It will be a big few days for the Bank of England, with a monetary policy committee (MPC) meeting a day ahead of its 25-year independence anniversary.
On the day that local elections are carried out around the UK, the MPC is expected to hike interest rates for the fourth consecutive meeting, with markets pricing in a 25 basis-point increase to 1%, though some policymakers might vote for a 50 bps (0.5%) increase.
Members of the committee are faced with the dilemma of combating soaring inflation against nudging the economy (further) towards a recession, with stagflation warnings growing louder.
“We shouldn’t be too surprised if they hang fire because of the storm clouds gathering over the global economy,” said Laith Khalaf at AJ Bell.
“Continued high energy prices and supply chain disruption stemming from COVID lockdowns in China have impaired the macro-economic outlook, and the central bank may feel that pressing down hard on the brakes might not be the best idea in the current environment.”
Bank of England governor Andrew Bailey last week acknowledged the MPC was “walking a very tight line” with rates and inflation.
There has been a major downgrade of year-end rate expectations over the last week, notes Marshall Gittler at BDSwiss, with almost 50 bps of further tightening over the coming year priced out.
“Watch what they say about the risks – that will be key, I think,” Gittler adds.
The policy decision will be accompanied by a quarterly update to the Bank’s economic projections, including labour market projections.
Shell
In company news, Shell PLC (LSE:SHEL, NYSE:SHEL) will publish a first-quarter trading update where it is highly likely to confirm further positive impact from high oil and gas prices, driven by macroeconomic and geopolitical situations, boosting the oil supermajor’s Integrated Gas and Oil Products arms.
A focus on cashflow generation and potential for higher shareholder returns is likely to be the main focus, said analysts at UBS.
On the other side of the coin, the company in February flagged "very significant" cash outflow of US$7bn and said exiting three joint ventures with Gazprom following Russia's invasion of Ukraine, and other Russian activities, are expected to lead to US$4bn-US$5bn of charges.
UBS noted that on shareholder returns, management said the target range of 20-30% of cashflows returned to shareholders could be raised, in the event of a more favourable environment.
Elsewhere, Next PLC (LSE:NXT) will be releasing its first-quarter results on the same day, with investors keen to see whether the retailer can navigate a tricky year where the shares have already tumbled nearly 25%.
The clothes retailer lowered its earnings guidance by £10mln last month due to rising inflation and the cost of living.
However, the company has a reputation for under-promising and over-delivering under boss Simon Wolfson, so its first-quarter results will be the first glimpse as to whether the same tactic has been repeated.
Barratt Developments PLC (LSE:BDEV) follows FTSE 100 rivals Persimmon and Taylor Wimpey with an update on the state of its own business and the UK housing market.
The message is likely to be a similar one, of buoyant prices offsetting cost inflation.
For the full year (to June 2022), analysts at UBS expect selling prices to rise by around 4.5%.
The trading update should indicate sales rates have stayed strong at around 0.85 per site per week, adds the broker, which would be down on January but in line with the prior year’s 0.83.
UBS also expects 17,250-17,500 housing completions, a £302,000 average selling price and pre-exceptional profits of £1.06bn.
Cladding issues are the other moving target, with broker Peel Hunt saying Barratt’s 34% share price fall year to date reflects its larger exposure than rivals.
Following Q1 results from its larger rivals in recent weeks, challenger banks Virgin Money UK PLC (LSE:VMUK) and OSB Group are almost inseparable in terms of size.
Virgin Money’s loan growth and net interest margins are likely to be the main thing on investors’ minds.
The lender’s plan to navigate a market where base rates are rising and mortgage spreads compressing is to try fundamentally to change the mix of its lending in 2022.
It’s a tricky path, says UBS, and is why its shares trade around 5-10% below larger rivals Lloyds and NatWest on a forward earnings metric.
Consensus forecasts are for loan growth of 3.4% in 2022 and NIM to rise to 1.77% but what it says about competition and mortgage demand will be enlightening.