BUSINESS LIVE: UK wage growth higher than forecast; Anglo American eyes asset sales; Currys ups guidance

London stock indices struggle for direction this morning as investors digest fresh data showing stronger than expected wage growth, while a basket of mixed corporate updates keep investor mood in check.

British wages excluding bonuses – in the sights of the Bank of England as it considers when to cut interest rates – grew by a stronger-than-expected 6 per cent in the first three months of 2024 compared with the same period a year earlier.

Still, money markets see a 50-50 chance of a June rate cut.

In company news, Anglo American has gained 0.5 per cent after investors in both companies said BHP Group is likely to sweeten its $43billion takeover offer for the second time.

Currys shares are up 6.5 per cent to the top of FTSE 250 after the electricals retailer raised its annual profit forecast.

Vodafone is the top gainer on FTSE 100 with a 3.3 per cent jump after the telecom operator met market forecasts for the year to end-March.

Flutter is the biggest drag on the benchmark index after the world’s largest online betting company reported its first quarter results.

Headlam Group has warned it does not expect the market returning to growth until next year, as the floor coverings distributor forecast annual profit significantly below current market expectations.

Fortunes of companies such as Headlam are firmly tied to the health of the housing repair, maintenance and improvement segment, which has been under some pressure as customers continue to curb spending in the wake of broader economic woes.

The British housing market has seen green shoots of stability at the start of 2024 on easing mortgage rates, but the delay in the central bank’s monetary policy easing has tempered hopes of a better-paced recovery.

Anglo American has rejected a second takeover offer from BHP – branding the £34billion bid ‘highly unattractive’.

The London-listed mining giant said the latest proposal from its Australian rival ‘continues to significantly undervalue’ the company.

And Anglo bosses – who last month dismissed BHP’s first £31billion bid as ‘too low’ and ‘highly opportunistic’ – will today update investors on their plans for the business to thrive on its own.

Marston’s losses narrowed year-on-year in the first half, with the pub operator supported by strong demand and lower costs even as inflationary pressures loomed, and also forecast an encouraging second half.

The Wolverhampton-based group reported an £800,000 underlying loss before tax for the six-month period ended 30 March, while like-for-like sales in the last six weeks of the second half were up 4 per cent.

Pub groups, which were hit hard due to the pandemic and a cost-of-living crisis, are now a lot more confident about the footfalls as the costs of raw materials gradually ease while customer spending on food and beverages gained momentum.

The predominantly suburban pub group, which operates at least 1,395 pubs, said it was well-positioned to capitalise on consumer lifestyle changes.

‘With a number of ‘must not miss’ major sporting events, our massively upgraded pub gardens and much-loved food menus, we expect our pubs to be very popular this summer,’ said CEO Justin Platt.

Virgin Money UK has warned of a tepid second-half of the year, citing higher costs and lower profit margins due to growing investments, inflationary pressures and stiff competition for deposits.

The lender, which agreed to a £2.9billion all-cash takeover deal from Nationwide in March, said it expected net interest margin (NIM) – a key indicator of a bank’s underlying profitability – to be lower in the second half of the year.

‘Expect NIM in H2 to be impacted by lower contribution from cards effective interest rate adjustments, ongoing competition and lower interest rates,’ the lender said in a statement.

However, it stuck by its full-year NIM forecast to be in the range of 190-195 basis points.

Gamestop shares doubled in value yesterday after the social media account that sparked its original ‘meme stock’ status resurfaced after three years of silence.

Shares in the computer game retailer surged as much as 118 per cent in early trading in New York after Keith Gill, known as ‘Roaring Kitty’ online, posted a drawing of a man leaning forward on a gaming chair.

The American owner of Boots is stepping up efforts to find a buyer for the British pharmacy chain.

Walgreens Boots Alliance is working with consultants to set up talks with companies who may make a bid for the retailer, Bloomberg reported.

It is thought the Americans want £7billion for the High Street stalwart.

One of the world’s biggest banks yesterday said that now is the time to buy British stocks – even as the FTSE 100’s blistering rally came to an end.

In a major vote of confidence in the UK, UBS advised clients to purchase shares in London-listed companies.

‘The UK is shaking off its ‘sick man of Europe’ label and is now a buy,’ the bank said.

Richard Carter, head of fixed interest research at Quilter Cheviot:

‘The unemployment level in the UK has risen once again, according to the Office for National Statistics, reaching 4.3% in the three months to March 2024 up from 4.2% in the three months to February.

‘Wage growth, an indicator the Bank of England has been keeping a particularly watchful eye on, is reported to have increased slightly. Annual growth in total earnings including bonuses increased slightly to 5.7%, up from 5.6% previously, while annual growth in average regular earnings remained stagnant at 6%.

‘Though small, this uptick in wages will be of concern to the Bank of England, particularly when coupled with new data from the Resolution Foundation released just yesterday which revealed that real wages – measured in terms of the goods workers can buy with regular wages – rose by 2% in the year to February 2024.

‘Though this is good news for households as cost of living pressures should now be easing somewhat, the Bank will likely fear that it risks being inflationary if businesses attempt to restore profits by raising prices.

‘Labour market inactivity, another area that has been watched keenly by the Bank of late, also climbed. In the three months to March 2024, the UK economic inactivity rate for those aged 16 to 64 years reached 22.1% – this is above estimates of a year ago, and an increase on the last quarter.

“’espite questions around the accuracy of the ONS data, which the Bank of England highlighted as a challenge for its decision-making, the labour market data remains a pivotal factor in monetary policy.

‘As the Bank contemplates its first interest rate cut, the precision of these figures is crucial. Any data inaccuracies could significantly impact the economy, necessitating a cautious approach by the Bank. Though we have seen a slight uptick in wage growth, the possibility of rate cuts later in the summer still looms, adding to the Bank’s deliberations.’

Thomas Pugh, economist at RSM UK:

‘A sharp fall in employment and a rise in the unemployment rate suggests that the labour market is easing rapidly.

‘Admittedly, at 6% pay growth excluding bonuses were stable at a high rate, which is concerning. However, much of this was probably due to firms getting ahead of the minimum wage rise in April. Indeed, Sainsburys and Lidl both significantly increased pay that month.

‘The rising unemployment rate should translate into slower pay growth in the second half of the year. Taking everything together, we think the Monetary Policy Committee (MPC) should still be confident enough to start cutting rates in June, but this is far from guaranteed.

‘Regular wage growth was slightly stronger than expected (6.0% actual vs 5.9% expected) and will give the hawks on the committee who argue that pay growth is still too strong for rate cuts some ammunition. But the large increase in the minimum wage is clouding the picture already.

‘What’s more, the rise in the unemployment rate to 4.3% chimes with all the unofficial data that the labour market is easing. That should eventually feed through into slower pay growth once the one-off impact of the minimum wage hike wears off.

‘The MPC will likely want to see the impact of April’s 9.8% increase in the minimum wage before it commits to rate cuts. But it will have this data by the June meeting, and it is likely to conclude that the one-off increase in the minimum wage has not altered the underlying trajectory of pay growth.

‘Just as importantly for households, real wages grew by 2.0%. That, combined with potential tax cuts and rising consumer confidence could give a boost to consumer spending in the second half of this year, helping a consumer spending driven recovery.’

Currys has raised its annual profit forecast by around 10 per cent after sales returned to growth in both its UK and Ireland unit and in the Nordic region.

The electricals retailer, which rejected a takeover offer earlier this year, now expects to post a pre-tax profit of £115million to £120million for the year to the end of April, up from previous guidance of £105million.

The group’s upgrade follows its rejection of a takeover bid from US investor Elliott Advisors in February, which it said undervalued its growth potential.

In March, China-based online retailer JD.com, which had also said it was interested in Currys, decided not to make an offer for the UK-based group.

Currys said demand for fridges, washing machines, and computers pushed underlying sales up 2 per cent in the first four months of the year, an improvement on the Christmas period when sales had fallen compared to the previous year.

‘Sales are now growing again, margins are benefiting from higher customer adoption of solutions and services, and cost discipline is good,’ Chief executive Alex Baldock said.

Anglo American has laid out a strategy update that includes exploring options for its steelmaking coal, nickel and platinum businesses, in an effort to fend off a takeover bid from the world’s largest miner BHP Group.

The announcement comes a day after the London-listed miner rejected a raised offer from BHP, saying it continued to significantly undervalue the company and was ‘highly unattractive’ for its shareholders.

Anglo told investors this morning it was going to divest its steelmaking coal assets, demerge its troubled platinum unit in South Africa, explore options for its nickel mines, and divest or demerge diamonds business De Beers.

‘We expect that a radically simpler business will deliver sustainable incremental value creation through a step change in operational performance and cost reduction,’ Anglo CEO Duncan Wanblad said.

British wages excluding bonuses grew by slightly more than expected at 6 per cent year-on-year in the three months to the end of March, giving the Bank of England pause for thought as it weighs the timing of its first interest rate cut.

Economists had forecast wage growth of 5.9 per cent for the period.