BUSINESS LIVE: Inflation regular at 2.2%; L&G to promote housebuilder CALA

Rachel WInter, partner at Killik & Co:

‘While the headline rate of inflation has stayed the same, the Bank of England will be disappointed by the higher core inflation figure. Core inflation excludes the traditionally volatile components of food and energy, and the recent uptick suggests there is still too much demand in the UK economy.

‘“This could put a September interest rate cut out of reach, and it also makes the case for future rate cuts more difficult this side of Christmas.

‘For investors, as uncertainty around future rates lingers, the importance of maintaining a well-diversified portfolio across multiple asset classes remains.

‘Short-term volatility is a concern as we approach Labour’s first Budget, and diversification will help to protect against sector-specific shocks.’

Pret A Manger global sales jumped to above £1billion last year as it pursued international expansion.

The UK-based coffee and sandwich chain said £1 in every £4 spent by customers now came from outside the UK as sales shot up 22 per cent in 2023.

A total of 81 shops opened up abroad including in India and Canada, as well as in Greece and Spain.

Life insurer Legal & General has agreed to sell its UK housebuilder CALA Group for £1.35billion, including debt.

L&G said the sale to funds managed by Sixth Street Partners and Patron Capital reflects a ‘disciplined approach to capital allocation’ and follows the London-listed firm’s decision to create a Corporate Investments Unit.

It said: ‘Disposal proceeds from the sale will primarily be used, as they become available, to reinvest in the Group in line with our strategy and the capital allocation framework set out at the CME. 

‘The Board will also consider the proceeds as part of the Group’s announced intention to increase returns to shareholders through ongoing buybacks. As signalled, the sale of Cala reduces the Group’s Solvency Capital Requirement (SCR) by £100million after diversification.’

M&C Saatchi profits rocketed 26 per cent in the first half, aided by improved advertising spend from clients, cost-saving measures and asset sales.

Business from the existing client base remained strong with about 75 per cent of last year’s clients choosing to spend in the first half of the year, the company said, adding that it now has high-profile clients such as McDonald’s, Ford, IKEA and Sony Pictures to its blue-chip roster.

In response to pressure from tech clients’ marketing cutbacks last year, M&C Saatchi, under new CEO Zaid Al-Qassab, had been strategically divesting some businesses to enhance margins and profitability.

The advertising group, with clients such as Amazon and Japan’s Rakuten posted £14.2million in like-for-like profit before tax for the six months to 30 June, from £11.3million a year earlier.

Thomas Pugh, economist at RSM UK:

‘The rebound in services inflation in August makes an interest rate cut tomorrow even less likely, but this is just a bump in an otherwise downward path. Services inflation should continue to slow over the rest of the year, leaving the door wide open for one, or even two, more cuts towards the end of the year.

‘The good news is that accommodation inflation fell again from 3.9% to 3.7% and restaurant inflation dropped from 5.5% to 4.9%. Price pressures in this sector had been very sticky until July, so consecutive drops in inflation suggest that price pressures are now actually easing.

‘Elsewhere, almost all goods prices continued to decline, with goods inflation in aggregate dropping by 0.9%, which helped to offset the impact of higher services inflation.

‘Overall, we’re not worried about the rebound in services inflation, it was driven by erratic airfares. Most other sectors show that price pressures are continuing to ease. While there is little chance that the MPC will cut interest rates tomorrow, we think the chances of getting two cuts towards the end of the year are rising.’

Matthew Chapman, associate partner at McKinsey & Company:

‘Keeping inflation within a hair’s breadth of two percent is tricky. While goods inflation has been in negative territory since April, high levels of services inflation have caused the overall CPI to maintain above the 2% target.

‘Price increases in everyday essentials has remained slow. While food and non-alcoholic beverage price increases have declined to 1.3%, the cost of living is still top of mind for consumers.

‘Higher levels of service inflation (5.6%)- including hotels, package holidays and airfares – has contributed to the overall CPI flatlining at 2.2%. However, consumers are showing a lower intent to spend in these categories in the next 3 months, following the summer, which could impact services inflation in the next few months.

‘Consumer confidence is growing – across all age and income groups. If inflation continues its downward trajectory, shoppers may experience a modest increase in purchasing power, which could then translate into stable spending.’

Consumer price inflation came in at 2.2 per cent for August, unchanged on the previous month and in-line with economist forecasts, fresh data from the Office for National Statistics shows.

The Bank of England, which had predicted CPI would rise to 2.4 per cent last month before hitting almost 2.8 per cent by year-end, will make its latest decision on the direction of interest rates on Thursday.