Markets hit by inflation disappointment, Marks & Spencer crowned king of retail, RS Group slumps and Mitchells & Butlers’ revival intact

“A slower than expected drop in the rate of UK inflation has spooked the market, pushing back the likely point at which the Bank of England will cut interest rates. Naturally, that led to a sudden jump in sterling and gilt yields and pulled down the FTSE 100,” says Russ Mould, Investment Director at AJ Bell.

“Add that situation to investor gloom earlier this week over when the Fed might cut rates in the US and you’ve got one grumpy market on your hands.

“The prospect of rates staying higher for longer in the UK cast dark clouds over companies linked to the property sector, pouring cold water on the idea that mortgages would soon become more affordable. Taylor Wimpey led a sell-off in housebuilders.

“While higher rates might keep some people priced out of the property market and hurt demand for mortgages, it could lead to banks charging more for other types of loans, going some way to explain why the likes of Lloyds and NatWest were among the top FTSE 100 risers.

“The stronger pound is bad for the FTSE 100 constituents which earn in US dollars. Adding to the market’s woes was bad news from the mining sector after a drop in copper prices amid softer demand and higher inventories in China, a major commodities consumer. Copper looked like it had got ahead of itself and it’s only natural to see a pullback after a strong price rally.

“Electronics specialist RS Group fell 7% after reporting a big slump in annual profits and a sharp jump in net debt. Comments that demand remains subdued and guidance for short-term profit margin dilution didn’t go down well.”

Marks & Spencer

“As Marks & Spencer knows from first-hand experience, corporate turnarounds are tricky to achieve and even harder to sustain. There tend to be some quick wins but changing the culture is harder than climbing Mount Everest and it’s easy for businesses to slip into old habits, often to their detriment.

“Judging by Marks & Spencer’s latest results, it might be one of the select few companies to achieve permanent change. The turnaround story has been years in the making and it finally looks like the retailer has cracked it.

“Food products are flying off the shelves and it’s at long last struck at chord with shoppers on the clothing side. Improved free cash flow has helped to strengthen the balance sheet, bring back dividends for shareholders, and provide options to accelerate investment in the business.

“In an environment where so many retailers are struggling, Marks & Spencer has snatched the crown from Next and become the shopkeeper which others aspire to be. It’s back on top and 12 consecutive quarters of sales growth cements its new-found status as the UK’s retail champion.

“Despite this positive situation, there is still a lot more to do. The Ocado joint venture needs to pull its socks up and the international operations aren’t as strong as they once were. By its own admission, Marks & Spencer needs to move faster with efforts to offer a more personalised service. Fortunately, having the core business do well means it can afford to take a bit longer to fix the other bits.”

Mitchells & Butlers

“Mitchells & Butlers was a constant disappointment for years pre-pandemic, struggling to compete against the rise of the craft breweries and deluge of casual dining chains with modern offerings.

“With the hospitality industry shaken to its core by Covid, countless operators have now either shrunk their estate or collapsed, creating an opportunity for others to step in and grab market share.

“Mitchells & Butlers finally seems to be getting its act together and for all the criticism that its brands like Harvester and O’Neill’s are tired, they seem to be resonating with the cash-strapped public in the current environment.

“Full-year results are guided to come in at the top end of expectations and the company seems quietly confident that its current run of success has momentum.”

These articles are for information purposes only and are not a personal recommendation or advice.