UK Economy May Improve As Outlook for Inflation Remains Broadly Positive But Several Risks May Lead to Setback – Report

Yael Selfin, Chief Economist at KPMG UK, says that inflation could soon “return to target, but risks remain.”

Yael Selfin points out that the overall outlook for inflation “remains broadly positive, however there are several risks which could cause a setback.”

Yael Selfin adds that Oil prices have “rallied over the past month which has led to an increase in prices at the pump for consumers. Also, the hike in the National Living Wage could potentially contribute to persistence in services inflation which remains elevated.”

Yael Selfin added:

“Today’s data are unlikely to move the needle for the Bank of England. We expect inflation to return to target later this spring, which raises the prospect of interest rate cuts from June onwards. Fewer rate cuts by the Fed are unlikely have a major impact given the more favorable inflation outlook and the ongoing weakness in the UK economy.”

They also mentioned that headline inflation “continued to cool in March, falling to 3.2%, as the rate of food price increases eased further. However, services inflation remained elevated at 6%.”

In another separate update shared with CI, it was noted that Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown, stated:

“The FTSE 100 has swung to the downside today, as reports of an Israeli attack on Iran increase geopolitical uncertainty. On a more UK-specific level, retail sales were unexpectedly flat in March, according to ONS data. This was worse than expected, and included a decline in food store sales. This doesn’t bode too well for some names in the grocery industry, with corporate updates expected next week. The data also speaks to growing concerns about resilience in the wider retail sector. Mid-market names are in a very difficult position and pressure isn’t abating.”

They added:

“William Hill owner, 888 holdings has shown it can pay to bet on an underdog, with revenues coming in ahead of expectations. The group’s in the middle of a significant overhaul, with a newly minted management team, strategic plan and targets. Today’s trading update should boost confidence that the turnaround has legs. For all the positives, it’s not all shipshape. Leverage remains eye wateringly high, and reducing that remains a priority. At the same time, the overarching risk for any gambling company is its ability to handle the regulatory environment. The lens is rightly focused on customer care for these names, and there is no room to fall short. 888’s valuation has taken a knock as it’s worked through various issues, and there could be room for upside in the short to medium term, especially as leverage comes down to more sensible levels.”

They also mentioned:

“Shares in chip giants TSMC and Nvidia have fallen relatively sharply despite TSMC heralding insatiable demand for AI related chips in its recent trading statement. The negative sentiment stems from weakness around overall chip demand in the coming year. The group’s comments singled out automakers as one area where demand is falling, as well as smartphones and PCs. Nvidia is one of TSMC’s main customers, as is Apple. These comments tell us that the discretionary market, from cars to electronics, is very much feeling a pinch. TSMC also failed to increase its spending plans, which would suggest profit in the space could be harder to come by than the market was hoping for.”

They further noted:

“Netflix has also disappointed the market, despite posting blockbuster subscriber growth. Revenue guidance left a lot to be desired as the market readjusts to its pivot away from being purely measured by the subscriber-growth yardstick. Overall progress was impressive, especially on the profit and free cash flow side of things. The oil price is back up over $88 a barrel as Middle East tensions escalate. Some demand uncertainties still persist though, especially following weaker economic data from China. Overall this is keeping a partial lid on price gains, but that could be removed if the Israel – Iran conflict scales up.”

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