The week ahead – inflation, British Land and EU interest rates

Tomorrow we will see whether the weak pound continued to stoke UK inflation during December and later in the week we get the latest decision on interest rates from the European Central Bank. Russ Mould, investment director at AJ Bell, looks at some of the key points to keep an eye out for.
16 January 2017

If you would like further commentary on any of these topics from Russ please get in touch.

1.    Tuesday 17 January: UK inflation figures for December

  • Inflation has begun to creep higher, stoked by a lower pound and higher oil and fuel prices. Unilever, Microsoft and Apple are just three firms to have talked about prices increases, while even New Zealand wine producers are now saying prices will have to rise.

  • NIESR expects inflation to reach 4% at some stage in 2017, although the OBR and Bank of England are less aggressive.

  • The key may be to look beyond the headline CPI and RPI numbers and look at producer prices (input and output) as these may give an indication of what is coming down the food chain.

  • In November:

            CPI inflation was 1.2% (“core” CPI was 1.4%)

            RPI inflation was 2.2%

            PPI inflation (input – raw materials) was 12.9%

            PPI (output – finished goods) was 2.3%

2.    Thursday 19 January: trading statement from British Land

  • Shares in the Real Estate Investment Trust (REIT) peaked in spring 2015 but they were hit hard by the Brexit vote and have struggled ever since.

  • British Land owns, manages and develops retail, leisure and office sites in London and around the UK, with around 29 million square feet of space. Key properties include London’s Leadenhall building – known as the Cheesegrater, Sheffield’s Meadowhall shopping centre and the mixed-use Paddington Central development.

  • The key metric to watch is the occupancy rate, which was 98% at the end of the first half, with a weighted average lease length of 9 years.

  • Also look out for comments on leasing activity in terms of square footage and how the rents compare to the levels at which net asset value was previously calculated. At the first-half stage, British Land had leased or renewed 769,000 square feet with rates an average of 11.6% ahead estimated rental value (or ERV).

  • Finally, boss Chris Grigg has spelled out his desire to be a net seller of properties, so watch for any news on disposals and especially the rumoured sale of the firm’s 50% stake in the Cheesegrater.

3.    Thursday 19 January: European Central Bank meeting

  • ECB President Mario Draghi will unveil the ECB’s latest interest rate decision and update on the QE scheme.

  • The ECB runs three key interest rates:

  1. The headline refinancing rate (one week lending to banks), which has stood at 0.0% since March 2016

  2. The marginal lending rate,(overnight lending to banks) which has stood at 0.25% since March

  3. The deposit facility (for banks’ placing cash with the ECB) which has stood at -0.40% since March

  • QE was reduced to €60 billion a month from €80 billion just before Christmas, but extended from March 2017 to December 2017. Draghi flatly rejected claims this was a first step to a US-style ‘taper’ toward zero although economists have pointed to upbeat purchasing managers surveys, falling unemployment and rising inflation to argue that the ECB may need to start thinking about running a less loose monetary policy.

  • Equally, inflation is still only 1.1%, well below the 2.0% ECB target, so Draghi will be wary of tightening policy too quickly.

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