Closing summary
Mortgage approvals in the UK picked up in November, adding to other signs of a revival in the housing market, while consumer lending via credit cards and personal loan hit a near-seven year high in November and credit card borrowing doubled to £1bn, according to the Bank of England.
Next has upgraded profit hopes for the year after ringing up £38m more in sales than expected in the run-up to Christmas, but warned that difficulties in the Red Sea could delay deliveries and hit sales in the year ahead.
The fashion and homeware chain said full-price sales had stepped up dramatically, rising by 10%, in the last two weeks before Christmas. As a result, sales rose by 5.7% in the nine weeks to 30 December, far better than the 2% expected.
It is the fifth time in seven months that Next has increased its profit forecast. Its shares hit an all-time high of £85.32.
More than £1.8bn was wiped off the value of JD Sports today after the fashion retailer issued a profit warning saying that mild weather, rising costs and heavy discounting had affected sales before Christmas.
Shares in the retail group, which owns Go Outdoors, Blacks, Millets and Size? as well as the JD chain, dived by more than 23% to 119p, their lowest in a year, making it the biggest faller in the FTSE 100, after the company said it did not expect to make more than £935m in annual profits, 10% below its previous guidance.
Our other top stories:
Updated
The US service sector enjoyed faster growth at the end of 2023, as new orders rose at the sharpest rate since June and business confidence and hiring improved, according to a survey.
The final reading for the US services business activity index from S&P Global rose to 51.4 in December from 40.8 in November, up slightly from the flash estimate of 51.3. Output increased at the fastest rate since July.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
Some New Year cheer is provided by the PMI signalling an acceleration of growth in the vast services economy, which reported its largest rise in output for five months in December. The improvement overshadows a downturn recorded in manufacturing to indicate that the overall pace of US economic growth likely accelerated slightly at the end of the year.
Some support to financial services in particular is coming from the recent loosening of financial conditions amid growing hopes of interest rate cuts in 2024. Growth nevertheless remains subdued by standards seen over the spring and summer, with the struggling manufacturing sector dampening demand for businessto-business services and consumers remaining far less inclined to spend on luxuries such as travel and recreation than earlier in the year.
The more challenging demand environment has dampened firms’ pricing power, squeezing service sector selling price inflation to the lowest for over three years on average during the fourth quarter. With sticky service sector inflation being a key area of concern among Fed policymakers, the slower rate of price increase in December is welcome news.
After a year in which industry was knocked off its axis by the coming of age of artificial intelligence and the transition to an online world continued apace, new businesses are emerging and old industries reinventing themselves to adapt. Here, we look at five companies making the most of these turbulent times.
Ben May, director of global macro research at Oxford Economics, said the Houthi rebel attacks on commercial shipping in the Red Sea add to inflation risks in the UK.
We assume the disruption to shipping caused by maritime attacks on commercial vessels in the Red Sea will be relatively short-lived and the recent spike in sea freight prices will reverse. While there will be near-term impacts for some firms and sectors, these won’t be enough to shift our baseline economic or inflation forecasts to any meaningful extent.
If the Red Sea were to remain closed to shipping for several months, however, and shipping freight costs stayed around twice the level of mid-December, this could add 0.7ppts to annual CPI inflation rates by the end of 2024.
Still, the inflation push from this scenario wouldn’t be enough to stop world inflation from slowing over the course of this year and we doubt it would prevent the Fed and other major central banks from pivoting to rate cuts by around mid-2024. It would, however, be another reason to believe that the rate cuts priced in by markets have gone too far.
More good news: the number of people claiming jobless benefits for the first time in the US totalled 202,000 in the week to 30 December – fewer than the 216,000 forecast by analysts.
The number was also 18,000 lower than in the previous week, according to official figures from the United States Department of Labor.
US INITIAL JOBLESS CLAIMS FULL REPORThttps://t.co/PePv3BDMtf pic.twitter.com/G70cm0jOR7
— Breaking Market News (@financialjuice) January 4, 2024
Most of the hirings (155,000) were in services led by leisure and hospitality (59,000).
Nela Richardson, chief economist at ADP, said
We’re returning to a labor market that’s very much aligned with pre-pandemic hiring. While wages didn’t drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared.
Annual pay rose 5.4% year-on-year, according to the independent report, which is based on anonymised payroll data of more than 25m US employees. You can read the full report here.
📊 Latest ADP report: US private businesses hired 164K workers in Dec '23, surpassing expectations and outpacing Nov's 101K. https://t.co/GgKNQEljjo
— MacroMicro (@MacroMicroMe) January 4, 2024
🚀 Leisure & hospitality took the lead with 59K jobs, followed by construction (24K) and financial activities (18K). Job losses… pic.twitter.com/Ofs8HWACL8
US ADP jobs report stronger than expected
The ADP jobs report in the US has come in much stronger than expected: The private sector added 164,000 jobs in December compared with 101,000 in November, and expectations of a 115,000 increase.
The data comes ahead of the official jobs figures, known as non-farm payrolls, tomorrow.
With the UK economy on a sounder footing than previously thought according to the latest PMI reading, Bloomberg economists are predicting a shallow recession followed by a rebound in the spring.
The @BloombergUK economists predict rebound after shallow recession. Expecting “a very mild technical recession in the nr term” before a rebound in the spring with a quarter point rate cut from the BoE in May, ending the year with rates down 4% @PhilAldrick pic.twitter.com/w6Pk2o6IM6
— Emma Fildes (@emmafildes) January 4, 2024
Sainsbury's to raise pay for 120,000 staff
More retail news: Sainsbury’s has announced it will raise pay to £12 per hour nationally from March, a move that will cost it £200m.
This will benefit 120,000 people who are paid by the hour. Those in London will get £13.15 per hour.
This is in line with the real living wage, which is voluntarily paid by more than 14,000 UK businesses. Sainsbury’s says it means it is the “largest supermarket to pay colleagues the new Real Living Wage nationally and the London Living Wage”.
The pay rises will give workers an extra £1,910 a year nationally, and £2,290 a year in London.
Sainsbury’s said it had also provided staff with free food during shifts in recent years, and increased staff discounts of 15% at Sasinsbury’s every Friday and Saturday and 15% at Argos (which it also owns) every payday.
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Next shares hit all-time high
Next enjoyed a 10% surge in sales in the two weeks before Christmas, and spoke of a “benign” consumer environment as it upped its profit outlook for the fifth time in seven months, raising hopes for the rest of the high street (sportswear retailers aside).
As reported earlier, Next shares hit an all-time high of £85.32 and are now up 4.2% at £84.26, still the top FTSE 100 riser.
Next, which owns other brands such as FatFace, Cath Kidston and Made.com, does not expect to have to put up prices in the year ahead as costs have remained steady. Next boss Simon Wolfson had hoped prices would drop this spring but he said they were now likely to hold steady because of the national minimum wage rise in April and problems in the Suez Canal which have driven up delivery costs.
He said the attacks by Houthi rebels, which have forced container ships to travel around Africa rather than through the canal, could delay deliveries that might “moderate sales” if the disruption continued for a long period. “A lot will depend on how long this goes on for,” Wolfson said. “The extra sailing time eats into capacity in the network and we could begin to get constraints. At the moment it is an inconvenience not a crisis.”
Updated
Here is our full story on JD Sports.
More than £1.7bn was wiped off the value of JD Sports on Thursday morning after the fashion retailer issued a profit warning saying that mild weather and heavy discounting had affected sales before Christmas.
Shares in the retail group, which owns Go Outdoors, Blacks, Millets and Size? as well as the JD chain, dived by 22% to 122p to their lowest in a year, making it the biggest faller in the FTSE 100, after the company said it did not expect to make more than £935m in annual profits, 10% below its previous guidance.
Shares in Sports Direct owner Frasers Group were also dragged down by more than 4% on fears that the sportswear market had been tougher than hoped after Nike warned of poor sales before Christmas. Shares in other retailers selling clothing, including Marks & Spencer and N Brown Group, also took a hit.
Boots reports sales jump in Black Friday quarter
Boots has reported a strong retail sales performance during the quarter that included Black Friday, with a big jump in online sales.
Sales rose 9.8% year-on-year in the three months to 30 November, driven by Black Friday which its website achieve its biggest ever month of sales in November and its biggest ever day of sales on Black Friday. Boots.com sales grew by 17.5% and contributed nearly a fifth of the total. The Boots app now has 7.2m active members.
Store sales were also strong, up by more than 7% in Black Friday week. Electrical items, beauty and skincare, the No7 range and perfumes were the top performing categories, with a bottle of fragrance sold every second of Black Friday week. Flagship stores and shops in travel locations performed particularly well.
Beauty sales were up by 11.4% for the quarter, driven by continued strong performance of skincare and premium beauty. Haircare saw sales growth of 10% bolstered by the launch of ten professional and salon haircare brands on the website, while the No7 skincare range posted sales growth of more than 13%.
The chain also administered more than 1m flu vaccinations in the quarter.
Boots will report on its Christmas sales later in the year but the signs are that it had a strong festive period.
A behind-the-scenes look at the Boots laboratory and factory in Nottingham as scientists work on a No7 retinol product in 2020. Photograph: Fabio De Paola/PA
Updated
The rise in November mortgage approvals to a five-month high points to a pickup in the housing market, as mortgage rates come down amid a price war among lenders, and expectations that the Bank of England will start cutting interest rates soon.
Noble Francis, economics Director at the Construction Products Association and honorary professor at the UCL Bartlett School of Sustainable Construction, tweeted:
There were 50,067 mortgage approvals in the UK in November 2023 according to the Bank of England, 4.6% higher than in October & 9.9% higher than a year earlier (during the post-Mini Budget spike in mortgage rates & slump in mortgage approvals). (1/n)#ukhousing #housing pic.twitter.com/1mgaf2ZwuJ
— Noble Francis (@NobleFrancis) January 4, 2024
Independent economist Shaun Richards tweeted:
The Bank of England will be pleased by the falls in UK mortgage rates https://t.co/06eywLLzkK
— Shaun Richards (@notayesmansecon) January 4, 2024
Martin Beck, chief economic advisor to the EY ITEM Club forecasting group, has looked at the Bank of England figures.
The number of mortgages approved in November was 50,067, up from 47,888 the previous month and the highest since June 2023. Net mortgage lending flatlined in November, little different from October’s £100m decline. Beck said:
A second successive monthly rise in mortgage approvals in November, albeit from a very low level, was likely helped by the decline in quoted mortgage rates which began last summer… The lag between mortgages being approved and loans dispensed means that the recent pickup in activity should push net lending back into positive territory in the first quarter.
Investors’ recent reappraisal of the outlook for interest rates means prospects for mortgage lending have strengthened. Swap rates, which influence the cost of fixed-rate mortgages, fell over November and December, adding to declines earlier last year. This is feeding through to quoted mortgage rates. Provided that the Bank of England fulfils market expectations (the EY ITEM Club thinks the Bank of England will start loosening policy in May and cut rates by 125bps in 2024), then mortgage rates should remain at these lower levels. This should reduce the scale of the unaffordability challenge and reduce the odds of house prices falling further.
Turning to consumer borrowing via credit cards and personal loans, which rose to the highest level since March 2017, he said:
An increase in gross lending, mainly via credit cards, accounted for the bulk of the net rise. If November’s unexpectedly strong increase in lending is maintained, this could present an upside for consumer spending growth this year.
Updated
Contrasting with the upturn in Spain’s service industries, Italy’s service sector remained in decline in December, extending its period of contraction to five months.
However, it improved and was close to moving back into growth, with the headline PMI moving up to 49.8 in December from 49.5 in November. Any reading below 50 indicates contraction; any reading above points to expansion
Output fell for a fifth month and new orders continued to fall. Although firms saw cost inflation cool to a 32-month low in December, output prices increased at a quicker pace.
The final reading from the sister survey for Germany showed its services firms continued to shrink in December, with the headline index at 49.3, a two-month low.
In France, there was a further solid reduction in output across its service sector, with the final reading at 45.4.
Inflation up in German states
Over in Germany, inflation picked up in a number of big states in December, suggesting a bumpy road ahead for national price rises.
The annual inflation rate in North Rhine-Westphalia, Germany’s most populous state, rose to 3.5% in December from 3% the previous month. In Bavaria, inflation rose to 3.45 from 2.8%; in Brandenburg, it picked up to 4.5% from 4.1%, in Saxony to 4.3% from 3.9%; in Baden-Württemberg to 3.5% from 3.4% and in Hessen to 3.5% from 2.9%.
This is because of the annual comparison, as there were energy relief measures for gas and heating in December 2022. Inflation had been slowing in previous months.
Economists are forecasting a rise in German inflation to 3.8% in December, from 2.3% in November.
UK mortgage approvals pick up, credit card borrowing doubles
Mortgage approvals in the UK picked up in November, while credit card borrowing doubled to £1bn, according to the Bank of England.
Mortgage approvals for house purchases – an indicator of future borrowing – rose to 50,100 in November from 47,900 in October, while approvals of remortgaging increased to 27,000 from 24,000. While approvals rose to the highest level since June, they remained below the long-term average.
Mortgage lending to individuals was zero compared to £100m of net repayments in October.
This chimes with other signs that the housing market is picking up, although experts are still predicting further price falls this year.
The Bank of England figures also showed that net consumer credit borrowing rose to a near-seven-year high of £2bn in November from £1.4bn in October, as people borrowed more on credit cards, with that borrowing doubling to £1bn.
Updated
This contrasts with the eurozone, where business activity shrank last month, pointing to recession, according to a sister survey.
Hamburg Commercial Bank’s PMI, compiled by S&P Global and seen as a good gauge of the economy, was revised higher but remained in negative territory. The headline index was 47.6, the same as in November, indicating contraction (any reading below 50 points to contraction; any reading above to expansion).
This suggests that the 20-nation currency bloc, which shrank by 0.1% in the third quarter of last year, contracted again in the fourth quarter, which would put it in recession, defined as two consecutive quarters of contraction.
Updated
UK services activity stronger than thought
Britain’s service sector grew at a brisker pace in December than previously thought and optimism among firms hit a seven-month high, according to a survey.
The findings will be welcomed by Rishi Sunak who is expected to call a general election this year. Official data published last month suggested the economy could already be in a mild recession.
The final headline reading from the S&P Global/CIPS services purchasing managers’ index was 53.4 in December, the highest since June. It was up from 40.9 in November and a preliminary reading of 52.7.
Firms’ optimism regarding the outlook for 2024 improved for the second month in a row to its highest since last May, driven by hopes of a sustained turnaround in client demand.
The composite PMI, which combines the services survey with a weak reading of the manufacturing sector published on Tuesday, rose to 52.1 in December, the highest since May, and compared with 50.7 in November.
Updated
Next boss warns Suez Canal disruption could lead to slower sales
The Next boss Simon Wolfson has warned that disruption to shipments through the Suez Canal could lead to slower sales growth this year.
If attacks by Iran-backed Yemeni Houthi militants in the Red Sea continue throughout 2024, the clothing and homewares retailer’s sales growth would be affected, he said.
He told Reuters:
It will be a factor. If it continues, it will moderate sales growth in that we’ll have slightly less stock in the country than we would like.
After a stellar Christmas performance, Next is still at the top of the FTSE 100 with the shares up 4.8% to a record peak. JD Sports, on the other hand, which warned on profits this morning, is at the bottom of the index with the shares falling 23%.
JD is on track for a record daily fall, as the share price fall wiped nearly £2bn off its market value.
Updated
Spain's services upturn picks up in December
The recent upturn in Spain’s service industries continued last month, with activity rising modestly for a fourth month in a row – perhaps because mild weather has lured Spaniards to the beaches, boosting spending.
A closely watched survey from Hamburg Commercial Bank showed the headline services PMI (purchasing managers’ index) at 51.5, up from 51 in November, signalling the highest growth since July. This was better than economists had expected.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
In contrast to the overall economic weakness in Europe, Spain’s service sector appears to be charting its own course. Rather than succumbing to the broader economic downturn, service providers in Spain are still on an expansion trajectory. While it is far away from a full-blown boom, the resilience is surprising, especially considering the subdued mood in the manufacturing sector and the lacklustre performance of the service sector in other parts of the eurozone.
This noteworthy performance may be attributed to two key factors: the new government’s commitment to extend measures supporting private households and, secondly, the warm temperatures in recent weeks possibly inspiring residents of Spain to head to the beaches, leading to increased spending.
In France, inflation picked up slightly in December on the back of higher prices for energy and services.
A preliminary estimate from the national statistics office INSEE showed annual inflation rose to 4.1% from 3.9% in November, in line with economists’ forecasts.
Food price inflation slowed to 7.1% from 7.7% but energy prices rose by 5.6% year on year, faster than the 3.1% in November. Services inflation accelerated to 3.1% from 2.8%.
Updated
Next shares surge to top of FTSE 100, JD Sports plunges
Here is our full story on the contrasting fortunes of Next and JD Sports.
Next is the top riser on the FTSE 100 index, up by 5.4%, while JD Sports shares plunged by 17.7%.
Updated
The boss of JD Wetherspoon, Sir Tim Martin, said Dry January is turning into a “minor cult”, as pub chains across Britain prepare for a month of slow trade.
Martin told City A.M that people have “always overindulged at Christmas and then tried to compensate in January”.
To an extent Dry January has just given a name to what happened anyway. But perhaps it is turning into a minor cult, even so.
Overall, I’m not sure that pubs can legitimately advise people to start drinking in January if they don’t want to.
Many people try to give up alcohol during January, in a challenge encouraged by the charity Alcohol Change.
The outspoken founder and chairman of JD Wetherspoon, a prominent Brexit supporter, has just been awarded a knighthood for services to the hospitality industry.
Updated
Simon French, chief economist at Panmure Gordon, said Next’s “very decent” performance bodes well for the economy overall in the October to December quarter.
V decent trading update from Next plc - an important UK retail bellwether with full price sales +5.6% in 9 weeks to 30 Dec. Chimes with what retailers/hospitality have been saying about Dec - it rebounded from a soft autumn. Points to UK GDP in Q4 recovering from a soggy October
— Simon French (@shjfrench) January 4, 2024
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, who owns shares in Next, said:
Next has pulled yet another rabbit out of the hat today, leading to a further upgrade to its full-year sales and profit guidance. It has demonstrated once again why it is considered one of the best run retailers around.
UK consumer spending appears to have defied gravity. A strong employment market and rising wages have helped cushion inflationary cost pressures, meaning consumers have continued to fill their Christmas stockings with Next’s wares, despite the gloomy economic headlines.
Next’s online sales were particularly strong reflecting better stock availability and excellent operational execution. This stands in stark contrast to other retailers like Superdry which have struggled in the prevailing economic environment.
The future for Next looks bright and is reflected in the group’s guidance to grow sales and profits again in the year ahead.
Next’s core proposition is clearly resonating with the UK consumer and is being augmented by intelligent acquisitions of brands like Fat Face. With inflation falling and wages rising, the economic picture also looks a lot less bleak than at the start of last year.
Updated
Next said it had done especially well online after improving its service. Online sales rose by 9.1% in the three months to the end of December following a decline in the previous three months.
Retail analyst Richard Lim added:
Their online sales were the driving force this Christmas but it was only made possible with the evolving value of their stores. Click and collect, showcasing products in shops, and returns to stores are all critical requirements for an increasing number of consumers.
Their clever acquisitions over the last few years are also beginning to reap rewards.
Next has been on a buying spree and recently acquired the casual clothing chain FatFace. It also snapped up Cath Kidston, the online furniture retailer Made.com and JoJo Maman Bébé since the height of the Covid pandemic.
Updated
Introduction: Next raises profit forecast after Christmas sales surge; JD warns on profits
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK clothing chain Next has raised its profit forecast for the fifth time in seven months, as it reported better-than-expected sales for the Christmas period, while JD Sports Fashion blamed warm weather for a worse-than-expected performance and warned on profits.
The fashion and homewares retailer said sales rose by 5.7% year-on-year in the nine weeks to 30 December, better than its previous estimate of 2% growth. In the last two weeks before Christmas, sales jumped by 10%.
It upgraded its profit before tax estimate by £20m to £095m, up by 4% from last year. Of that, £17m came from the sales beat so far and £3m from an upgraded sales forecast for January.
Richard Lim, the chief executive of the consultancy Retail Economics, said:
These figures are astonishingly strong and they will set them apart from the competition. There’s a gap emerging between those retailers who have invested heavily in their digital proposition over the last decade with those who have not and Next is leading the pack.
Next went into the end of season sale with 12% less stock than last year. The retailer said:
On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties.
Next pointed to wages rising in line with, not more than, inflation, but said it does not intend to raise its selling prices in the year ahead.
Risks include a weakening employment market, as vacancy rates in the UK have already fallen over the last six months, and if this continues, is likely to result in increased unemployment. Fixed-rate mortgage deals will continue to expire forcing homeowners to refinance at much higher rates than they have been used to in recent years.
Next also mentioned that difficulties with access to the Suez canal (caused by Houthi attacks in the Red Sea), if they continue, are likely to cause some delays to stock deliveries in the early part of the year.
The largest cost increase will be wage inflation, estimated to be about £60m, due to inflation and the rise in the national living wage.
The sports retailer JD Sports didn’t fare as well, and blamed milder weather and a glut of promotions in the sports market. Like-for-like sales rose by 1.8% in the 22 weeks to 30 December, behind its expectations, while total revenue growth was 6%.
It lowered its estimate for profit before tax and adjusted items to between £915m and £935m, 10% below its previous guidance of £1.04bn.
Its new chief executive Régis Schultz said:
We have made good progress against our five-year strategic plan, delivering global organic revenue growth of 6% in the period, against very tough comparisons with last year, and opening over 200 new JD stores in the year. Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share.
The agenda
8.15am-9am GMT: HCOB Services and Composite PMIs for eurozone
9.30am GMT: UK Mortgage approvals and lending for November
9.30am GMT: UK S&P Global/CIPS Services PMI final for December
1pm GMT: Germany inflation for December
1.15pm GMT: US ADP Employment change for December
1.30pm GMT: US Initial jobless claims for week of 30 December
2.45PM GMT: US S&P Global services and composite PMIs final for December
Updated
