Tuesday, November 5, 2024

Rate cut on knife edge as market tensions ease

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Rate cut on knife edge as market tensions ease
Retail footfall rose in Scotland and shops will be hoping for cut in interest rates (pic: Terry Murden)

An interest rate cut next week remains on a knife-edge as markets reacted nervously to the Chancellor’s tax and spend budget.

Analysts are marginally expecting the Bank of England to deliver its second interest rate cut of the year on Thursday

A 25 points basis points cut to 4.75% is seen as most likely, as inflation has fallen below the central bank’s 2% target to 1.7%.

However, talk of a second cut at the 19 December meeting has eased after investors took fright at the size of Rachel Reeves’ tax bill. Yields on 10-year gilts hit 4.5% on Thursday, indicating a lower level of confidence in the Treasury’s strategy.

Trading was calmer yesterday with yields settling and stock markets rising.  Russ Mould, investment director at AJ Bell, said: “The run-up to the Budget kept everyone on their toes and the subsequent spike in gilt yields caused some big movements on the market.

“Fortunately, there was less drama on Friday, with the FTSE 250 holding firm, the FTSE 100 moving higher and gilt yields settling around the 4.5% level.”

Shell and BP also gave support to the FTSE 100 as oil prices bounced nearly 3% higher.

The US Federal Reserve is widely expected to cut interest rates next week. Traders are placing a 95% probability of another monetary loosening from the Fed of 25 basis points. It would take US interest rates down to a range of 4.5 to 4.75%.

The US economy recorded its weakest monthly jobs growth since 2020 after devastating hurricanes and industrial action battered the labour market before next week’s presidential election.

US payrolls expanded by 12,000 in October, far lower than the 113,000 forecast by economists and the weakest monthly growth since December 2020.

October’s jobs figures are the last big economic release before Tuesday’s presidential election. The strength of the US labour market and the impressive growth rates of the wider economy has not translated into a polling lead for Kamala Harris, the vice-president and Democratic Party nominee.

House price growth

House prices barely moved in October as some would-be buyers decided to put moves on hold while they waited to see what was in the budget.

The price of a typical UK home increased by 0.1 per cent last month, slower than in September and taking the average house to £265,738, according to data from the high street lender Nationwide.

Compared with this time 12 months ago, house prices are 2.4 per cent higher, a slowdown from the 3.2 per cent pace recorded in September.

Retail footfall

New retail figures for October showed footfall down by 1.1% across the UK but rising 0.8% in Scotland, though last year’s comparable month for Scotland was one of prolonged storms.

Visits to Scottish stores grew for a third successive month, with Scotland recording the fourth best performance of all 13 UK nations and regions.

David Lonsdale, director of the Scottish Retail Consortium, said: “The improvement in footfall was seen across all retail destinations. Foot-traffic to shopping centres returned to growth after three months of decline. Glasgow was the second-best performing city centre of the ten UK cities surveyed, and outperformed Edinburgh for the first time in two years.

Tesco Bank sale

Tesco jumped 0.6% after saying it would buy back a further £700 million worth of shares with money from its banking operations disposal.”

Britain’s biggest grocer, is to return cash to shareholders after completing the sale of its Edinburgh-based retail banking operations to Barclays.

The news sent its shares up by 5.75p, or 1.7%, to close at 348p. Tesco stock is up by about 28% on the year.

Boohoo blues for Ashley

Mike Ashley has been defeated in his quest to run Boohoo after the clothing retailer said it had appointed a new leader from within. Dan Finley is stepping up from running Boohoo-owned Debenhams to be group CEO.

Finley spent a decade as a JD Sports director and then nearly three years helping to transform Debenhams as a digital entity.

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