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UK recession already over?

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 23 February 2024.

| 7 min read

Bank of England Governor Andrew Bailey hinted that Britain’s “very small recession” may already be over and noted there was already signs of an “upturn”.

Equities moved higher over the week, with Japanese stocks hitting a record high, breaking levels last seen in 1989. Chipmaker Nvidia, part of the “magnificent seven” US technology cluster, reported a surge in fourth-quarter revenues and earnings that smashed Wall Street expectations.

Economics

Bank of England Governor Andrew Bailey hinted that Britain’s “very small recession” may already be over. Speaking to the Treasury Select Committee in parliament, Mr Bailey said: “So, I would just say against a lot of talk of what we think is going to be a very small recession, we think the economy is already actually showing distinct signs of an upturn.” The governor told MPs that policymakers were looking for progress on services prices, wage growth and the labour market before they felt they could begin reducing interest rates. Rates are currently being held at 16-year highs of 5.2% but pressure is growing on the Bank of England to bring down borrowing costs amid falling inflation.

The minutes of the Federal Reserve’s last rate-setting meeting indicated that policymakers were in no hurry to cut interest rates and expressed both optimism and caution on inflation. They indicated that no interest-rate cuts will be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.

Jeremy Hunt may have some ammunition in the Budget on 6 March after the latest set of figures for government borrowing.

Beijing increased support for China’s troubled property sector, making its biggest-ever cut to a key mortgage reference rate. Lenders slashed their five-year loan prime rate by 25 basis points to 3.95% — the first cut since June. But investors were unmoved and there are expectations that more aggressive measures to support the economy will be needed.

Jeremy Hunt may have some ammunition in the Budget on 6 March after the latest set of figures for government borrowing showed the UK running its largest monthly budget surplus since modern records began more than 30 years ago. Figures from the Office for National Statistics showed that the state’s tax receipts in January were £16.7bn higher than spending.

Geopolitics

Two years since Russia’s invasion of Ukraine, we take a wider look at the implications of the conflict. War, Russia and the investment outlook.

Over the last decade under the direction of Prime Minister Narendra Modi, growth has been good. He is expected to win again at the general election in May. Money flows into India.

Changes of government can influence markets. Sending opposition leaders to prison is now a regular part of the battle.

Company news

A nascent sales rebound in one of the world’s most important regions for luxury-goods sales will give executives plenty to talk about at Fashion Weeks in London, Milan, New York and Paris. Has the luxury-goods industry turned a corner?

The artificial intelligence boom is pushing demand for Nvidia’s products past Wall Street’s already high expectations. The chipmaker beat analyst expectations significantly in its fourth-quarter earnings, with sales of $22.1bn (consensus: $20.55bn) and earnings per share of $4.93 (consensus: $4.64). Revenue was 22% higher than the previous quarter, up 265% from a year ago.

Barclays issued its first strategy update in a decade, with the three-year plan including cutting costs and risk, while aiming to bolster returns. There will also be an overhaul of management, some business disposals and £10bn returned to shareholders over three years. The plan was announced as Barclays reported a 6% decline in annual pre-tax profits to £6.6bn.

HSBC shares fell after the bank reported that fourth-quarter profit fell 80% to $1bn after it took unexpected charges on its holdings in a Chinese bank and from selling its French retail operations. Annual pre-tax profits rose 78% to $30bn, driven by higher interest rates, but the disappointing fourth quarter caused it to miss analysts’ expectations of $34bn.

Lloyds Banking Group posted record annual profits for 2023 but also set aside £450m to cover potential costs from a regulatory probe into car loan practices. Profits were above market expectations, boosted by higher interest rates.

Defence giant BAE Systems reported a record £70bn backlog of orders in its full-year results, as Europe scrambles to re-arm in the face of Russian aggression. The figures were in line with market expectations. Guidance was broadly in line with expectations and the outlook remains positive with BAE Systems “well positioned for sustained growth in the coming years”. The group continues to benefit from its global footprint and a diversified portfolio that enables it to capitalise on the elevated threat environment.

Apple will reportedly face a €500m fine from the EU over an antitrust complaint against Apple’s App Store policies. The Financial Times reported that the fine comes after regulators investigated a Spotify complaint that the company’s policies prevented iPhone apps from telling users about cheaper alternatives to Apple’s music service.

Mining giant Rio Tinto has announced another bumper payout for investors despite falling profit. Despite weaker earnings, the group said it will pay out $7.1bn (£5.6bn) in dividends – worth $4.35 (345p) a share – down 12 per cent from 2022’s distribution. Major projects Simandou (iron ore), Oyu Tolgoi (copper) and Kennecott (copper) are progressing well.

Full-year profits at turbine maker Rolls-Royce more than doubled, beating consensus expectations, and it forecast a further jump in 2024 as aircrafts powered by its engines fly more and defence orders rise. Data centres powered by Rolls systems are another area of growth for the company.

Advertising group WPP said its key revenue metric rose 0.3% in the final quarter, as weak spending by US technology, healthcare and retail clients held back growth. The group matched market forecasts. "We are optimistic about the strategic opportunities ahead of us and are confident that we can deliver accelerated and increasingly profitable growth over the medium term," chief executive Mark Read said.

Indivior surged after the opioid addiction treatment maker said it was planning to move its primary listing to the US. News of the potential move came alongside 2023 results, which showed that operating losses narrowed to $4m from $85m a year earlier, while total net revenue rose 21% to $1.1bn.

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UK recession already over?

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