The UK government borrowed more than expected in February, figures from the Office for National Statistics showed on Tuesday, ahead of the spring statement on Wednesday.
UK public sector net borrowing - excluding public sector banks - was £13.1 billion in February. This was an improvement from £15.5 billion posted in February of 2021, but the latest figure was higher than the market forecast for a deficit of £8.1 billion.
The ONS said last month’s figure represented the second-highest February borrowing since monthly records began in 1993. Though £2.4 billion less than in February last year, it still was £12.8 billion more than in February 2020, before the coronavirus pandemic. Borrowing in February 2020 was £300 million.
The figure comes ahead of UK Chancellor Rishi Sunak’s spring statement on Wednesday, as he faces increasing pressure to take action over the country’s cost of living crisis, with fuel and energy prices surging.
The chancellor will present the latest updates from the Office for Budget Responsibility on the state of the UK economy and public finances.
So far, Sunak has also staunchly resisted calls to drop his planned UK national insurance hike in April, arguing that it is intended to pave the way for long-term improvements in health and social care.
Analysts at Pantheon Macroeconomics said: ‘Sunak likely will want to preserve his fiscal headroom so that he can cut taxes in the run-up to the next election in May 2024, and will avoid temporary measures that would be withdrawn close to polling day.
‘Accordingly, we expect the chancellor to tread cautiously tomorrow, and to announce a limited package of measures, amounting to a net giveaway in 2022-23 of about £13 billion, or 0.5% of GDP. That probably would mean that households still will experience this year the biggest annual decline in their real disposable income since the Second World War.’
Added Matthew Ryan, senior market analyst at Ebury, ‘Chancellor Sunak‘s announcement on the cost of living crisis...could lead to greater fiscal accommodation and support the pound. Even following last week’s dovish Bank of England announcement, we continue to see sterling as slightly undervalued.’
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.3% at 7,463.88
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Hang Seng: up 3.1% at 21,883.14
Nikkei 225: closed up 1.5% at 27,224.11
S&P/ASX 200: closed up 0.9% at 7,341.10
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DJIA: closed down 201.94 points, or 0.6%, at 34,552.99
S&P 500: closed marginally lower, down 1.94 points at 4,461.18
Nasdaq Composite: closed down 0.4% at 13,838.46
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EUR: down at $1.0978 ($1.1033)
GBP: down at $1.3138 ($1.3192)
USD: up at JP¥120.40 (JP¥119.25)
Gold: down at $1,933.25 per ounce ($1,936.69)
Oil (Brent): up at $118.25 a barrel ($114.84)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Tuesday’s key economic events still to come
1000 CET EU euro area balance of payments
1100 CET EU construction output
1100 GMT Ireland wholesale price index
1100 GMT UK CBI industrial trends survey
1630 EDT US API weekly statistical bulletin
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Oil prices extended their rally Tuesday on supply worries as European leaders debated banning imports from Russia. Both main crude contracts started the week by soaring more than 7% on Monday as EU nations discussed following Washington and putting an embargo on Russian energy imports over its war in Ukraine. Some members are pushing to ramp up pressure on Russian President Vladimir Putin with more sanctions, though others, including Germany – which still relies on Moscow’s fuel – have been reluctant to target key sectors. Adding to the pressure on oil prices, Saudi Arabia warned that Yemeni rebel attacks on its oil facilities pose a ‘direct threat’ to global supplies, after Red Sea facilities belonging to Saudi Aramco were targeted.
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BROKER RATING CHANGES
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JPMorgan cuts Diploma to ’underweight’ (neutral) - price target 2,500 (2,950) pence
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Jefferies starts Lancashire Holdings with ’buy’ - price target 500 pence
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Bernstein raises Ryanair to ’outperform’ (market-perform) - price target 16.80 EUR
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COMPANIES - FTSE 100
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Retail Kingfisher said it delivered a strong financial performance in financial 2021 boosted by a lockdown boom in DIY projects that has continued. For the financial year that ended January 31, pretax profit was up 33% to £1.01 billion from £756 million the year before, as sales rose 6.8% to £13.18 billion from £12.34 billion. Kingfisher said that financial 2022 was a year of record revenue, profit and that it was gaining market share in the UK and France. It said its B&Q chain had an ‘outstanding year’, with sales passing £4 billion. It was also a record year of expansion for Screwfix, with 70 new stores opened in the UK and Ireland, and Screwfix France showing promising early progress. Kingfisher raised its annual payout by 50% to 12.40 pence per share from 8.25p paid out the year before. Kingfisher said first quarter like-for-like sales were down 8.1% from the year before, but up 16% from two years earlier.
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Auto Trader has agreed to acquire UK-based vehicle leasing digital platform Autorama to expand its existing leasing proposition. Auto Trader will pay an initial £150 million in cash, with a further £50 million of deferred consideration to be settled in shares subject to performance conditions. Auto Trader explained there was a large structural opportunity for a new car leasing marketplace driven by the growth of electric cars, new manufacturers entering the UK market, lower take up of company car schemes, and a shift towards new digital distribution models. Leasing provides consumers a cost-effective way to access a new car, it said. CEO Nathan Coe said: ‘To ensure we have the largest choice of cars to buy online, we could not ignore the growing demand for leasing deals...This acquisition will strengthen our leasing business and will enable us to offer both the biggest choice of vehicles and a seamless digital experience from search to sale.’
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Shell is reconsidering its decision to pull out of the Cambo oil field in the North Sea, the BBC reported. The oil major, having announced plans to exit the field in December, is yet to sell the assets, the BBC noted. While its position has not completely changed, Shell believes the market environment since it made the decision has, the BBC said. Shell in December said it decided to pull out of its plan to develop the Cambo oilfield. The planned oilfield, which was set to produce around 132 million tonnes of carbon during its lifetime, had drawn a volley of criticism from environmental activists.
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COMPANIES - FTSE 250
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IT infrastructure provider Softcat reported interim profit growth ahead of expectations and strong cash generation. For the six months that ended January 31, pretax profit increased to £64.2 million from £57.0 million a year before, on revenue of £770.9 million, up from £577.0 million. Softcat declared an interim dividend of 7.3p, up 14% from 6.4p the year before. Softcat said the drivers of income growth have been broad-based, with good progress made in all customer segments and across each of software, hardware and services. Further, its performance has been achieved against the backdrop of supply chain challenges which it said remain manageable but are contributing to a relatively modest backlog of hardware orders. ‘Operating profit in the first six months of the financial year has been ahead of the board’s initial expectations. While the current geopolitical and macroeconomic volatility make it more difficult to forecast performance, because of the outperformance in the first half the board now believes that the outturn for the full year will be ahead of previous estimates,’ the company said, looking ahead.
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COMPANIES - MAIN MARKET AND AIM
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THG founder Matthew Moulding will relinquish his position as executive chair but remain CEO. The online beauty products platform has appointed Charles Allen as independent non-executive chair, starting immediately. Allen currently is chair of construction firm Balfour Beatty and previously was CEO of ITV and Granada. ‘Charles has a clear mandate to refresh THG’s board and further strengthen governance and diversity. In addition to reviewing the independent board, Charles will be working with Matthew in developing the management team, as well as refining the group’s strategy,’ THG said.
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The UK government is considering temporarily taking control of Gazprom’s UK arm, should the Russian business cease trading in Britain, Bloomberg reported. Citing a person familiar with the matter, Bloomberg said Gazprom Marketing & Trading Retail could be subject to the UK’s special administration scheme, which ensures some critical services continue, despite a company failing. The Gazprom unit has over 30,000 business customers, Bloomberg reported. Consulting firm Teneo has been picked as a candidate to run Gazprom Marketing & Trading Retail, should the special administration scheme be used, Bloomberg said. On Monday, London-listed energy advisory and sustainability services provider Inspired said it could take an earnings hit should Gazprom’s UK business get shut down. The Preston, England-based company said that 5% of its revenue relies on clients that are contracted with Gazprom. Should Gazprom UK cease trading, Inspired could take at most a £3 million hit to annual earnings before interest, tax, depreciation and amortisation.
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Tuesday’s shareholder meetings
Crest Nicholson Holdings PLC - AGM
Hochschild Mining PLC - EGM re Amarillo Gold acquisition
Hydro Hotel Eastbourne PLC - AGM
Starvest PLC - AGM
Sureserve Group PLC - AGM
Wynnstay Group PLC - AGM
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