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Inflation today hit its highest level in nearly a decade as rising energy bills sent the UK's consumer prices index to a higher-than-expected 4.2% for October.
The latest figures from the Office for National Statistics add to expectations that the Bank of England will raise interest rates next month, particularly given yesterday's encouraging update on the state of the jobs market.
The economic outlook continues to dominate the City agenda, despite results and updates from blue-chips including British Land, software firm Sage and credit checking business Experian.
FTSE 100 Live Wednesday
Inflation surges to 4.2% for October
Amazon bans Visa credit cards in the UK from January
Interest rates set to rise in December
CMC Markets reports sharply lower profits
Royal Mail post online shopping boom
07:38 , Simon English
Royal Mail revenues raced past £6 billion in the last six months as the online shopping boom continued to transform the formerly struggling business.
Lockdown was good for the Royal Mail, as posties became one of the heroes of the pandemic.
While the letters arm remains in structural decline – it is down 60% since 2004 – even that saw some resurgence as families unable to see each other sought other ways to stay in touch.
Royal Mail is paying a divi of 6.7p a share and another £200 million special dividend.
That is worth a few pounds to posties, who all got shares in the 2013 float.
FTSE 100 ends the day lower
17:12 , Joanna Bourke
At the close on November 17 London’s blue chip index was down 35.77 points, or 0.49% lower, to stand at 7291.20.
Shares in FTSE 100 companies including SSE and Spirax-Sarco Engineering decreased on a day when inflation data was released.
The former, which has rejected calls from an activist investor to split itself in two, instead doubling down on a plan to transform it into a major renewable energy player, lost 71 points to 1587.00.
The latter, a thermal energy and niche pumping specialist, lowered forecasts for global industrial production and the shares declined 4.94%.
Michael Hewson at CMC Markets UK, said: “It’s been another disappointing session for the FTSE 100, once again finding itself undermined by several disappointing company earnings reports, and a rather hot October UK inflation report, which saw CPI hit its highest level in over a decade, while the retail price index hit its highest level in over 30 years.”
Other stories from today that may interest you include:
-House of Fraser plans to shut its flagship Oxford Street store permanently.
That is all from the Evening Standard City team today. See you tomorrow.
House of Fraser to close Oxford Street store
15:22 , Oscar Williams-Grut
House of Fraser has announced plans to shut its flagship Oxford Street store permanently.
A spokesperson for parent company Frasers Group said: “It is with regret that we have been served notice by the landlord to close House of Fraser, Oxford Street - following granted planning permission to redevelop the site.
“We would like to take this opportunity to thank our staff for their hard work and dedication.”
The store will close from January 2022. The closure comes after developers were granted approval for a £100 million redevelopment of the House of Fraser Oxford Street building. 318 Oxford Street was built in 1937 and originally occupied by department store DH Evans but has been occupied by House of Fraser since 2000.
What you may have missed: Updates from Amazon, Lidl GB, British Land and more
14:39 , Joanna Bourke
It has been a busy day so far with updates from several London-listed business, tech behemoth Amazon, and the latest inflation figures.
Here is a reminder of some of the key stories so far on November 17:
-Property giant British Land has returned to profitability and seen the value of its estate increase.
-Amazon plans to stop taking payments from Visa credit cards issued in the UK, citing the high cost imposed by the card company.
-Lidl GB is increasing wages. Here is what other supermarkets are offering staff.
-Profits have plummeted at CMC Markets as a Covid share trading boom came to a shuddering halt, leaving founder and Tory peer Peter Cruddas keen to break up the business that made his fortune.
FTSE 100 lower at lunch, with SSE and Spirax-Sarco among the biggest fallers
14:31 , Joanna Bourke
London’s blue chip index was 29.44 points lower at 7297.53 at 2.30pm.
Fallers on the FTSE 100 include Spirax-Sarco Engineering, the thermal energy and niche pumping specialist. The firm expects further growth in 2022 but warned that its operating margin will be lower due to investment costs.
The shares lost as 4.9% as the company also lowered forecasts for global industrial production.
Shares in SSE fell 67.5p to 1590.5p. The group has rejected calls from an activist investor to split itself in two, instead doubling down on a plan to transform it into a major renewable energy player.
Bitcoin under pressure
12:28 , Oscar Williams-Grut
Bitcoin continue to face selling pressure after one of its heaviest falls this year on Tuesday.
Bitcoin sunk as much as 8% yesterday and is down another half a percent today to $60,538.
Carlo Alberto de Casa, market analyst at Kinesis Money, said: “Bitcoin is showing significant losses, while its volatility is once again much bigger than the one of gold. The current fall is a combination of the strength of the US Dollar, of investors taking profit after the recent gains and of the worsening of the technical picture, after the pullback seen in the last few days. A fall below $58,000 could open space for new bearish impulses up to $54,200 - 54,000, while if prices can remain above the support zone of $58,000 there could be a consolidation phase.”
The war over inflation between the Bank and the City
12:11 , Simon English
In the public mind the Bank of England and the City of London are basically the same thing.
Physically they are in the same space, and they engage in the same business – stuff to do with money, big numbers changing colour on computer screens.
In reality, their interests don’t always align and they are sometimes at loggerheads.
That’s happening now. The City mostly wants the Bank to put up interest rates to combat soaring inflation. Prices are rising at 4.2% a year, official figures showed today.
That’s more than double what inflation should be – the Bank is making a hash of it, say the City boys (and girls).
Lloyds higher as City bets on December rates hike
10:41 , Graeme Evans
Christmas cheer from the Bank of England will be in short supply if today's bigger-than-expected jump in inflation to 4.2% means interest rates rise next month.
The City predicted such a 0.25% hike in November, but with inflation heading over 5% and the jobs market in robust health there are few reasons for governor Andrew Bailey and colleagues to argue that rates should stay at their emergency 0.1%.
These expectations drove banking stocks higher today amid signs that lenders will finally have scope to increase their net interest margin, which is the difference on the interest they earn on loans and interest they pay on savings deposits.
Lloyds Banking Group rose 1.5% or 0.68p to 50.65p, taking the mortgage giant back to where it was prior to November's Bank of England meeting. NatWest also rose 1.8p to 225.2p.
Shares in the pair have seen a few false dawns, but with rates forecast to rise to 0.5% by February and unemployment not an issue there are signs their outlook is finally improving.
The strong inflation figure for October sent sterling 0.2% higher against the euro and dollar, but the gains against the greenback were pegged back by signs that the US Federal Reserve may need a sooner-than-expected move on rates.
The FTSE 100 index fell 24.89 points to 7301.91 on the back of the stronger pound and some lacklustre trading updates, particularly at renewables giant SSE after its shares slumped 4% or 67.5p to 1590.5p.
Spirax-Sarco Engineering, the Cheltenham-based thermal energy and niche pumping specialist, topped the fallers board despite keeping its full-year guidance unchanged.
It expects further growth in 2022 but warned that its operating margin will be lower due to investment costs. Shares have been trading at a record in recent days, but fell back 915p to 16,090p as Spirax also lowered forecasts for global industrial production.
Sage posted the biggest rise in the FTSE 100 index as boss Steve Hare moves the accountancy software firm from its restructuring phase towards expansion.
Operating profits for the year to 30 September dropped 8% to £373 million, but with Hare's focus now on growing the business shares were 35.2p higher at 764.2p.
Amazon to ban Visa credit cards
09:55 , Simon English
Amazon today said it would stop taking payments from Visa credit cards, citing the high cost imposed by the card giant.
An email to customers said: “Starting 19 January, 2022, we will unfortunately no longer accept Visa credit cards issued in the UK,â¯due to the high fees Visa charges for processing credit card transactions.”
Customers were advised to update their payment options.
Amazon said: “The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers. These costs should be going down over time with technological advancements, but instead they continue to stay high or even rise.”
That would seem to be a serious blow to Visa, and a result for arch rival Mastercard. Amazon made a point of saying that Mastercard, Amex and Eurocard will still be eligible.
Visa has been asked for a comment.
SSE steps up renewables investment plan
09:39 , Oscar Williams-Grut
Energy giant SSE has rejecting calls from an activist investor to split itself in two, instead doubling down on a plan to transform it into a major renewable energy player.
SSE today pledged to spend £12.5 billion over the next five years to fund a shift to renewable energy. The announcement means SSE has more than doubled the amount of capital allocated to renewables, with an extra £1 billion now earmarked for each year of the investment programme.
The investment plans were announced alongside half-year results showing adjusted pre-tax profits up 30% to £174 million in the six months to the end of September. Martin Young at Investec said the results were “broadly in-line”.
SSE announced an interim dividend of 25.5p, up from 24.4p.
Shares weakened 78.5p, 4.6%, to 1580p.
FTSE 100 lags after inflation spike
09:15 , Graeme Evans
The FTSE 100 index is 12.36 points lower at 7314.61, continuing its recent under performance compared with the Dax and Cac40 in Europe.
London's decline was driven by pressure on dollar earning stocks as inflation figures sent the pound higher amid City bets on a December interest rates hike.
The prospect of higher mortgage costs ensured that housebuilders were among the FTSE 100 fallers, although NatWest and Lloyds Banking Group rose on expectations for a boost to margins from higher interest rates.
Trading updates from SSE and Spirax-Sarco Engineering sent their shares 5% lower at the top of the FTSE 100 fallers board, but accountancy software business Sage rose 2%.
McColl’s hit by supply chain disruption
08:46 , Graeme Evans
Shares in McColl's, which has 1,200 managed convenience stores and newsagents, are down by a quarter after the retail chain highlighted continued supply chain disruption.
It said factors such as the nationwide shortage of delivery drivers, staff shortages at distribution centres and the insufficient supply of key products, including high margin branded impulse lines, have intensified in the current quarter.
McColl's has worked with Morrisons, its wholesale partner, to lessen the impact but the situation will still mean significantly lower revenues than initially anticipated.
Chief executive Jonathan Miller said: “We are working collaboratively with our wholesale partner Morrisons to restore in-store product availability as quickly as possible.”
McColl's Retail Group shares fell 4.5p to 13.5p.
British Land toasts return to profit as value of estate reaches £9.8 billion
08:45 , Joanna Bourke
British Land has returned to property portfolio growth and profitability, the FTSE 100 landlord said as its boss reported the busiest office leasing period in a decade.
Simon Carter gave the update alongside announcing a major office pre-let to law firm Allen & Overy.
Carter said the firm’s office campus division had a strong half year to September 30, with lettings to companies including Facebook and property agent JLL.
British Land’s total estate value was £9.8 billion at the half year end, up from £9.1 billion as at March 2021.
Read more HERE.
Sage eyes deals
08:42 , Oscar Williams-Grut
FTSE 100 software giant Sage is eyeing up deals as boss Steve Hare shifts gears from restructuring to expansion.
Hare said today he was “focused on growing the business in absolute terms, both organically and through acquisitions” after three years of re-shaping the business.
Hare launched a turnaround at Sage when he took over the business in 2018. He has sold off parts of the business worth £500 million since then but today said disposals were over as Sage now gears up to grow again.
“The focus going forward now is to scale the business,” he told the Standard.
The comments came as Sage reported a squeeze on profits due to increased investment. Operating profits for the year to 30 September dropped 8% to £373 million and revenue dipped 3% to £1.85 billion.
The squeeze on profits came as Sage invested more in tech to give it a platform for growth. Hare said Sage’s R&D spending has risen by 50% during his time in charge. That cash has gone towards “enhancing the product,” he said.
Sage builds accounting, invoicing and payroll software for small and medium sized businesses. It handles 10 billion invoices a year and claims to do payroll for 25% of Britain’s salaries employees.
Hare said there was “a lot of opportunity” for Sage as small business bounce back from the pandemic and go digital, but admitted there were “one or two headwinds.”
“Every single customer I speak to says it’s taking longer to hire. The second thing is there are some hiccups in the supply chain. I saw speaking with a builder the other day. Just getting timber, steel - there are longer lead times and it’s more expensive than it was.”
Hare said Sage was facing the same hiring pressures, with “a lot of competition” for software engineers, data scientists and AI specialists. But he said: “We have what we need to drive growth over the next few years.”
Shares rose 12.5p to 741.5p.
Inflation figure is “huge embarrassment” for Bank
08:05 , Graeme Evans
Sterling rose 0.3% to 1.345 against the US dollar to reflect expectations that the Bank of England will hike interest rates from 0.1% to 0.25% in December, making it the first major central bank to do so since the start of the pandemic.
The City had been expecting such a move at November's meeting, with this week's inflation spike and encouraging employment figures raising questions why the Bank's monetary policy committee did not act earlier.
Michael Hewson, chief market analyst at CMC Markets, said: “Today’s data is a huge embarrassment for the Bank of England whose procrastination over a modest 0.15% rate rise now makes it odds on that all the pre-Christmas headlines will be of the Bank steals Christmas variety, if they do bite the bullet and belatedly nudge rates higher.”
As well as CPI being more than double the Bank's inflation target of 2%, Hewson noted that the alternative measure of the retail price index rose to 6% and is now above the 2008 peak at its highest level in over 30 years.
Even with recent supply chain disruptions stripped out, he said inflation would still be higher than the Bank of England’s 2% target.
Hewson added: “The last two days data shouldn’t have been too much of a surprise to most people. There’s been plenty of anecdotal evidence to support a resilient labour market, as well as higher prices, which makes the decision to delay earlier this month even more puzzling.”
Reaction to jump in inflation
07:54 , Oscar Williams-Grut
City commentators are saying about this morning’s forecast-busting rise in inflation.
Robert Alster, CIO at wealth manager Close Brothers Asset Management, said: “UK-wide supply issues have pushed up prices and triggered a headline-grabbing jump in CPI; the Bank of England will be keeping a close eye on key indicators in the months to follow.
“Wage growth will be critical which, depending on October’s unemployment reading, will determine how consumption behaviour will hold up against climbing prices. October’s reading is vital, as it will be the first accurate read of a post-furlough Britain. The Bank will also need to see whether the supply chain tightness is transitory. More concerning though is whether long-term inflation expectations remain anchored; should expectations drift away from the 2% target, policy measures will lose their effectiveness and the bank risks losing credibility.”
Jack Leslie, Senior Economist at the Resolution Foundation, said: “The global economic recovery has caused a rapid rise in inflation that families are feeling at the petrol pump, in their energy bills, and in their pay packets. With inflation forecast to hit 5 per cent by next Spring, we could be set for a sustained period of shrinking pay packets.
“While painful for households, the fact is that the global nature of these inflationary pressures mean that traditional tools such as raising interest rates are likely to have little effect. Instead, we need to focus on securing the as yet incomplete Covid recovery so that stronger growth creates more scope for higher pay rises.”
Richard Carter, head of fixed interest research at Quilter Cheviot: “At 4.2%, this is the highest 12-month inflation print since November 2011, up from 3.1% in September. 12-month inflation rates for electricity and gas stand at a staggering 18.8% and 28.1% respectively, the highest annual rates since 2009. With petrol prices the highest since September 2012, motor fuel price hikes were also a big contributor to the elevated CPI numbers. All these goods registered price reductions as the pandemic began in March and April 2020.
“This morning’s print suggests we should be braced for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. Particularly given we now have more information on the state of the labour market in the UK, which seems to be transitioning from the end of the furlough scheme well. Yesterday’s employment numbers showed a 0.5% reduction in the unemployment rate between the second and third quarter of the year, despite the unwinding of the furlough scheme.
“Some may say that the heightened inflation is evidence that the Bank of England should have acted already and started the process of tightening monetary policy. But really what’s causing the heightened price increases in the energy market is a perfect storm of factors that are all feeding through at the same time. It’s not clear how a modest 0.15bps rate hike would have any impact on the heightened prices in the electricity and gas market. Normal monetary levers might not be effective.”
Thomas Pugh, economist at RSM UK, said: “Inflation will probably stay around 4% until April when it will take another leap up to almost 5%. But inflation will fall just as quickly over the rest of 2022 as base effects fall out of the annual comparison. This is one reason why we think that interest rates will be closer to 0.5% by the end of next year than the 1% the financial markets have priced in.”
Amazon launches Christmas food range as its UK store expansion continues
07:51 , Joanna Bourke
Amazon is heading to East Sheen for its latest UK till-free grocery shop launch, marking its latest expansion into UK bricks and mortar stores.
The tech giant said the new Upper Richmond Road branch, which will welcome customers from November 17 and comprises 2500 square feet front of house space, will be its seventh Amazon Fresh site in the UK.
These stores offer ‘just walk out shopping’, allowing customers to use a Amazon app to enter, put their phone away, pick up what they need and then walk away. Shortly after people get an email receipt and are billed from their Amazon account.
The company also said its new ‘by Amazon’ Christmas range will be available in its London Amazon Fresh sites.
Read more HERE.
CMC profits squeezed
07:47 , Oscar Williams-Grut
CMC rode a boom during lockdown as new investors tried their luck with shares. That wave looks to have crashed.
In the half-year revenues almost halved to £128 million. Profit sank from £141 million last time to £36 million. That forced CMC to hack the dividend from 9.2p to just 3.5p, a blow to the founder and CEO who owns more than 60% of the stock.
Oil price falls, natural gas higher
07:30 , Graeme Evans
The FTSE 100 index closed lower yesterday, underperforming the rest of Europe as the Dax in Frankfurt and the Paris-based Cac40 set new record highs for the third day in a row.
A stronger pound had a bearing on London's lacklustre performance after encouraging employment figures raised the chances that the Bank of England will hike interest rates next month.
US markets enjoyed a decent day, with the Nasdaq up 0.8% and the S&P 500 0.4% higher after solid economic data and another batch of positive earnings figures.
CMC Markets is predicting that the FTSE 100 index will open 20 points lower at 7307 on the back of a weaker session for Asia markets.
Brent crude oil futures have fallen overnight by just under 1% to $81.77 a barrel, driven by the American Petroleum Institute reporting a bigger-than-expected decline in US gasoline stocks.
However, there was a big jump of 17% for UK natural gas prices to 240p a therm after regulators in Germany suspended certification for the recently completed Nord Stream 2 pipeline from Russia.