(Alliance News) - Stocks in London are expected to open lower on Thursday, as investors wait for the Bank of England's interest rate decision, while the UK continues to be gripped by wild inflation.
The BoE announces its interest rate decision at 1200 BST on Thursday, and while a hike is a foregone conclusion, Wednesday's inflation data may have left policymakers in quandary but how aggressive they should be. Bank rate currently stands at 4.50%.
According to the Office for National Statistics on Wednesday, the UK annual inflation rate was unchanged at 8.7% in May. Inflation had been expected to cool to 8.4%, according to market consensus cited by FXStreet, so the latest figure was hotter than forecast.
"The BoE is the first major central bank that started hiking the rates to fight inflation. It proved to be the least efficient bank doing this job. British inflation is the worst among developed economies at nearly 9%. Consequently, the BoE will certainly be the last to finish hiking. The bank is expected to hike six more times, by 25bp, to reach a peak rate above the 6% by the end of this year, or the beginning of the next," said Ipek Ozkardeskaya, senior analyst at Swissquote.
In early UK corporate news, DS Smith reported annual profit growth, while hotel firm Whitbread has started off its financial year on decent footing.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: opened down 0.8% at 7,496.41
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Nikkei 225: closed down 0.9% at 33,264.88
S&P/ASX 200: closed down 1.6% at 7,195.50
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DJIA: closed down 102.35 points, or 0.3%, at 33,951.52
S&P 500: closed down 23.02 points, or 0.5%, at 4,365.69
Nasdaq Composite: closed down 165.10 points, or 1.2%, at 13,502.20
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EUR: up at USD1.0987 (USD1.0949)
GBP: up at USD1.2759 (USD1.2727)
USD: down at JPY141.85 (JPY142.00)
Gold: flat at USD1,930.53 per ounce (USD1,930.37)
(Brent): down at USD76.81 a barrel (USD76.92)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
16:00 CEST EU FCCI consumer confidence indicator
09:30 CEST Switzerland Swiss National Bank interest rate decision
12:00 BST UK Bank of England interest rate decision
08:30 EDT US unemployment insurance claims report
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UK Prime Minister Rishi Sunak says he feels a "deep moral responsibility" to deliver on his pledge to halve inflation after the key driver behind the cost-of-living crisis stayed static last month. Sunak, due to speak on Thursday at an economy-focused PM Connect event in the south-east of England, will look to reassure workers about the pressures being caused by rising prices. The Conservative Party leader will tell business figures that halving inflation is his administration's "number one priority" and that he wants to "get back" to the target of inflation being at 2% — less than a quarter of what it stood at last month. In pre-briefed comments, Sunak is expected to say: "I feel a deep moral responsibility to make sure the money you earn holds its value. "That's why our number one priority is to halve inflation this year and get back to the target of 2%. "And I'm completely confident that if we hold our nerve, we can do so." The premier's speech will take place after Bank of England decision-makers have met to look at interest rates.
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The US Federal Reserve expects to keep raising interest rates but at a slower pace, Fed chair Jerome Powell told a congressional hearing Wednesday. "Given how far we've come, it may make sense to move rates higher but to do so at a more moderate pace," he told the House Committee on Financial Services. The Federal Open Market Committee paused its aggressive campaign against inflation last week after 10 consecutive interest rate hikes, so as to give policymakers more time to assess the strength of the US economy. "Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year," Powell said on Wednesday. The Fed has already raised its benchmark lending rate by five percentage points since March 2022, from close to zero to a range between 5.0 and 5.25%.
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BROKER RATING CHANGES
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Morgan Stanley raises Shell to 'equal-weight' (underweight)
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Jefferies cuts Berkeley Group price target to 4,474 (4,651) pence - 'hold'
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Jefferies raises Barratt Developments price target to 501 (499) pence - 'hold'
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COMPANIES - FTSE 100
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Packaging firm DS Smith said that revenue in the year to April 30 rose 14% to GBP8.22 billion from GBP7.24 billion a year earlier. Pretax profit rose to GBP661 million, up from GBP378 million. DS declared a final dividend of 12.0p per share for financial 2023, up from 10.2p, which takes the company's total dividend to 18.0p, up from 15.0p. Chief Executive Officer Miles Roberts said: "While economic conditions have continued to be volatile and box volumes have remained lower than normal, trading for the year to date is in line with our expectations. Our strong customer relationships in the resilient [fast-moving consumer goods sector], together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future."
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Premier Inn owner Whitbread said revenue in its first quarter, ended June 1, was up 19% from a year earlier. In the UK division, sales growth in its Accommodation arm rose by 18% and sales growth in Food & Beverages was up 10%. It noted that demand was particularly strong in London. Looking ahead, Whitbread said it remains confident in the full-year outlook of the company, on the back of "strong" trading momentum. "Our business is in great shape and trading well. Given the lack of branded supply growth and permanent decline in the independent sector, I am confident that our business model will continue to deliver as we strengthen Premier Inn's position in the UK, unlock our potential in Germany and maximise long-term returns for our shareholders," CEO Dominic Paul added.
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COMPANIES - FTSE 250
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Urban Logistics REIT said that net rental income in the financial year ended March 31 rose 45% to GBP53.0 million from GBP36.5 million a year earlier. The company swung to a full-year pretax loss of GBP82.7 million from a profit of GBP171.8 million, however, Urban Logistics announced a total dividend of 7.60p, unchanged year-on-year. Looking ahead, the company expects to maintain its dividend at the same level in financial 2024. "The portfolio has proved to be resilient against a backdrop of challenging market conditions, with persistently high inflation and rising interest rates leading to repricing of assets across commercial real estate. Despite these challenges, our active asset management strategy of moving rents on, improving tenant covenants and increasing lease lengths has allowed us to add value to the assets and shield the company against the impact of a negative yield shift," said CEO Richard Moffitt.
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OTHER COMPANIES
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Alpha Financial Markets Consulting said revenue in the year ended April 30 rose 45% to GBP228.7 million from GBP158.0 million from a year earlier. Pretax profit climbed to 73% from GBP25.8 million from GBP14.9 million. The company upped its total dividend by 37% to 14.20p from 10.40p. Alpha Financial said it has entered financial 2024 with "resilient" trading and a good pipeline of business opportunities. It added that it remains confident of delivering full-year results in line with current market expectations. "I am very pleased by the financial performance of the business over the year; the group has exceeded expectations and achieved excellent organic growth across all regions, in particular North America," said CEO Luc Baque. Alpha Financial said "long-term structural growth drivers" remain strong, though it noted increasing competition in the global consulting market in recent months.
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Pharmaceutical services company Ergomed said it has started 2023 well, having finished 2022 with a strong order book. It noted "solid" overall growth in revenue reflecting its "resilient services-based business model and the global strength of our offering." It added that it is actively seeking and assessing potential acquisitions which will complement its existing business. Looking ahead, Ergomed expects financial results for the full year 2023 to be in line with market expectations.
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By Sophie Rose, Alliance News reporter
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