A move on interest rates had been all but ruled out until the US and Iran resumed hostilities and forced the price of oil higher.
The market is now pricing in a 60% chance of a September rate hike from the Federal Reserve and a possible move higher in UK rates in November.
Higher government bond yields on both sides of the Atlantic have been a canary in the coalmine for an increase in rates, say analysts at AJ Bell, with yields touching multi-year and, in some cases, multi-decade highs.
“Fed chair Kevin Warsh and BoE governor Andrew Bailey need to decide if they can keep their powder dry rather than reacting to what is essentially a supply disruption which not only impacts prices but also hurts growth.”
Three of the nine members of the Bank’s monetary policy committee (MPC) voted for a rate rise in July, and data published on Friday showing stronger-than-expected economic growth could amplify fears about inflation.
Thomas Pugh, the chief economist at RSM, a consultancy firm, expects the Bank to hold rates this week, but said the latest rise in energy prices had “materially increased the chance that the MPC will eventually follow other major central banks and raise rates”.
Barratt Redrow
A higher cost of borrowing is affecting the affordability and availability of mortgages and this is feeding into a difficult UK property market as the impact of the Iran war and resulting energy price shock reverberate through the economy.
Combined with that, housebuilders are facing mounting costs of their own and that has put their margins in a vice. Against that backdrop Barratt’s full-year trading update issued in July was resilient. It has a decent cash buffer to allow it to withstand what could be a turbulent period while still rewarding shareholders for their patience with buybacks.
Next
Next is both a best-in-class retailer and a shining example of how to behave as a public company, says an AJ Bell notre. Not only getting the basics of retail right by getting the right products in front of the right customers in the right places and at the right price points but also offering clear and suitably conservative guidance on trading and shareholder returns.
“If Next was a weather forecaster it would probably tell you to grab an umbrella when the sun was shining, such is its commitment to managing expectations. This is a key skillset for a public company, the ability to under-promise and over-deliver is often richly rewarded by the market. Given the gloomy macro-economic environment, it will be instructive to see if management are tempted to temper expectations.
“The market already knows Next achieved strong revenue growth in the first half thanks to its period-end trading update in August. The company may also guide on the impact of a decision from the Employment Appeal Tribunal which recently wiped out a looming £30 million back-pay liability regarding wages in its stores and warehouses.”
DIARY
Tuesday 15 September
- Full-year results from Kier Group, MJ Gleeson, Springfield Properties
- UK unemployment rate
Wednesday 16 September
- Full-year results from Barratt Redrow and City of London Investment Group
- Trading announcement from Artisanal Spirits Co, Moonpig Group
- UK CPI inflation
- US retail sales
- US Federal Reserve interest rate decision
Thursday 17 September
- First-half results from Next
- Bank of England interest rate decision
Friday 18 September
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