FTSE 100 analysis: BoE says path of interest rates is ‘uncertain’ – Top UK stocks

FTSE 100 rebounding

The FTSE 100 continues to rebound from the 8-month lows hit last week, with the blue-chip index up 0.4% in early trade.

The Bank of England released its financial stability report this morning. The central bank said parts of the global financial system remain ‘vulnerable to potential stresses’ such as a deteriorating economic outlook, persistently high inflation and geopolitical tensions. It said the ‘future path of interest rates is also uncertain’ and admitted the rise seen over the last year is making it harder for households and businesses to service their debt, particularly those with heavy debt levels or those with high exposure to the commercial property market. UK households are also struggling with higher rates and prices. Mortgage holders are facing higher costs but the BoE said the proportion of income being spent on mortgage payments should remain below the peaks we saw in the 2008 financial crisis.

The economic calendar today is headlined by the latest US inflation data with CPI out this afternoon, followed by speeches from Federal Reserve members Loretta Mester and Raphael Bostic. Economists hope that the rise in CPI slowed to 3.1% in June from the 4% increase we saw in May.

The Bank of Canada will also be making its next interest rate decision today, when it is expected to push ahead with its second consecutive 25bps increase.

FTSE 100 forecast: Where next for the UK 100?

The UK 100, which tracks the performance of the FTSE 100, continues to rebound from the lows we saw at the end of last week. The recovery this week has been enough to move the RSI out of oversold territory but it is still on the cusp.

The index’s immediate upside target is to return above 7,300 and recapture the 2023-lows before it can eye 7,450 and look to test the falling trendline. Any renewed pressure could see it continue to slip toward 7,180.

Top UK stock news

UK banks HSBC, Lloyds Banking Group and Standard Chartered all announced that they passed the Bank of England’s latest stress test that is designed to see whether the industry could survive a hypothetical economic shock. The trio are trading as much as 0.5% higher this morning.

International Distribution Services is up 0.3% this morning after Royal Mail workers that are part of the Communication Workers Union voted in 67% in favour of a deal offered by the postal giant to give staff a 10% pay rise over three years and a one-off payment worth £500. Conditions will also change as a result. That should bring an end to the strike action that has plagued Royal Mail.

UK electricity providers like British Gas-owner Centrica and SSE are up 1.1% and 0.3%, respectively, amid reports that Tesla is preparing to launch a service to provide UK households with electricity, according to The Telegraph, which cited a job listing posted for an experienced executive to become the head of UK operations at Tesla Electric.

JD Wetherspoon is up 3.7% after the pub chain upped expectations for next year as it revealed like-for-like sales in the first 10 weeks of the final quarter of its current financial year were up 11.5% from the year before, leading to sales rising 12.9% since the start of the financial year. Like-for-likes were also some 11% above pre-pandemic levels. ‘The company expects profits in the current financial year to be in line with market expectations,’ said chairman Tim Martin. ‘As a result of a continued improvement in sales and a slightly reduced expectation for cost increases, for example energy costs, the company anticipates an improved outcome for the next financial year, and anticipates an outcome for the first half of FY24 approximately in line with the second half of FY23.’

PageGroup is down 0.3% after it revealed gross profit was down 6.5% at £263.5 million in the second quarter because of record comparatives from the year before. ‘The challenging conditions we saw towards the end of 2022 and in Q1 2023 continued into Q2, with lower levels of both candidate and client confidence resulting in delays in decision making and candidates being more reluctant to accept offers. Reflecting the uncertain macro-economic conditions, temporary recruitment outperformed permanent, as clients sought more flexible options,’ said CEO Nicholas Kirk. PageGroup said it hopes to deliver full year operating profit in-line with consensus figures of around £137.6 million, which would mark a drop from the £142.5 million profit seen in 2022.

ME Group International is down 1.5% today after it said revenue rose 24.7% in the six months to the end of April to £143.8 million while pretax profit jumped 36.7% to £27.2 million. The topline grew across the board from its photo booths, laundry services and digital printing. It raised its dividend to 2.97p from the 2.60p paid out the year before, although the total payout for the period was down due to the lack of a special payout that was made last year. ME Group said it expects to deliver results in-line with expectations over the full year, with markets currently anticipating revenue of £300 million to £320 million and pretax profit of £64 million to £67 million. That would mark an improvement from the £259.8 million in sales and £53.4 million in profit delivered in the last financial year.

Bytes Technology Group is down 1.1% after it said it has continued to ‘trade strongly’ since releasing full year results in May, describing demand as ‘resilient’ and reporting ‘pleasing’ win-rates across the corporate and public sectors. The software, security and cloud services provider said both gross profit and adjusted operating profit both grew by double-digit percentages in the first four months of the financial year. Gross invoices rose at an even sharper rate as volumes of lower-margin software picked-up.

Close Bros is up 0.9% and thought to be reviewing its wealth management business and weighing up a potential sale, according to unnamed sources speaking to Bloomberg. It is thought to be working with Goldman Sachs on the review. The business could be worth around £300 million but there is no certainty that Close Bros will push ahead with a sale or find a buyer.

Tesco is up 0.3% after it said it has launched the second tranche of its £750 million share buyback programme that will see it repurchase up to £364 million of its own stock by April 2024. That comes after the first tranche worth £386 million was completed between April and June 2023.

Bunzl has been downgraded to Underperform from Sector Perform by RBC, which cut its price target to 2,550p from 2,850p. The broker warned the outlook is becoming clouded as prices start to fall, prompting it to lower its organic revenue growth forecasts as input prices normalise. It now expects a modest decline in organic growth in 2024 before we see a limited recovery in 2025. Bunzl is down 1.4% in early trade at 2,833p.

IAG has been downgraded to Hold by Deutsche Bank, which has a 165p price target on the airline. The stock is down 1.8% at 157.4p.

Forterra has been downgraded to Add from Buy by Peel Hunt. Forterra shares are down 1.5% today at 162p.