. The total value of government bonds up for sale has been lowered from £100bn to £70bn as the Monetary Policy Committee attempts to put a lid on rising bond yields. The market remained unmoved by this announcement. There aren’t a lot of surprises coming out of the central bank these days.
It’s far more interesting at the company level though, where results season in the smaller cap space continues apace next week.
And there are more companies with cyclical exposure gearing up to release their numbers. Kingfisher, for example, which owns B&Q and Screwfix in the UK and therefore has unavoidable exposure to the housing market. Hilton Food Group, which is exposed to pricing pressure from its supermarket customers, could also deliver something of interest, after its ‘not-a-profit-warning’ earlier in the month. In the energy space, we’ll have numbers from Yu Group, which features…
