UK rate cuts needed to spur consumer spending, says Sainsbury’s boss
The boss of Sainsbury’s said Britain needs several interest rate cuts to stimulate consumer spending, particularly on non-essential things.
Simon Roberts, the chief executive of Sainsbury’s, said:
Customers are continuing to be cautious, particularly in the areas of discretionary spending.
He said consumers’ caution was
not surprising given everything households have been through in the cost of living crisis.
Until we see sequential interest rate cuts, hopefully as soon as possible, that caution from consumers is going to continue on those more discretionary items.
Roberts said when the weather improved, people spent more on things other than food. Last week, when Britain enjoyed a “mini-heatwave” Sainsbury’s sold more fans and cooling equipment than it had sold so far this year.
It just shows that when the weather does turn, customers do want to buy into what they need to enjoy the summer.
Sainsbury’s said shoppers continued to buy more items of food from its shelves than a year before but grocery sales growth slowed to 4.8% in the latest quarter from 7.3% in the previous quarter as inflation across the market eased.
At its Argos chain, sales fell by 6.2%, even though it sold 25% more TVs than a year before as sports fans prepared to watch the men’s Euro 2024 football tournament.
The retailer said the decline reflected “an unseasonal start to summer”, with cold and wet weather hitting sales of summer goods such as paddling pools and garden furniture that did well in a hot start to the summer last year.
Key events
Here is our full story on eurozone inflation dipping in June:
Inflation across the eurozone slowed to 2.5% in June despite lingering pressure on households from price increases in the service sector, leaving the European Central Bank on track to keep interest rates on hold this month.
Annual inflation in consumer prices across the 20-country bloc eased from 2.6% in May, according to a flash estimate from the EU statistical agency Eurostat, matching financial market expectations.
However, core inflation – which strips out food, energy, alcohol and tobacco – remained unchanged at 2.9%, marginally higher than predicted by economists in a reflection of stubborn inflationary pressures.
Analysts said the figures were unlikely to encourage the ECB to cut interest rates again at its next policy meeting on 18 July, after it became the first big global central bank to reduce official borrowing costs, in June.
Bert Colijn, senior eurozone economist at the Dutch bank ING, said:
Nothing in these figures would make the ECB cut again in July, and we think it’ll be eagerly awaiting data over the summer before seriously debating a next rate cut in September.
The summer is set to be relatively boring [for the ECB]. It can afford not to carry out another rate cut based on the too-high core inflation reading and labour market strength, and will likely just await incoming data on wages, inflation and growth. It can also see how market turmoil around the French elections plays out.
In its flash estimate for June, Eurostat figures showed services had the highest annual inflation rate at 4.1%, a stable rate compared with May. Annual price growth for food, alcohol and tobacco slowed from 2.6% in May to 2.5%.
US stock futures fall ahead of jobs data and Powell comments
US stock futures are falling, pointing to a lower open on Wall Street later –- ahead of jobs opening data at 3pm BST and US Federal Reserve chairman Jerome Powell speaking at a European central banking conference at 2.30pm BST.
The job openings and labour turnover survey, known as JOLTS, is expected to show job openings fell to 7.91m in May from 8.059m the month before.
The Dow Jones is set to open nearly 150 points, or 0.4%, lower, while the Nasdaq is seen sliding 128 points, or 0.6% at the open, and the S&P 50 is expected to lose 0.5%.
Ahead of the UK’s general election on Thursday 4 July, Krispy Kreme said it would give away free doughnuts on the day.
People visiting a Krispy Kreme shop in the UK on election day will get a free Original Glazed doughnut, simply by saying “I voted”. The offer will be valid on Thursday in all its shops nationwide “while stocks last”.
The chain says it wants to encourage people to vote (while generating publicity for itself), in an election that will see a record number of candidates stand for the 650 parliamentary seats, and determine the UK’s next prime minister.
The polls point to a massive win for the opposition Labour party, and its leader Keir Starmer is expected to succeed Rishi Sunak as prime minister. You can follow the latest in the UK election campaign here:
Riccardo Marcelli Fabiani, senior economist at Oxford Economics, said:
Inflation [in the eurozone] resumed its descent after it had been temporarily interrupted in May, and it will continue to fall as inflationary pressures wane thanks to easing wage growth, lower energy prices, and normalised price expectations. But core inflation remaining stable reminds us that the disinflationary process will be bumpy.
Despite the decline in headline inflation, stubbornly high services inflation will cause headaches for the European Central Bank. This, its hawkish bias, and preoccupation for sticky wage growth point to no rate cut at the July meeting.
European stocks slide amid French election, rate worries
European stocks have hit their lowest levels in two weeks, amid worries about the outcome of the French election and the outlook for eurozone interest rates following inflation data.
The pan-European Stoxx 600 index fell 0.6% to 509.99, with insurers down 2% and carmakers also among the biggest fallers.
France’s CAC fell 0.75% to 7504, as investors awaited the second election round on 7 July. The German and Italian markets lost around 1%, while the UK’s FTSE 100 index was trading 0.3% lower.
Yesterday, European stocks finished 0.3% higher, lifted by an 1.1% relief rally in the battered French stock market after Marine Le Pen’s National Rally party scored a smaller win than some polls had expected in the first round on Sunday — reducing the chances of an absolute majority for the far-right party.
Daniela Hathorn, senior market analyst at Capital.com, told Reuters:
Both potential outcomes of this election, whether a far-right or a far-left coalition, don’t give political stability. Both would lead to a lot of indecision, which can cause some concern for investors.
Today, Le Pen said National Rally should not try to form a government if it does not win a majority. You can follow the latest on our French election blog.
Eurozone inflation eased to a headline annual rate of 2.5% last month from 2.6% in May, while the closely-watched core rate that strips out volatile items such as food and energy held steady at 2.9%. Services inflation has remained stubbornly high at 4.1%, also unchanged from May.
Jack Allen-Reynolds, eurozone economist at Capital Economics, said:
The fact that services inflation, which is most sensitive to domestic economic conditions, has remained high this year strengthens the case for caution at the ECB.
European Central Bank president Christine Lagarde said yesterday that benign economic developments suggest that further interest rate cuts are not urgent. The central bank lowered borrowing costs for the first time on 6 June. Lagarde told the ECB Forum on Central Banking, the bank’s hallmark policy conference:
It will take time for us to gather sufficient data to be certain that the risks of above-target inflation have passed.
The strong labour market means that we can take time to gather new information.
Markets are pricing in a 50% chance of another quarter-point interest rate cut in September and an even lower chance of a further reduction in December.
Lagarde and US Federal Reserve chief Jerome Powell are both speaking on a policy panel at the conference at 2.30pm BST today.
European journalist Alex Taylor said on X:
Just a reminder that 70,75% of French people who actually voted last Sunday didn’t vote for the Rassemblement National
Their party got 9. 377, 123 votes – that’s 29,25 % of all votes cast
With their allies from the right, it rises to 33%, but that’s still 2/3rds against pic.twitter.com/NfpBmjckoV
— Alex Taylor (@AlexTaylorNews) July 2, 2024
UK rate cuts needed to spur consumer spending, says Sainsbury’s boss
The boss of Sainsbury’s said Britain needs several interest rate cuts to stimulate consumer spending, particularly on non-essential things.
Simon Roberts, the chief executive of Sainsbury’s, said:
Customers are continuing to be cautious, particularly in the areas of discretionary spending.
He said consumers’ caution was
not surprising given everything households have been through in the cost of living crisis.
Until we see sequential interest rate cuts, hopefully as soon as possible, that caution from consumers is going to continue on those more discretionary items.
Roberts said when the weather improved, people spent more on things other than food. Last week, when Britain enjoyed a “mini-heatwave” Sainsbury’s sold more fans and cooling equipment than it had sold so far this year.
It just shows that when the weather does turn, customers do want to buy into what they need to enjoy the summer.
Sainsbury’s said shoppers continued to buy more items of food from its shelves than a year before but grocery sales growth slowed to 4.8% in the latest quarter from 7.3% in the previous quarter as inflation across the market eased.
At its Argos chain, sales fell by 6.2%, even though it sold 25% more TVs than a year before as sports fans prepared to watch the men’s Euro 2024 football tournament.
The retailer said the decline reflected “an unseasonal start to summer”, with cold and wet weather hitting sales of summer goods such as paddling pools and garden furniture that did well in a hot start to the summer last year.
Services is estimated to have the highest annual rate in the eurozone in June, of 4.1% – stable compared with May.
This is followed by food, alcohol & tobacco at an annual rate of 2.5%, down from 2.6% in May; industrial goods at 0.7%, stable compared with May; and energy at 0.2%, down from May’s 0.3% rate.
The unemployment rate stayed at 6.4% in May, unchanged from April, separate figures showed.
Eurozone inflation dips to 2.5%
Inflation in the eurozone slowed slightly last month, falling to 2.5% from 2.6% in May.
However, the annual ‘core’ rate of inflation, which excludes food, alcohol, tobacco and energy which tend to be volatile, stayed at 2.9%, according to the official figures. Economists had expected it to dip to 2.8%.
The ‘flash’ estimates were released by Eurostat, the European Commission’s statistics office.
Revolut reports record profits as it hints at plans for IPO
Revolut has reported record annual profits and further hinted at plans for a stock market flotation, despite still struggling to secure a UK banking licence.
The London-based fintech company, which has been waiting more than three years for its UK licence to be approved, swung to a £438m profit in 2023, having made a £25m loss a year earlier.
Profits were increased by higher interest rates and an ambitious expansion plan that helped to add 12 million customers to its user base last year. Revenues jumped 95% to £1.8bn in 2023, according to its latest annual report.
But bosses have yet to convince regulators to grant the company a UK banking licence that would open the door to new income streams. A licence would allow Revolut to hold its customers’ deposits, which would help fund its own-branded loans and mortgages. It would also probably convince regulators in other key countries such as the US to follow suit.
The challenge, in part, has been convincing regulators that Revolut has addressed a number of accounting and reputational concerns in recent years, after EU regulatory breaches, questions over its corporate culture and the late filing of its accounts.
Revolut bosses made little reference to the UK application, which was first lodged in early 2021, in its latest annual report, saying only: “We are continuing to work closely with the [Prudential Regulation Authority] on our UK bank licence application.”
However, Revolut – which was valued at $33bn in 2021 – gave further hints that it was on track for what is expected to be a bumper initial public offering (IPO) It insisted in its annual report that it had “enhanced” its financial controls in ways expected of “listed companies”.
It comes a year after the auditor BDO said it had been unable to get a full picture of Revolut’s revenue, and warned that as a result, the company’s finances were at risk of being “materially misstated.”
Here is our full story on Sainsbury’s:
Shoe Zone shares plunge 18% after profit downgrade
Shares in the Shoe Zone lost nearly a fifth of their value after the shoe retailer downgraded its profit forecast again, blaming higher shipping costs due to Red Sea disruption and poor weather.
The shares fell as low as 120p and later traded down 16% at 130p.
The retailer now expects adjusted profit before tax for the year to 2 October to be around £10m. It had already cut its profit outlook to £13.8m in May, as it was hit by shipping delays and higher wage costs following the National Living Wage increase.
Today, Shoe Zone said container prices had risen “significantly” over the last six months, as a result of the reduction in the number of shipping vessels and the additional costs of rerouting away from the traditional Suez Canal route.
Alongside this, spring and summer sales had been weaker than expected between April and June due to “unseasonal weather conditions”.
Last week, the company was hit by a cyber attack when hackers gained “unauthorised access to certain online systems and data”. Its website has remained operational and Shoe Zone has continued to trade with its customers and suppliers.
Next UK government poised to benefit from fall in inflation and fuel prices
Britain’s next government is poised to benefit from easing pressure on household finances after a slowdown in inflation in stores and a fall in fuel prices, but costs remain “too expensive” for many families.
Figures from the British Retail Consortium (BRC) show that annual UK shop price inflation cooled last month to 0.2%, down from 0.6% in May – the slowest pace since October 2021 – as retailers cut the prices of many of their key products, including butter and coffee.
Coming before Thursday’s general election, separate figures from the RAC show that petrol and diesel prices fell for a second straight month in June to ease pressure on families affected by the cost of living crisis. The organisation said, however, that filling up on the forecourt was still “too expensive” in England, Wales and Scotland.
According to the RAC’s monthly fuel watch, the average price of petrol in the UK at the end of June was just under 145p a litre, down from 148p at the start of the month. Diesel dropped from nearly 154p to about 150p.
“Fuel prices are still nowhere near where they should be despite falling for the second consecutive month,” the RAC said. It highlighted the lower cost of filling up in Northern Ireland, where petrol is 4.5p a litre cheaper on average and diesel 8p cheaper than in the rest of the UK.
The RAC’s head of policy, Simon Williams, said:
While it’s good news prices at the pumps have fallen for the second month in a row, this also leaves a bad taste in the mouth because we know drivers in Great Britain are continuing to get a raw deal as both petrol and diesel are still much more expensive than in Northern Ireland.
Sainsbury’s is the biggest faller on the FTSE 100 index this morning, down 3.3% at 249.60p.
Overall, the UK’s blue-chip index has fallen 0.6% or 52 points to 8114.91.
European stocks also pulled back ahead of the eurozone inflation data. Germany’s Dax has lost 0.5% while France’s CAC has lost 0.7% and Italy’s FTSE MiB slid 0.6%.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said the “Arogs albatross neck around its neck can’t be ignored”.
At first glance, it’s a bit tough to work out what sort of results have landed in Sainsbury’s bagging area. Ultimately, the reduction in the rate of growth was partly to be expected, especially in grocery.
As inflation cools, the weather worsens and tough comparisons crop up on the course, eking out the amount of growth seen last year was always a difficult ask. But there is a lingering Sainsbury’s specific issue in its ownership of Argos. Electronics aren’t faring well in this economic climate, as people prioritise the essentials. General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena really slows you down when times get tough. The additional exposure offsets and hides what has been a remarkable showing for the core grocery business.
Sainsbury’s was having a bit of an identity crisis, straddling the more vulnerable middle-line between premium and value. An awful lot of work has gone into improving products, value perception and innovation more generally, giving the group enough gusto to start moving market share in the right direction. AI ambitions to improve real-time customer service and experience are grand but a bit thin on detail, so an area to watch.
Investors are also being rewarded for their patience, with at least £250m making its way back to them once the sale of Sainsbury’s Bank assets to NatWest has completed.
Overall, Sainsbury’s has done just about all it can to better itself and it should be commended for that, but the Argos albatross around its neck can’t be ignored.
Analysts at Jefferies led by Frederick Wild and James Grzinic talked of an “exceptionally strong grocery performance” at Sainsbury’s.
An exceptionally strong grocery performance at Sainsbury’s in Q1 was diluted by a more downbeat delivery in the general merchandise businesses, particularly Argos. This should represent the trough, which feels well understood by the market given the shares’ recent underperformance.
Sunnier weather in recent weeks should underpin… acceleration, with the chief drivers through the rest of the year an improving consumer environment and an easing [year-on-year] comparative.
Grocery total growth remaining very strong at 4.8% as inflation stabilised, mix began to improve, and market share gains continued.
Introduction: Sainsbury’s sales growth slows despite Euro 2024 boost; eurozone inflation expected to slow
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Sales at Sainsbury’s have slowed despite a 25% jump in people buying TVs during Euro 2024, partly because of a big drop in sales at its Argos chain.
Food inflation has eased, and the supermarket group battled a “tough trading backdrop” on clothing and general merchandise amid poor weather and the cost of living crisis.
Like-for-like sales (at stores open at least a year), excluding fuel, slowed to 2.7% in the 16 weeks to 22 June, from 4.8% in the previous quarter.
Food sales growth eased to 4.8% from 7.3% as inflation across the market eased.
Argos sales plunged by 6.2% in the latest quarter, because people bought less garden furniture, paddling pools and other seasonal products than last year due to cold and wet weather. Sales electronics such as video games were also weak.
Sainsbury’s said:
Consumers continue to shop general merchandise more cautiously but respond to value.
More positive signs are coming through now in general merchandise with the better weather and the Summer of Sport ramping up.
As the warm weather hit last week, people immediately stocked up on cooling and garden products. Sainsbury’s said it sold more fans in one week than it had in the year to date. Thanks to the euros, TV sales have surged, as fans upgraded to better sets ahead of the big matches.
The supermarket chain stuck to its forecast of a retail underlying operating profit of between £1.01bn and £1.06bn this year, up between 5% and 10% from last year.
Later this morning, we’ll be getting ‘flash’ inflation figures for June from the eurozone.
Inflation in the 20-nation eurozone is expected to have fallen slightly, to 2.5% from 2.6% in May.
Eurostat, the European Commission’s office, will release the data at 10am BST. The core rate, which excludes volatile items like food and energy, is forecast to have eased to 2.8% from 2.9%.
The Agenda
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10am BST: Eurozone inflation for June (forecast: 2.5%)
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2.30pm BST: European Central Bank president Christine Lagarde speech
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2.30pm BST: US Federal Reserve chair Jerome Powell speech
