The most widely-viewed inflation metric for the UK rose to its highest level in more than two years in November, with this morning’s release pushing the pound higher and back above the 1.27 handle against the US dollar. The FTSE 100 is also showing some small gains in early trade after a negative start to the week yesterday.
Prices rise on clothing and gasoline increases
A 1.2% rise in the Consumer Price Index (CPI) in November marks the highest level for this economic release since October 2014 and shows growing inflationary pressures in the UK economy. This rise will almost certainly be a major talking point during the upcoming Bank of England (BoE) meeting later this week, with increasing inflation providing a possible reason against the further easing of monetary policy. It is unlikely there will be a material impact on rates just yet, but with a 3-month moving average for this metric now over 1% the fall in the pound and stimulus measures announced in August are clearly contributing to higher prices. If this trend persists, it could lead to a more hawkish stance amongst the rate-setting committee of the BoE. The market reaction is suggestive of this with the pound higher against all its major peers today and even managing to outperform a Trump-inspired US dollar last month.
Airlines recover after losing altitude
Shares in International Consolidated Airlines and easyJet (LON:EZJ) have recoupedmost of Monday’sdeclines this morning after they began the week under pressure from the price of oil rising to its highest level of the year. UK banking stocks remain sensitive to the developments of their Italian counterparts and they are enjoying a move higher today as they look to ride the coattails of Unicredit (MI:CRDI), which has surged up by more than 7% after announcing job cuts and plans to raise fresh capital. The Italian lender has endured a torrid time of late and the latest action appears a last-ditch attempt to stave off a government rescue, with the strategy likely to be ultimately decided by how successful the firm raises the target of 13bn Euros.
Carpetright falls on weak results
It's been a disappointing second half of the year for Carpetright, with results for the retailer showing a 3.8% fall in revenue and this morning’s release has been met with a drop in excess of 4% in the stock. In addition a 42% drop in profit before tax is largely due to the substantial headwinds of the weaker pound, but softer market confidence and poorly performing stores have also played their part. The crux of this loss is focused in the UK, where operating profit dropped a whopping 48.9% and this is a particularly damaging body blow when you consider it is in the UK where Carpetright generates 84% of its total revenue.
The only positive from this report is the upswing in like for like sales of +2.6% in the six weeks to 10th December, which paints a different story to the previous six months. However, we are yet to learn how much of this sales improvement was driven by price cuts and sales offers, which could ultimately hurt margins once more. So I treat this improvement with a hefty pinch of salt.