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The Week Ahead: UK inflation; BoE rate decision; Whitbread, FedEx results

The UK consumer price index (CPI) reading for May, set to be released on Wednesday, is expected to show a further easing in the headline rate of inflation, which slowed to 8.7% in the year to April. Nevertheless, the Bank of England is likely to raise interest rates to 4.75%, up from 4.5%, on Thursday in its latest bid to bring inflation down towards its 2% target. In a quiet week for earnings, Premier Inn owner Whitbread and FedEx are among the companies due to deliver quarterly results. 

Our top three economic and company events in order of importance are:

1. Bank of England interest rate decision – Thursday

The Bank of England seems likely to raise the base rate by a further 25 basis points (bps) to 4.75% on Thursday. Last Wednesday, the chancellor, Jeremy Hunt, said the UK has “no alternative” but to raise interest rates to reduce inflation. That said, it may not be a unanimous decision, with Monetary Policy Committee (MPC) members Silvana Tenreyro and Swati Dhingra again likely to vote against a rate rise. That’s despite the fact that the UK’s core rate of inflation, which strips out volatile food and energy costs, surged 6.8% in the year to April – the highest level since the early 1990s – up from 6.2% in March. But with this being Tenreyro’s last meeting before she is replaced on the MPC by Megan Greene next month, dissenting voices are likely to be fewer in the coming months. 

The timing may be fortunate because more rate rises could be needed. Average earnings surged 7.2% year-on-year in the three months to April, fanning the flames of inflation and dealing a blow to the central bank’s tattered credibility. Fears of a wage-price spiral could prompt the Bank to rates again at the next meeting in August. Markets are pricing in a terminal rate of 5.75%, 125 bps higher than the current base rate. While markets may have overreacted to the hot earnings data, the projection provides further evidence of the Bank of England’s failure to act early and aggressively enough. 

For months, BoE policymakers have consistently underestimated the persistence of inflationary trends. They have continued to blame the Russian invasion of Ukraine, even as commodity prices have fallen well below the peaks they reached at the start of the war. While there are mitigating factors, the Bank has made mistakes that it has not yet acknowledged. On the contrary, officials have given little indication that they wish they had acted differently. This is a concern. An acceptance that they may have got things wrong would be a sign of introspection, a signal that they will change in the future and ensure a better outcome next time. If a central bank cannot acknowledge its mistakes, it may be doomed to repeat them.

2. UK CPI (May) – Wednesday

The day before the Bank of England’s decision, the Office for National Statistics will publish fresh inflation figures. The report is expected to show that the headline rate of inflation continued to ease after falling to 8.7% in the year to April, down from 10.1% in March. 

Although the April data showed prices growing at their slowest rate since March last year, some economists had expected a decrease to around 8.2% to 8.4%. Furthermore, the uptick remains high when compared to inflation in the US and the eurozone. The UK’s core price growth is also higher than in other countries, fuelled by rising pay and the upward inflationary pressure this causes in the service sector. 

On a monthly basis, inflation was hotter than expected, rising 1.2% in April. Prices are growing particularly sharply in areas such as groceries, where annual inflation is running at 19.1%, and hotels and restaurants, where growth is at 10.2%. It was encouraging, however, to see producer price inflation slow more than expected in April. PPI input and output prices grew on an annual basis by 3.9% and 5.4%, respectively. 

With annual food price inflation slowing to around 17% since April, the headline rate of inflation is expected to have slowed to 8.4% in May. Core price growth is expected to have slowed to 6.6%. 

3. Whitbread Q1 results – Thursday

Whitbread shares are up more than 25% this year, making the owner of the Premier Inn hotel chain one of the FTSE 100’s best performers in 2023. When the company reported its full-year results back in April, the shares popped higher on investor optimism towards the travel and leisure sector. Since then, the shares have gone from strength to strength, rising to an 18-month high earlier this month. 

Full-year revenue came in at £2.62bn, a 27% increase on 2020. Statutory profits after tax rose to £279m, up 28% on 2020 levels, with the UK business outperforming. Premier Inn’s revenue per room increased 27% from 2020 levels, driving revenue up to £2.5bn despite occupancy rates of around 80%. 

The German business continued to underperform, with an occupancy rate of 59.4%. It is still operating at a loss, despite a sizeable increase in revenue. 

On the outlook, Whitbread said that UK sales at Premier Inn in the seven weeks to 20 April were 17% higher than the same period last year. On inflation, bosses said they expect a rate of 7% to 8% in 2024, and they expressed confidence that higher sales and cost efficiencies would offset this. A final dividend of 49.8p was announced, as well as a £300m share buyback to be completed in the first half of 2024.

More key events

Our calendar of selected upcoming economic and company announcements:

MONDAY 19 JUNE

No major scheduled events

TUESDAY 20 JUNE

FedEx Q4 results

The FedEx share price has seen some modest gains since the company published its Q3 results. Management’s main focus over the past few months has been on costs, which has helped improve profits but done little to boost revenue. The company upgraded its full-year earnings forecast to between $14.60 and $15.20 a share, a sizeable upgrade from the previous $13 to $14 range. 

In Q3, revenue came in at $22.2bn, below forecasts of $22.7bn, while profit came in at $771m, or $3.31 a share. As part of its focus on cost savings, FedEx has reduced the number of flights it operates and grounded planes. The company has also cut office space, and there are plans to reduce headcount in the US by 25,000. Cost savings for Q4 are expected to be in the region of $50m.

In April the company outlined plans to consolidate its express package and ground delivery units in an attempt to make a further $4bn in savings. A dividend hike of 10% was also announced. Revenue in Q4 is expected to come in at $22.75bn, with profit at $4.89 a share. On an annual basis, revenue is forecast to fall from $93.5bn to $90.96bn, while profit is expected to fall to $14.86 a share.

WEDNESDAY 21 JUNE

UK CPI (May)

See our top three events, above

US Federal Reserve chair testimony (21-22 June)

Having absorbed the details of the last Federal Reserve meeting, US lawmakers are likely to have questions about why the Fed believes it still needs to hike rates by another 50 bps to tackle an inflation problem that appears to be subsiding. Fed chair Jerome Powell is likely to also face further questions from his nemesis, Democrat senator Elizabeth Warren, who is likely to further press Powell on the cost that further rate hikes might have in terms of higher unemployment. Her dislike for Powell is well documented, having called him a “dangerous man”, yet despite these comments and 500 bps of rate hikes in the past 15 months, her fears of higher unemployment haven’t materialised. We could also get further insights into recent discussions, with a raft of Fed speakers including Christopher Waller, Michelle Bowman, James Bullard and Loretta Mester. 

THURSDAY 22 JUNE

Bank of England interest rate decision 

See our top three events, above

Whitbread Q1 results

See our top three events, above 

Darden Restaurants Q4 results 

If ever there was an example of the resilience of the US consumer it’s in the performance of Darden Restaurants. Its share price plunged to its lowest levels since 2009 in the wake of the Covid-19 lockdowns, but the recovery off the $26 lows has been extraordinary. This month the shares hit a fresh record high of $164. 

In Q3 the group, which owns the Olive Garden and Longhorn Steak House brands, saw net sales grow 13.8% to $2.79bn. The company also raised its revenue outlook for the full year to between $10.45bn and $10.5bn. On costs, the company projected a range of 7% to 7 5%. Profit is forecast to be between $7.85 and $8 a share. All of the company’s brands set record sales numbers during Q3, with little sign of slowing demand. For 2024 the restaurant chain said it intends to open another 50 to 55 new outlets in addition to the 35 new restaurants it opened during Q3.

FRIDAY 23 JUNE

UK retail sales (May)

For an economy that is wrestling with food price inflation of close to 20% the resilience of the UK consumer has been impressive. Consumer confidence has improved as petrol prices have come down. However, the rise in interest rates could start to act as a drag in the second half of this year. 

In April retail sales excluding fuel rose by 0.8%, partially reversing a sharp decline of 1.4% in March, which in turn reversed a 1.4% gain in February. The gain in April was somewhat surprising given the rise in tax rates, including council tax, and utility bills that kicked in at the start of the fiscal year. 

For May, estimates suggest retail sales fell 0.2% month-on-month. Recent updates from UK retailers have pointed to continued resilience when it comes to spending patterns. 

France, Germany flash PMIs (June) 

One notable trend of recent months has been the divergence between activity in Europe’s services and manufacturing sectors. This trend has also manifested itself in China, which is seeing its manufacturing sector start to struggle. 

France’s manufacturing purchasing managers’ index (PMI) reading was steady in May at 45.7. A reading below 50 indicates contraction in the sector. Meanwhile, Germany’s manufacturing PMI print slipped to 43.2 in May, down from 44.5 in April. 

The services sector remains more broadly resilient. France’s services PMI reading fell to 52.5 in May, down from 54.6 a month earlier. In contrast, Germany’s reading improved to 57.2 from 56. 

In the UK, the picture appears upbeat, though the manufacturing PMI reading was 47.1 in May, while services slowed to 55.2 from 55.9. Lower fuel costs may offer some support to businesses. Although services providers are struggling with higher costs, they can generally pass these on to customers. 

INDEX DIVIDEND SCHEDULE

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SELECTED COMPANY RESULTS

MONDAY 19 JUNE RESULTS
No major announcements  
TUESDAY 20 JUNE RESULTS
FedEx (US) Q4
IG Design (UK) Full-year
La-Z-Boy (US) Q4
WEDNESDAY 21 JUNE RESULTS
Berkeley (UK) Full-year
Enerpac Tool (US) Q3
KB Home (US) Q2
Liontrust Asset Management (UK) Full-year 
Steelcase (US) Q1
Winniebago (US) Q3
THURSDAY 22 JUNE RESULTS
Alpha Financial Markets Consulting (UK) Full-year
Darden Restaurants (US) Q4
DS Smith (UK) Full-year
FactSet Research Systems (US) Q3
GMS (US) Q4
Manolete Partners (UK) Full-year
Methode Electronics (US) Q4
Smith & Wesson Brands (US) Q4
Speedy Hire (UK) Full-year
Urban Logistics REIT (UK) Full-year
Volex (UK) Full-year
Whitbread (UK) Q1
FRIDAY 23 JUNE RESULTS
CarMax (US) Q1

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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