After this week’s comments from European Central Bank boss Mario Draghi on further monetary easing, and with further US interest rate cuts expected imminently from the Federal Reserve, the spotlight on Thursday turns to the Bank of England which will announce its decision on UK interest rates after its latest Monetary Policy Meeting meeting.
Once again, however, no change to UK monetary policy is expected given the ongoing concerns over Brexit, the chaos engendered by the Tory party leader/prime minister contest, and uncertainty over global trade battles.
In a preview of the MPC meeting, Howard Archer, chief economic advisor to the EY ITEM Club, commented: “We are expecting the Bank of England to keep interest rates unchanged at 0.75% next Thursday following a unanimous 9-0 vote within the Monetary Policy Committee (MPC) at their June meeting.
“While some MPC members (Andy Haldane, Michael Saunders and Ben Broadbent) have recently made relatively hawkish speeches regarding the need for interest rates hikes, we would be surprised if they – or any other MPC member – voted for an increase at the June MPC meeting.”
Archer added: “Heightened global trade tensions are unhelpful for UK growth prospects, while the current unsettled domestic UK economic environment may well reinforce business caution on investment and committing to new projects.
“Meanwhile, Brexit uncertainties remain high, with enormous doubts as to what will happen on 31 October. The risk of a “no deal” UK exit from the EU at the end of October has if anything increased recently, while a further delaying of the UK’s exit is also a genuine possibility.”
The economist concluded: “If the UK ultimately leaves the EU without a “deal”, the Bank of England has repeatedly maintained the view that interest rates could move in either direction.
“However, past comments by Governor Mark Carney have suggested that he thinks the economy would need stimulus if there is a “no deal” Brexit , thereby indicating that an interest rate cut would be a more likely scenario.”
Dixons Carphone’s turnaround progress eyed
On the corporate front, updates from a pair of mid cap retailers will provide the main interest for the market.
Electricals stores group Dixons Carphone Plc (LON:DC.) has been trying to turn around the business as weak demand for new mobile phones drags on sales.
The retailer has struggled against a downturn on the UK high street and the fact that less consumers have been taking out contracts for new handsets, leading to store closures and a string of profit warnings over the past year.
In its last update for the third quarter, Dixons said sales were flat over the key Christmas trading period as a 12% drop in mobile sales offset 2% growth in sales of electrical products such as TVs and games consoles.
Dixons’ full-year numbers on Thursday are expected to show pre-tax profit falling to £300mln, down from £382mln a year earlier.
“Our forecast assumes a modesty better performance than this, but we wouldn’t expect any big surprises,” Numis said, adding that it estimates pre-tax profit at £307mln.
“Focus is likely to fall on fourth quarter trading momentum (for reference consensus models like-for-for-like sales trends of UK electricals: 0%, UK mobile: -5%, Nordics: +2%, Greece: +10%), outlook guidance and qualitative commentary around the outlook – particularly the mobile business.
“Here we fear that further confirmation of profit and cash challenges to the mobile business could drag on sentiment, albeit we acknowledge that (at the point of writing) the shares have re-traced towards lows going into results.”
Trading N Brown expected to remain robust
Meanwhile, plus-sized clothing retailer N Brown Group PLC (LON:BWNG) will issue a first quarter trading update which Numis’ analysts expected to be “robust”, particularly given the comment with its full-year results at the start of May.
In a preview, the analysts noted that the FTSE All-Share-listed firm said back then that current trading was in line with expectations.
They added: “Whilst revenue declines are likely to persist, better management of costs should support the profit and cash outlook at this early stage of the year.”
Significant events expected on Thursday:
Bank of England rate decision
Trading update: N Brown Group PLC (Q1) (LON:BWNG)
Interims: CareTech Holding PLC (LON:CTH)
Economic data: UK retail sales; US weekly jobless claims; US Philly Fed index