BUSINESS LIVE: GDP shrinks 0.3% in Q4; Close Brothers scraps divi; Centrica boosted by price cap jump

Close Brothers has scrapped dividend payouts and warned of ‘significant uncertainty’ regarding the outcome of a probe into the motor finance industry.

British Gas owner Centrica benefited last year from being able to claw back money that it had lost during the energy crisis.

Adjusted operating profit in the business’s retail unit, namely British Gas, soared from £94million to £799million as a result of the cost recovery, results published on Thursday show.

Jet2 has upped annual profit guidance for the third time in a year, as the travel group’s boss cheered Britons’ winter escape from ‘our Rainy Island’.

The group was boosted over the winter months by bumper demand for package holiday deals, which often provide travel businesses with wider profit margins.

Jet2 raised its guidance for annual group profit before foreign exchange revaluation and tax to between £510million and £525million, up from £480million to £520million.

Jet2 shares jumped 4.52 per cent or 60.00p to 1,386.00p on Thursday, having risen over 7 per cent in the last year.

Households who were told their off-peak energy meters might stop working properly have been given an extension – but must still get a smart meter in the next 12 months or risk losing cheaper overnight electricity.

London-listed stocks are in the green this morning, buoyed by a fall in yield on government bonds after latest economic data showed the British economy was in recession, building the case for the Bank of England to ease its monetary policy.

The yield on 10-year UK gilts fell to 3.993 per cent.

Money markets raised their bets of an interest rate cut from the BoE, now pricing in about 78 basis points (bps) of cuts this year, compared with about 70 bps before the data.

Close Brothers Group has dropped 12 per cnet, as the lender said it would not pay dividends for the current financial year.

RELX has added 2.4 per cent after the information-and-analytics group said it expected to see another strong performance this year, as it reported 13 per cent growth in adjusted operating profit.

Andy Murphy, director of industrials at Edison Group:

‘MJ Gleeson’s interim results reflect the ongoing struggles within the construction industry amidst a challenging economic environment. The significant decrease in revenue by 11.4% to £151.5 million compared to the same period last year, coupled with a notable 47.6% decline in operating profit, underscores the harsh realities faced by the company.

‘These results reflect some of the pressures that companies operating within the construction sector face, including the burden of the increased cost of living and high interest rates.

‘While proactive measures such as organisational restructuring and operational streamlining demonstrate resilience, margin pressures persist due to intensified sales incentives and prolonged site durations.

‘Despite the gloomy outlook, the strong forward order book of Gleeson Homes and potential reductions in interest rates in the coming months offer glimmers of hope for recovery and growth. However, uncertainties loom large, particularly with the upcoming general election and fluctuating market dynamics.

‘MJ Gleeson’s commitment to cost discipline and long-term growth strategies is commendable in the face of adversity. Moreover, the company’s dedication to delivering affordable, quality homes aligns with both market demands and sustainability goals, positioning it for potential opportunities in the future.’

The chief executive of a UAE-backed telecoms group will join the Vodafone board next week despite concerns about national security.

Hatem Dowidar, chief executive of Emirates Telecommunications, will be a non-executive director from Monday, following a national security investigation into the relationship between the two firms.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘British Gas owner Centrica’s turnaround looks to be nearly complete, with the group making great strides over the past three years. There was a strong recovery in its British Gas Energy (BGE) division, with performance boosted by increased allowances in the UK price cap in the first half.

‘But keep in mind, the majority of these tailwinds should have been accounted for now, and over the medium term, underlying operating profits from this division are expected to moderate from £751mn to around £150m-£250m per year.

‘The British Gas Services division has been in a sticky spot in recent years, plagued by scandals and poor customer service levels. Customer numbers fell by 8% in 2023 as cost-of-living pressures drove customers to search providers for the cheapest deals.

‘Most of this customer shift came in the first half, and it appears things have stabilised since. The group has invested heavily in improving its service levels, and it’s beginning to show through lower job rescheduling rates and complaints. Margins here are heading in the right direction and the division’s returned to a slim profit.

‘With underlying net cash of £2.7bn, equivalent to around 37% of the group’s market cap, the recently reinstated dividend got a large increase, and the buyback programme is on solid ground.’

Investors in taxi app Lyft were given a bumpy ride after a ‘clerical error’ in results sent shares up more than 60 per cent – before making a sharp U-turn.

Lyft surged in after-hours trading on Wall Street on Tuesday after it suggested that it would hit profits of £725millio this year. Within minutes, shares soared 67 per cent towards $20.

Package holiday group Jet2 has lifted profit expectations on the back of bumper booking levels at the start of the year.

The group told investors its winter 2023/24 forward bookings are currently up by 17 per cent and average pricing for both flight-only and package holiday products remains ‘robust’.

It said February and March 2024 bookings had shown ‘similar trends to recent months’, prompting the group to raise guidance for annual profit before FX revaluation and taxation to a range of £510million to £525million,

This is up from previous guidance of £480million to £520million.

‘We are pleased with how the 2024 financial year is ending and are encouraged by early bookings for Summer 2024.

‘Whilst recognising that there are many demands on consumer discretionary incomes, we believe that our Customers cherish their time away from our Rainy Island and want to be properly looked after throughout their holiday experience.

‘As a customer focused and much trusted holiday provider, we remain confident they will continue to travel with us to the sun spots of the Mediterranean, the Canary Islands and to European Leisure Cities.’

NatWest is set to appoint interim boss Paul Thwaite as a permanent replacement for Dame Alison Rose after she quit in disgrace amid the Nigel Farage de-banking scandal.

Directors of the state-backed lender meet today to discuss making the announcement alongside full-year results tomorrow.

Dr. Roger Barker, Director of Policy at the Institute of Directors, said:

‘Confirmation that the UK economy failed to avoid a technical recession in the second half of last year is a psychological blow for business.

‘A decline of 0.1% in December translated into negative growth of 0.3% across the quarter as whole. As this was the second consecutive quarter of negative growth, the criterion for a technical recession was met.

‘In December, the output figures were dragged down by a 0.1% decline in the services sector and a 0.5% contraction in construction. However, the production sector actually grew by 0.6%.

‘Looking at 2023 as a whole, the economy grew by 0.4%. December’s figures do not make a significant difference to the big picture: that the economy largely moved sideways last year. Furthermore, the current technical recession cannot be compared to the last recession in the first half of 2020, when GDP fell more than 20% in a single quarter due to the onset of the Covid pandemic.

‘Business leaders will now be shifting their attention to the future. Recent data from our members suggests that business confidence has been slightly improving in recent weeks. It is important that this progress is sustained by the policy decisions of the Chancellor and the Bank of England.’

Close Brothers Group will not pay out any dividends for the current financial year, with the lender telling investors there is ‘significant uncertainty’ about the outcome of the Financial Conduct Authority review into the motor finance industry.

Thomas Pugh, UK economist at RSM UK:

‘The 0.3% q/q contraction in GDP in Q4 last year means the UK finally slipped into the long-awaited recession in the second half of last year. However, that recession is probably already over and will go down as one of the smallest the UK has experienced.

‘Admittedly, the economy will remain in stagnation for the first half of this year, but by the summer inflation should be back at around 2%, interest rates will likely be falling and consumers may well be enjoying some significant tax cuts. This will kick start a consumer-spending led recovery that should see the economy finally return to growth.

‘Indeed, a recession gives the Bank of England more cover to pivot towards cutting interest rates as early as the Spring.

‘Overall, today’s data reinforces our view that Q4 last year will represent the nadir of a particularly painful period of stagnation for the UK economy. But we are now at a turning point. Interest rate cuts are likely to come in the Spring and growth should gradually improve in the first half of this year and pick up further after the summer and into 2025.’

Marcus Brookes, chief investment officer at Quilter Investors:

‘UK GDP contracting in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions.

‘These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, in the face of ongoing high inflation and interest rates as well as changing buying patterns.

‘Some of these challenges are temporary and have already started to ease. The inflation rate held steady at 4% yesterday when many were predicting an increase. Over the coming months, we expect inflation to fall, potentially easing the pressure on UK households, and supporting the recovery of the consumer-driven economy.

‘The key indicator to watch is inflation in the services sector, which accounts for the bulk of the UK’s economic activity and employment and reflects the strength of wage growth and consumer demand, which are crucial for the UK’s recovery. As inflation steadies and then reduces, the Bank of England is more likely to cut interest rates to stimulate economic activity and investment.

‘The UK economy faces challenges and uncertainties, but it also has many strengths and opportunities. It has a dynamic economy with a skilled and flexible workforce, and the UK is expected to overcome many of the current difficulties and emerge stronger and more resilient in the future.’

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services:

‘Today’s GDP figures confirm that the UK slipped into very mild economic contraction towards the end of 2023, with subdued economic activity dragging into the festive season.

‘The data is evident of deflated activity across all key sectors of the economy, from manufacturing to service and retail, as well as construction activity, which was negatively impacted by inclement weather.”

‘Nonetheless, while there is an impression of economic stagnation, brighter times surely lie ahead. As winter rolls away, the lagged impact of high inflation and interest rates will work its way through the economy and inflationary pressures will settle, allowing the Bank of England to lower the base rate come summertime.’

The British economy shrank by 0.3 per cent in the final three month of 2023, a bigger drop than expected, leaving the country in a technical recession, fresh data from the Office for National Statistics shows.