Walker Crips News

Market Commentary: Week to 5 December 2023

Market Commentary: Week to 5 December 2023

5 December 2023

Market News

Bank of England ("BoE") Governor Andrew Bailey and Deputy Governor Dave Ramsden last week underscored the challenges ahead in taming inflation. Bailey, in an interview with The Chronicle, acknowledged the difficulty of the next stage in the fight against inflation. While welcoming recent data, Bailey was sceptical that the 2% target will be achieved any time soon, predicting inflation to stand at around 4% by the end of the first quarter of 2024. Deputy Governor Ramsden, interviewed on Bloomberg TV and at a conference in Hong Kong, emphasised the need for a prolonged restrictive policy to further reduce inflation, projecting no return to target before the end of 2025.

The latest economic outlook report from the Organisation for Economic Cooperation and Development ("OECD") added to the cautious tone, predicting that Britain is set to have the second-weakest growth in the G7 over the next two years, coupled with the highest inflation rate in 2023 among advanced economies. The projection includes a 0.5% gross domestic product growth for 2023, revised up from 0.3%, and an average inflation rate of 7.3%. The OECD report suggests the BoE may not cut rates until 2025.

In the Autumn statement it was announced there would be a 10% minimum wage hike raising concerns among business leaders that inflation could spiral again. The British Retail Consortium and NielsenIQ data showed a sixth consecutive drop in UK shop price inflation easing to 4.3% in early November, the lowest since 2022. However, British Retail Consortium Chief Executive Officer, Helen Dickinson, warned of new headwinds in 2024 including government-imposed increases in business rates, compliance costs and the rise in the National Living Wage.

The Competition and Markets Authority reported findings that grocery brands have been raising prices more aggressively than justified during the inflation crisis. However, many customers simply shifted to cheaper alternatives which mitigated the impact at the till, reflecting market responses to inflationary pressures.

The latest experimental data from the Office for National Statistics on UK unemployment showed the tightness of the labour market challenging BoE assumptions. The unemployment rate came out to be 3.5%, the lowest since the 1970s.

The UK property market displayed signs of weakness, with increased discounting by sellers to secure sales, as reflected in a five-year-high gap between asking prices and sale values. Yet, BoE mortgage approval data and recent house price trends indicate underlying resilience in the housing market. Net approvals for house purchases surpassed expectations in October. House prices also edged up for the second consecutive month, surprising on the upside. Zoopla also released an update on the property market revealing a shift, with an increase in the number of homes for sale per UK estate agency branch. The mortgage approval data and house price trends suggest ongoing demand and resilience.

Stock Focus

Rolls-Royce Holdings, the multinational aerospace and defence company, saw its share price increase by approximately 14.8% last week. The company hosted a capital markets day, at which investors appeared to be impressed with its outlook and figures. Rolls-Royce stated that its current trading is in line with the guidance provided in its half-year results and the guidance for the year remains unchanged.

Dr Martens, the UK footwear manufacturer and retailer, announced its half-year results last week which saw its share price close the week approximately 12% lower. The company issued a larger profit warning than expected, largely led by weak US wholesale trading. Dr Martens’ management said it expected full year revenues to decline by a “high single-digit percentage” as a number of execution issues and macro headwinds have adversely affected the company’s performance.

Lloyds Banking Group saw its shares close the week approximately 2.6% higher last week. Bloomberg reported that Lloyds has been looking at a potential deal to acquire Tesco Bank. The article suggested that talks are in the early stages and that deal structure has yet to be determined. It was also noted that there were a number of other companies potentially looking at Tesco Bank, with no certainty that this would lead to a formal offer.

Market Commentary prepared by Walker Crips Investment Management Limited.

Important information

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