Written by Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown
UK retail sales rose 1.2% in February, compared to a 0.9% increase in January. The relatively strong result comes as sales volumes in both department and clothing stores picked up, with discount options leading the way as people sought ways to keep costs down.
The wider ramifications for stores need to be considered here, the depth of strength on the discount side spells trouble for margins, which are already under serious pressure in the industry. On the surface it looks like a positive month when you consider food sales too, where volumes increased 0.9%, but this rise masks a difficult shift for hospitality. It seems consumers were ringing more items through tills because of a pull-back in spending in pubs and restaurants because of cost-of-living pressures.
Ultimately, this should be a good development for supermarkets, who have seen competition in the sector increase dramatically in the last year because of increasing pressure on customers’ wallets. At the same time, the GfK Consumer Confidence indicator for the UK rose to -36 in March, the highest point in a year. The shift comes because of better economic predictions, but the reading overall is still low which suggests there’s still broad sentiment weakness, as individuals grapple with what challenging conditions mean for their personal finances.
The slew of data today points to the likelihood that the FTSE 100 will end the week lower overall, which follows a volatile trading session in the US. Markets across the pond are still trying to iron out the full impact of the banking situation, as well as what tightening monetary conditions mean for future earnings. For the main indices, things moved from gains to losses throughout trading as Treasury Secretary Janet Yellen said authorities are prepared to take more action if needed to stabilise US banks. The next known catalyst for market moves will be manufacturing and services data for the region later on.
One of the world’s biggest consultancy groups, Accenture, plans to cut 19,000 jobs as the global economy’s strength is called into question by corporate clients. This is only the latest name in the sector to instigate layoffs, with McKinsey and KPMG also trimming their workforces. This is a stark reversal for Accenture, which inflated its workforce by almost 230,000 in the last three years, as it padded out its tech-advice capabilities in response to strong demand. This of course mirrors the sweeping redundancies being seen in the wider tech sector, but it needs to be remembered that right-sizing workforces is not the same as right-skilling. There’s growing awareness that companies in the middle of cutting their employee base need to be very careful to strike down the middle of protecting the business in the short-term and not cutting growth off at the source.
Brent crude fell below $75 a barrel amid speculation the US government will only be prepared to refill strategic oil reserves this year at lower prices. There are also signs that supply from Russia is firm, which is also pushing prices down. While this blip is noteworthy, overall, the international oil benchmark looks set to finish the week higher – with higher demand from China and hopes of looser monetary policy underpinning that.”
