BUSINESS LIVE: BoE holds base rate at 5.25%; Shell lines-up $3.5bn buyback; Haleon suffers weaker US demand

The Bank of England held base rate today, pausing its aggressive run rate hikes for the second month in a row.

The Monetary Policy Committee voted 6 to 3 to hold rates at 5.25 per cent but does this mean base rate has now peaked in this cycle?

The Bank of England has opted once again to hold the base rate at 5.25 per cent, a move which will reinforce the view we’ve reached the peak for interest rates.

The decision marks its second pause after the Monetary Policy Committee voted to hold the base rate in September. Prior to that, there had been 14 consecutive base rate hikes since December 2021.

Alice Haine, an analyst at Bestinvest, said:

Households can breathe a sigh of relief after the Bank of England held interest rates steady at 5.25 per cent for the second consecutive time, raising hopes that the tightening cycle may finally be over.

The split decision from the rate setting Monetary Policy Committee saw six vote in favour of a second rate pause and three favouring a quarter-point hike, suggesting that stubborn inflation data in the 12 months to September – when Consumer Prices Index inflation remained at the  6.7 per cent recorded in the previous month – was not enough of a concern to offset stuttering economic output, a softening labour market and weakening wage growth.

The decision to leave interest rates unchanged at a time when recession fears are on the rise and fresh conflict in the Middle East risks derailing the energy market indicates the central bank is nervous about increasing borrowing costs for households and businesses. Whether this is the end of interest rate rises is unclear, with the BoE monitoring inflationary pressures carefully while the dampening effects from 14 rate rises between December 2021 and August this year continue to feed through into the economy.

For households, the prospect of sky-high borrowing costs softening from here should provide some sense of relief, particularly for those grappling with oversized mortgages or excessive debts. However, the worst may not be over yet as interest rates remain at their highest level since February 2008 and are set to stay high for longer causing ripples of discomfort for many.

The Bank of England’s Monetary Policy Committee has opted for another pause, voting by a 6-3 margin to keep the base rate at 5.25 per cent.

Haleon shares fell on Thursday as the group narrowly missed third-quarter revenue predictions.

The Panadol maker, which is the world’s biggest consumer healthcare group, grappled with weak demand for its painkillers, digestive health and vitamin supplements in North America.

But Haleon stuck by its full-year forecasts, despite an anticipated hit of around 3.5 per cent to revenue and a 6 to 6.5 per cent reduction in adjusted operating profit from currency swings.

BT Group upheld its annual financial guidance after significant cost reduction efforts drove earnings marginally higher in the first half.

The telecoms giant expects to report rising adjusted revenue and earnings before nasties on a pro-forma basis, as well as normalised free cash flow towards the high end of its £1billion to £1.2billion range.

Chris Beckett, head of equity research at Quilter Cheviot:

‘Sainsbury’s delivered good results this morning and the market appears to agree, with revenues in line with expectations and profits up slightly. Importantly, grocery volume growth has been positive – Sainsbury’s has weathered the cost of living crisis in its groceries division well.

‘What is happening though is other parts of the business are struggling where consumers have made cutbacks. People may be buying the same amount of groceries, but they are buying less general merchandise and this is hitting other parts of the Sainsbury’s empire.

‘Ultimately, though, supermarket retailing remains a high volume, low margin business. For an investor this means you want to own the companies that have the largest scale and strongest market position, and, unfortunately for Sainsbury’s, that remains to be Tesco.

‘Sainsbury’s continues to have lower margins than Tesco and as a result it is tough to see how the market arrives at the valuation it is giving it, particularly when other parts of the business are not as strong.

‘Tesco also announced it is bringing in a former Aldi executive to lead the UK business. This is an interesting development and could signal the future direction for this business. Sainsbury has scheduled a strategy update for February – it will be interesting to see how it responds.’

Hard-pressed consumers are keeping a tight rein on spending decisions, the boss of Sainsbury’s said on Thursday as the supermarket group revealed bumper profits.

‘There’s no doubt that budgets are tight and customers are spending cautiously and carefully,’ Sainsbury’s chief executive Simon Roberts told reporters after publishing the group’s first half results.

Sainsbury’s boosted its earnings outlook thanks to higher grocery sales, with underlying pre-tax profit holding firm at £340million for the first six months of the financial year.

The group said it applied ‘Nectar Prices’ to 6,000 products during the period, claiming the ‘vast majority’ of its shoppers used a Nectar card and have thereby saved £450million at the till since April.

Fewer than one in ten workers are now in low-paid jobs, official figures show, suggesting that Britain is increasingly a nation of middle earners.

Just 8.9 per cent of UK jobs pay an hourly rate that is less than two-thirds of the average – the lowest level since 1997.

Garry White of wealth manager Charles Stanley:

‘Shareholders in Shell have plenty to be pleased about in its latest earnings release. Although the Anglo-Dutch oil major profit was in line with market expectations, a surprise $3.5bn addition to its share buyback this year will mean a further $6.5bn is being spent shrinking its shares in issue in the next three months.

‘This should provide a meaningful and lasting boost to earnings per share.

‘The quarterly dividend was also unchanged from the previous three months at 33.1 cents. But this payment is now significantly ahead of the level of 16 cents paid at the start of 2020, slashed from 47 cents in the final quarter of 2019, as the Covid-19 crisis was used as an excuse by oil majors to rebase their expensive dividends.

‘It was on the second time since the Second World War that Shell had cut its dividend, but three years later the payment has almost doubled, and the company has the financial firepower to launch surprise buybacks of this scale. It demonstrates just how quickly things can turn around in the oil industry – for better.’

London-listed stocks have opened strongly this morning, supported by a slew of upbeat earnings reports from industry giants like Sainsbury’s and Shell, while investors focus on the Bank of England’s monetary policy decision due at midday.

Shell is up 0.8 per cent after the global energy major reported third-quarter profit in line with expectations and announced a share buyback programme of $3.5billion over the next three months.

The broader oil and gas index is up 0.6 per cent on the news, with higher oil prices also supporting the gains.

Sainsbury’s has climbed 5.1 per cent after forecasting full-year profit at the upper half of its previous guidance.

On the FTSE 250, top gainers include Trainline, adding 5.3 per cent after lifting full-year profit guidance.

Trainline expects full-year profits towards the upper end of guidance after first half adjusted earnings soared 26 per cent to £57million in the first half.

As a result the group expects to achieve full-year revenue growth of 15 to 20 per cent, up from previous guidance of 13 to 22 per cent.

Jody Ford, CEO of Trainline said:

‘Our growth over the last six months reflects our focus on continually innovating and improving the customer experience of purchasing digital rail tickets. The value, ease, and convenience we provide are just some of the reasons we are Europe’s #1 most downloaded rail travel app.

‘In recent weeks we have seen several exciting announcements around the arrival and growth of new rail carriers, which could mean more customers in the UK, in Europe and those crossing the Channel reap the benefits of increased carrier competition.

‘These include improved value and choice, encouraging more people to make the greener choice of rail travel. Our customers in Spain and Italy already enjoy these benefits, and we believe more should have the opportunity to do so.’

Stuart Lamont, investment manager at RBC Brewin Dolphin:

‘Shell’s results are a contrast with BP’s earlier this week, more or less matching expectations on the back of rising profits.

‘Comparisons with last year, when oil prices first began their surge, were always going to be tough, but the company has managed to deliver.

‘Another share buyback should be good news for shareholders, but there is little said about its plans to achieve net zero in today’s update – this remains a longer term concern for many, after the company announced its decision to focus on oil and gas production earlier this year.

‘With the geopolitical environment still volatile, oil prices look likely to continue recent rises which should mean a strong final quarter for Shell.’

Smith & Nephew has forecast annual revenue growth at the higher end of its guided range of 6 to 7 per cent and named ad group WPP’s former finance boss John Rogers as its new chief financial officer.

Strong sales from wound management and orthopaedics is likely to drive up underlying revenue growth for 2023, above analysts’ average expectations of 6.4 per cent, the company said.

Albie Amankona, analyst at Third Bridge:

‘BT is using its own cash flows to fund investments, setting it apart from many of its peers encountering similar funding challenges amid high interest rates. This could potentially benefit BT, as there may be a reduced expectation of overbuilding in the industry.

‘If operators such as Virgin Media O2 and CityFibre grow to a scale that rivals Openreach, Sky may retail those services but maintain its own base. Our experts believe Openreach’s wholesale revenue from Sky is secure.

‘BT has achieved EBITDA growth primarily through cost control measures, as opposed to relying on revenue growth. Our experts believe BT can successfully execute its plan for further job cuts by the end of the 2020s, largely thanks to the end of the fibre rollout in 2026 and the transition in technology from copper.’

BT Group’s second quarter earnings were slightly ahead of forecasts, putting Britain’s biggest broadband and mobile provider on track to meet 2024 guidance in one of the outgoing CEO’s final announcements.

Allison Kirkby, a board member and the boss of Sweden’s Telia Company, will take over from Philip Jansen early next year.

Cost controls helped BT post a 3 per cnet rise in adjusted core profit to £2.06billion for the three months to the end of September, roughly £30million higher than forecast.

‘These results show that BT Group is delivering and on target: we’re rapidly building and connecting customers to our next generation networks, we’re simplifying our products and services,’ Jansen said.

America’s central bank last night held interest rates at a 22-year high but left the door open for more hikes in the battle to bring down inflation – and played down any prospects of a cut soon.

The US Federal Reserve’s rate was left in a range of 5.25 per cent to 5.5 per cent, the second pause after aggressive rises since early 2022.

Entain has forecast a return to growth in 2024, even as the gambling giant posted a drop in gaming revenue in the third quarter on the back of adverse sporting results and regulatory pressures.

The owner of Ladbrokes and Coral betting shops as well as bwin and partypoker online brands said it expects 2024 gaming revenue to grow in low single digits.

Entain’s online net gaming revenue on a pro forma basis was down 6 per cent for the three months to the end of September, with ‘customer-friendly’ results marking a £45million hit to core profit.

Around 3,000 steelworker jobs are in limbo after an announcement by Tata Steel was pulled at the last minute.

Tata had been expected to confirm cuts at the UK’s largest steelworks in Port Talbot yesterday.

But the announcement was cancelled by the firm’s Indian owner Tata Group after a board meeting – a move that

blindsided workers and unions.

Sainsbury’s has forecast full-year profit at the upper half of previous guidance after the supermarket reported slightly better-than-expected flat profit for the first half due to demand for its food ranges.

The group now expects a underlying annual pre-tax profit of £670million to £700million, up from previous guidance of £640million to £700million, and the £690million made last year.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

‘Sainsbury’s is putting up a good fight in the battle for footfall. Its value driven approach has taken competitors, especially the discounters, head on, and the market share gains show something’s being done right.

‘The expected momentum in profit is a welcome development for investors that have endured a bumpy ride in recent memory. It’s especially encouraging to see that general merchandise sales are just about keeping their head above water too. Argos is acting as a bit of a drag but the festive trading season will tell us how this is shaping up without so much macro noise.

‘Looking ahead to the next few months, Sainsbury’s extensive product improvements and the strong demand for Taste the Differences ranges, could mean the group’s in for a merry Christmas.

‘But these are trends that will need monitoring closely, the discounters and other mid-value supermarkets have also stepped up their game, and as belts are tightened, it could lead to customers being even more discerning about where their pennies are spent in what is an incredibly expensive period for families.’

Haleon missed market estimates for third-quarter revenues after the world’s largest consumer healthcare company was weighed down by lower sales volumes in North America, due to weaker demand for its digestive health products and vitamins.

Consumer health companies and their essential, daily-use products are typically the last to face a demand impact by an economic slowdown, but high interest rates and rental costs are turning consumers more frugal by the day.

Haleon reported a 5 per cent organic increase in revenue to £2.79billion for the three months to the end of September, slightly below forecasts of £2.83billion.

Volumes for the quarter declined by 1.6 per cent.

Shell has lined-up fresh share buybacks of $3.5billion over the next three months, up from $2.7 billion in the previous three months, after posting third quarter profits of $6.2billion.

The oil giant’s earnings met market expectations on the back of higher refining margins and strong liquefied natural gas trading.

Shell said: ‘Income attributable to Shell shareholders, compared with the second quarter 2023, mainly reflected higher refining margins, higher realised oil prices, higher LNG trading and optimisation results, and higher Upstream production, partly offset by lower Integrated Gas volumes.’

Shaan Raithatha, senior economist at Vanguard, Europe:

‘We think the MPC will keep the Bank Rate unchanged at 5.25 per cent. This is backed up by recent rhetoric by key members of the committee that suggest a preference for keeping rates at the current level for longer, rather than raising rates further from here.

‘For example, see [BoE chief economist Huw] Pill’s 16 October comments: “I am reasonably confident that interest rates at their current level are bearing down on inflation, are acting to squeeze out that persistent component of inflation”.’