Market report

Bank vote raises expectations of early rate cut

Bank of England
The bank’s rate-setters favoured holding rates (pic: Terry Murden)

The Bank of England’s monetary policy committee today voted by an 8–1 majority to maintain the rate at 5.25%. One member wanted to reduce the rate by 0.25 percentage points.

It means the two members who voted for a rise last time now oppose any further increases and will encourage those who believe there could be an early rate cut. It was the first meeting since September 2021 with no votes for higher rates.

The Bank has now held rates steady for five months after a run of 14 consecutive increases aimed at curbing the soaring pace of general price rises.

London stocks jumped on the decision, with the FTSE 100 closing at an 11-month high. It followed the US central bank hinting at rate cuts and UK inflation coming in lower than forecast.

Inflation fell to 3.4% last month, faster than expectations, and is expected to fall close to the target 2% rate in the coming months.

An August cut in UK interest rates is already priced in amid speculation that the first of three may take place in June or even in May.

However, there was cause for concern that the Bank had not taken decisive action to revive the sluggish economy.

Jack Tutton, director at SJ Mortgages said: “The Bank of England may have missed a trick by not reducing the base rate today.

“Only one committee member has voted to reduce the base rate. With the greater fall in inflation than expected for the year to February, they could have given more confidence in the UK economy by making a 0.25% reduction.

“It is interesting to read that there were no votes this time around to increase the base rate. Hopefully this is a sign that a cut is coming soon.”

Craig Fish, director at Lodestone Mortgages & Protection, said: “Whilst a cut would have been nice it wasnt expected. Its good to see that some sense has returned with no members of the committee voting for an increase.

“The hope now is that the MPC stop acting like a herd of federal reserve following sheep, stand on their own two feet and make their next decision for the benefit of the UK. For the avoidance of doubt that needs to be a cut.”

Commenting on market response, particularly to last night’s US decision, Russ Mould, investment director at AJ Bell, said: “All it took was the slightest hint of satisfaction by the Fed to make markets rally once again.

“[Chairman] Jerome Powell’s comment that ‘the risks of achieving our inflation goals are coming into better balance’ was enough to give the market confidence that we’ll soon see rate cuts, with three expected this year.

Wall Street
Wall St was higher on the prospect of lower US rates which may come before the UK

“It didn’t matter that yesterday’s decision was to leave rates untouched, the market is focused on what might happen next and any fears that the Fed might become even more stubborn over changing monetary policy appear to have been blown out of the water.”

US equities rallied again, with the Dow Jones industrial average rising by 0.7%, its 16th record of 2024. That positivity extended across Asia and Europe. The FTSE 100 closed 1.9% higher at 7,882.55.

After the inflation figure came in at a two and half year low, driven down by falling food prices, Prime Minister Rishi Sunak said Britain had “turned a corner after the shocks of the past few years” and was “in a new economic moment”, adding that “2024 will prove to be the year that the economy bounces back”.

He rebuffed talk of a backbench plot to oust him that could derail his economic plans, telling the BBC: “What’s important is the future of our country, and people’s financial security and the peace of mind that they rightly deserve.”

The US central bank held interest rates in a range of 5.25pc to 5.5pc, as Chairman Jerome Powell warned the American economy was still running too hot to declare victory in the battle against inflation.

US inflation rose unexpectedly last month and Mr Powell told reporters in Washington it was too early to say whether this was more than just a “bump in the road”.

However, the Fed upgraded its forecasts for US growth next year and said it was still likely to cut borrowing costs three times at some point this year, which sparked a rally in stock markets.


M&G ‘performs well’

M&G Kildean

Wealth manager M&G has posted a 28% rise in adjusted annual operating profit before tax to £797 million and has edged up his recommended total dividend to 19.7p from 19.6p.

It said positive net external client inflows came in at £1.1 billion and is “well positioned to navigate the current uncertain economic climate.”

Full story here


Duffy to retire after Nationwide seals Virgin deal

Directors at Nationwide Building Society and takeover target Virgin Money said today they would “unanimously” recommend the proposed £2.9 billion deal to independent Virgin Money shareholders.

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Direct Line loss mounts, review due in summer

Direct-Line-insurance

Motor and home insurer Direct Line has plunged to a £189.5 million loss (2022: £6.45m loss) for the year to the end of December.

The group has rebuffed takeover offers and said today it will publish the outcome of a strategic review in July. It has proposed a dividend of 4p per share.

Adam Winslow, CEO, said: “The group has not always managed volatile market conditions successfully in recent years, particularly in Motor.

“However, it is clear that the decisive actions that Jon Greenwood [acting CEO] and the team have taken over the last year have created a strong platform for recovery, including significant pricing and underwriting actions to improve our motor margins and the sale of our brokered commercial business.

“This has enabled the board to propose a dividend of 4 pence per share and for the group to have a strong post-dividend solvency capital ratio of 197% at year-end 2023.

“While the picture has improved, we need to do more to drive performance and we have identified immediate actions we can take in 2024 to create value, including substantially reducing our cost base, driving claims excellence and optimising pricing capabilities whilst returning us back to higher quotability levels.

“In addition to these near-term actions, we are currently running a comprehensive strategy review of the significant opportunities we see to deliver higher returns. We will outline the details of our refreshed strategy at a capital markets day in July, as well as update on the progress we have made on the near-term initiatives.

“With the right strategy in place and determined actions, I am confident that we can deliver run-rate annualised cost savings of at least £100 million by the end of 2025 and a net insurance margin, normalised for weather, of 13% in 2026.”

The board has appointed Carol Hagh as an independent non-executive director and a member of the nomination and governance committee with effect from 1 April. Mr Greenwood has today stepped down as an executive director.


Next retains guidance

Next

Fashion and home furnishings retailer Next has kept its guidance for sales and profit in the current year after reporting a slightly better than expected 5% rise in profit for 2023-24.

The group, regarded as a bellwether of how consumers are faring, said today it still expected a profit before tax and exceptional items of £960m in 2024-25, with full-price sales up 2.5%.

For the year to 27 January it made a profit on the same basis of £918m compared to guidance of £915m, on total sales up 5.9% to £5.84 billion.

“On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties,” Next said.


National World

Owner of the The Scotsman newspaper, National World, has posted a robust set of results and a higher dividend on the back of a reshaping of the business.

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