Market Report: UK GDP shows signs of life, Severn Trent to invest £13bn in cleaning up its act
- UK GDP now 1.8% ahead of pre-pandemic levels as pound gains ground
- John Lewis looks to raise £150m from Waitrose store sales
- Media company Future warns of uncertain macro economic environment
- Severn Trent to pump billions into cleaning up its act
- Brent crude set to end the month up $7 a barrel on supply concerns
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“The UK economy has shown signs of life. GDP is now 1.8% ahead of pre-pandemic levels as the economy grew 0.2% in the second quarter from the first three months of the year. Crucially, GDP was up 0.6% from the same period the previous year, which was better than expected and has given the pound a shove in the right direction. A particular area of strength has been manufacturing, especially motor vehicles. While momentum is overall positive, these levels of growth aren’t exactly shooting the lights out. Higher interest rates are playing their part in turning the nation’s economic thermostat down and this will play a key role in upcoming interest rate decisions.
The pound has extended its gains against the dollar and the market seems to be lapping up the good news too. Moving forward there are some things to consider though. Pound strength has the ability to dent sentiment towards the FTSE 100, because many of its constituents are export-reliant, and a stronger pound is less lucrative. The dreaded recession-risk-can has been kicked down the road once again, but that doesn’t mean the UK’s economy is primed to flourish and concern now turn to whether businesses and the market can ward of concerns off stagflation.
John Lewis is one such business looking to reignite growth amid a barrage of difficult consumer conditions. The beloved department store is looking to raise £150m from the sale and leaseback of 12 Waitrose supermarkets. In the airline industry this is a fairly standard way to loosen finances and become nimbler, but in this case it’s a suggestion of how tough conditions are for UK retailers – especially those with large store estates and charging premium prices. There’s no certainty these deals will take place, but the shops that are allegedly up for sale are mostly in the south of England which have a couple of decades left to run on their inflation-linked leases. Shifting those obligations off the books would provide a real shot in the arm for the fatiguing partnership.
Future, the media company which owns names including Marie Claire, Country Life, Money Week and countless more, has said full year operating profit is in-line with expectations. The trojan horse line of ‘everything’s fine’ is masking a problem though. Future has acknowledged that conditions remain mixed, with issues centring around weaker consumer spending and the digital advertising market. This has caused the group’s advertising arm to stall and the path to growth will very much be linked to when the wider economy rediscovers its mojo. The group also owns price comparison giant, Go.Compare, which is seeing revenue perform more resiliently, as consumers increasingly hunt for better value.
Severn Trent has turned on the tap for fresh capital inflows, as it plans to invest close to £13bn in five years to 2030. This includes tipping their hat to investors via a £1bn equity raise. The huge investment will partly be used to reduce leakages and unsanitary spills from storm overflows. These are big promises to make but ultimately the right ones for the long-term. The bigger question now is to what extent other industry names will follow suit and what this all means for already cumbersome balance sheets and shareholder expectations of cash returns.
Brent crude’s headed into the closing days of the month up $7 a barrel, at over $92. Saudi and Russian supply cuts, plus an unprecedented drawdown of US stock, is squeezing things upwards. This might be acting as a support beam for the FTSE 100, but more broadly speaking this is a problem the economy and policymakers could well do without, and there isn’t an immediate sign of respite.”
