19 November 2024
Last week, UK economic data pointed to continued challenges and mixed signals. Third quarter gross domestic product (“GDP”) growth was disappointing, expanding by only 0.1% versus 0.2% expected, with September’s monthly GDP contracting at 0.1% as production weakened. The Bank of England’s (“BoE”) Chief Economist Huw Pill warned that global shocks could derail the UK’s disinflation process. Inflation remained sticky, particularly in services, and wage growth remained robust, complicating inflation targets. Grocery inflation edged higher, reflecting pressure on household finances, while public sector pay rises are now expected to outpace private sector pay. Furthermore, business confidence hit a 12-month low, driven by concerns over manufacturing and services outlooks, highlighting the significant economic headwinds the UK is facing.
UK Chancellor Rachel Reeves emphasised free trade in her Mansion House speech, risking a clash with US president-elect Trump’s protectionist stance. Economists suggest the UK and US could revisit trade talks shelved under Biden, though contentious issues like healthcare and agriculture remain sticking points. Former BoE economist Andy Haldane believes the UK could balance relations with the US and European Union (“EU”), positioning itself as a stabilising force in a volatile global landscape. Despite Trump’s potential tariffs, Bloomberg economists argue the impact on the UK would be minimal, as UK exports to the US are primarily services-based and thus less vulnerable. Meanwhile, Reeves plans to create pension megafunds to consolidate funds to unlock £80 billion for growth-enhancing projects. Domestically, the Chancellor faces pressure from over 200 major hospitality firms concerned about rising costs from increased employer national insurance contributions and the minimum wage, which they argue could lead to layoffs and business closures.
UK markets saw a surge in public-to-private deals, reaching a three-year high as market conditions stabilised, encouraging dealmakers. The UK is also set to announce cryptocurrency legislation focusing on stablecoins, partly inspired by expected leniency in US crypto regulations under Trump. Meanwhile, sterling had its worst weekly performance since January, driven by weak economic data and a strong dollar amid heightened expectations of US growth under Trump. US equity indices retreated last week, with the S&P 500 and Nasdaq pulling back from record highs. October's US Consumer Price Index (“CPI”) showed steady inflation trends, while retail sales exceeded expectations, supporting a resilient consumer narrative. However, Federal Reserve Chair, Jerome Powell, and other officials conveyed a cautious tone tempering rate cut expectations. As a result, markets priced in a 60% chance of a December cut, down from 70%. Investors remained watchful of Trump-related policy developments, rising bond yields and a strong dollar, which fuelled a more defensive market tone.
The UK housing market faced mixed outlooks amid shifting economic dynamics. Hamptons revised its long-term house price forecast, to project slower growth, due to high rates and a tax-heavy environment following the latest budget. Contrastingly, real estate companies JLL and Savills remain optimistic, forecasting at least a 20% rise over the next five years. The Royal Institution of Chartered Surveyors (“RICS”) survey indicated stronger activity and positive price momentum in October, with expectations for near-term price gains across the UK. However, RICS cautioned that higher bond yields may soon tighten lending, posing headwinds to the housing market.
John Wood Group, engineering and consultant business, saw its shares plummet 13.6% after disappointing performance in its projects division, leading the company to launch a strategic review. Chief Executive Officer Ken Gilmartin noted that weak quarterly results were due to delays in its chemicals business and ongoing challenges in minerals and life sciences. Although consulting and operations divisions saw some growth, adjusted earnings before interest, taxes, depreciation, and amortisation (“EBITDA”) slowed, raising concerns about the company’s turnaround progress. Additionally, with a declining order book and looming high overhead costs, investor confidence weakened further, prompting worries over profitability.
Keller Group, provider of geotechnical solutions, saw its share price fall by 8.5% after it reported weaker European performance and declining profitability at its US subsidiary, Suncoast. This drop in profitability was attributed to lower prices and decreased residential trading volumes. While Keller’s North American operations performed strongly, bolstered by market resilience, its European struggles dampened investor sentiment. Although the group remains on track with full-year expectations, it revised down its net debt-to-EBITDA target, raising concerns over financial stability. Despite a record order book, uncertainty around certain project sectors affected confidence, leading to the market’s unease.
Burberry Group, manufacturers, designers and distributors of clothing and accessories under the Burberry brand saw its shares rise 12.6% after posting first-half results. These results, while weak, were slightly better than anticipated, with an adjusted operating loss of £41 million - less than the projected £45 million. Effective cost control helped to narrow losses, and analysts saw Burberry’s steps to address strategic and operational issues as promising. New leadership under CEO Joshua Schulman inspired confidence with a revitalisation plan focused on outerwear and scarves, authenticating brand strength. Analysts believe these initiatives, alongside cost reductions and pricing adjustments, could support Burberry’s next phase of growth and brand strength.
Market Commentary prepared by Walker Crips Investment Management Limited.
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No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future results.
The value of investments can fall as well as rise. Investors may get back less than invested.
