The week ahead: UK Q2 GDP, US CPI, Balfour Beatty and Persimmon results

1) UK Q2 GDP – 14/08 – after a relatively strong start to Q1 which saw the economy grow by 0.7%, the Q2 GDP numbers are likely to paint a very different picture. As with the numbers in the US which saw a surge in imports push the economy into a contraction, it was a surge in exports of 3.5% which saw the UK economy post a strong Q1 as companies looked to beat the April 1^st tariff deadline. This effect is likely to reverse in Q2 with the high probability that we could see the economy contract. While the UK government was keen to claim the credit for a strong Q1, it seems highly doubtful that a poor set of numbers this week will see them adopt a similar attitude in Q2. Services which were also a big plus in Q1 are unlikely to see a similar performance in Q2. The Bank of England is already expressing concerns about the outlook for the UK economy, cutting rates by another 25bps at its latest meeting, however with speculation about further tax rises inbound as a result of an even bigger black hole in government finances it’s hard to see why businesses would look to boost investment at a time when the government appears intent on further tax rises.   

2) UK Unemployment (Jun) – 12/08 – the picture for unemployment has darkened considerably over the last few months. Since last October’s budget the level of UK unemployment has risen from 4.3% to 4.7%, in the 3-months to May, having been at 4% soon after the new government took over the reins at the Treasury. The deterioration has been very rapid and appears to have accelerated in recent months, especially since April when the new NI tax rates and minimum wage increases kicked in. Recent PMI reports have continued to paint a deteriorating picture for unemployment prospects with a lot of companies looking to either shed staff or are reluctant to take new staff on. The expectation is that this is unlikely to improve which could see unemployment levels head towards 5% by year end. This deterioration in the labour market, along with weaker growth prospects is what prompted the Bank of England to cut rates by another 25bps this month, however with inflation at 3.6% and looking sticky it’s likely to make it a difficult trade-off when it comes to further rate cuts as we head towards year end.  

3) US CPI (Jul) – 12/08 – despite the name-calling emanating from the White House about the Fed’s reluctance to cut interest rates, there is a concern that the delayed reaction to tariffs is serving to deliver upward pressure on US inflation. Since April US CPI has gone from 2.4% to 2.7% in June, and while not at the levels seen at the start of the year when CPI was at 3% the sharp rise will worry some on the FOMC, especially where food prices are concerned which have started to edge higher, rising to 3% in June. Prices for gasoline have stabilised somewhat albeit at lower levels, however there is a concern that the imposition of tariffs on certain goods has served to prompt some companies to pass some of that off into the supply chain, and consequently could mean that it makes it harder for prices to come lower as quickly as the central bank would like.    

4) Balfour Beatty H1 25 – 13/08 – it’s been another good year for Balfour Beatty shares. Since reporting a solid set of full year numbers back in March the shares have gone from strength to strength. As a reminder annual revenue came in at over £10bn and profits came in at £215m, with the company raising its dividend as well as announcing a buyback of £125m. There are concerns that new CEO Philip Hoare, who takes over next month might struggle to fill the big shoes of Leo Quinn who took over the business in 2014 when things looked decidedly dicey and turned the business around. For now, investors don’t appear to be too concerned, especially since the company appears to be continuing to add new business, with the most recent contract a £833m net zero Teesside contract to construct a large-scale combined cycle gas-powered generation plant for Net Zero Teesside Power a JV between BP and Equinor. In May the company said it expected average net cash for 2025 to come in between £900m and £1bn, and an expectation of an increase in operating profits across all of its businesses in 2025. 

5) Persimmon H1 25 – 13/08 – with the current government vocal in its commitment to ramp up a house building program you would think that house builders would be reaping the benefits of that. Sadly, the reality is somewhat different, especially where governments are involved. Only this week construction PMI activity fell to a 5-year low largely due to a slowdown in residential building as builders cut back on production due to higher costs and weaker margins, which is prompting construction companies to cut back on buying raw materials. Persimmon shares have traded sideways for most of this year despite reporting in March that forward sales were strong, 27% higher than the same period last year at £1.15bn. At its most recent trading statement in May the housebuilder reported that private forward sales were up 17% on the previous year at £1.68bn and that they remained on track to deliver between 11k and 11.5k completions for the full year. Average selling prices were at £293k, an increase of 4%, with expectations the performance in 2025 will be similar to 2024, as long as the UK housing market remains stable.    

6) Cisco Systems Q4 25 – 14/08 – seen a decent run in its share price after the sharp sell off seen at the start of April, with a solid set of Q3 numbers helping fuel the recent gains. While not in the same bracket as the big chipmakers Cisco is a key player when it comes to infrastructure and the AI story. As a network hardware vendor, it’s the nuts and bolts of the AI delivery story reporting solid revenues in Q3 of $14.15bn and profits of 96c a share. Revenues were 11% up on the year before. For Q4 management said they were looking for revenue of between $14.5bn and $14.7bn despite concerns on the impact of tariffs on its business in Chinese, as well as Canadian and Mexican markets. Profits of between 96c and 98c a share are expected. The company is expected to reap the benefits as companies upgrade their network infrastructure to cope with the increased payload that AI is expected to put on networks. In Q3 Cisco said that AI orders accounted for $600m in infrastructure with this number expected to grow rapidly.

7) Deere Q3 25 – 14/08 – since reporting back in May agricultural equipment maker Deere and Co has seen its shares trade sideways, albeit just shy of their record highs set in the aftermath of the release of those numbers. The company warned that tariff costs could impact its business to the tune of $500m while cutting the lower end of its annual profit forecast, cutting it from $5bn to $4.75bn. On Q2 revenues the company posted an 18% decline to $11.18bn, which was above market expectations of $10.8bn. Demand for its products appears to be being hampered by higher interest rates and lower crop prices which has tempered demand for purchasing equipment outright with farmers preferring to rent instead. The company said it planned to invest $20bn in the US over the next few years and earlier this month there were reports that Deere is planning on spending $250m in upgrading three of its manufacturing works in Iowa.