AS UK budget looms, gloom appears to the the prevailing sentiment

1) UK Budget – 26/11 – where do I even start with this? It’s been a shambles even before Rachel Reeves unscheduled 4^th November speech earlier this month, given that it feels like we’ve been talking about this for months already. Over one year on from the last budget and it appears no lessons were learnt when it came to expectations management, especially when it comes to fiscal statements. This applies equally to how these announcements are perceived by financial markets, but also by business in general who must feel that it’s in a permanent state of siege from one of the most business unfriendly governments in years. There was widespread criticism over a year ago that in talking down the economy so much the government did enormous damage to not only business confidence, but consumer confidence as well. Not content with that they then went on to deliver a budget that not only raised taxes by £40bn to plug a non-existent black hole in the public finances, but also served to hammer businesses to the tune of £25bn by increasing the rate of National insurance contributions to 15% from 13.8%, from April, as well as reducing the secondary threshold at which employers start paying NI on each employee’s salary to £5k from £9.1k, although some small businesses were exempted. At the same time, it was announced that there would be a new single adult rate for the minimum wage, phased in gradually, which would be set at £12.21p per hour, a rise of 6.7%, while raising the 18–20-year-old rate by 16.3% to £10 per hour. Against this tax raid the Chancellor was given repeated warnings that these increases could prompt a lot of employers to think twice about hiring more staff due to impacts on margins, or even worse could well force them to raise prices, or even worse downsize their workforces in order to preserve profitability. This is precisely what has happened in the months since then with unemployment rising from 4% to 5%, while it is estimated that between 100k and 150k jobs in hospitality have disappeared. In any case that was then, and this is now with the government now looking to fill a fiscal gap of between £30bn and £50bn. It also appears that little has changed, with the Chancellor learning little from last year with business confidence, as well as consumer confidence on the floor as a result of consistent kite flying exercises and trial balloons on what this month’s budget might bring. We’ve had endless speculation on changes to pension thresholds, ISA thresholds, council tax bands, changes to national insurance, income tax and VAT thresholds, additional bank surcharges, there’s few trial balloons that haven’t been floated in the press in recent weeks, to the point that it’s a surprise a no-fly zone hasn’t been implemented over Heathrow Airport given the number of kites that were being sent up. Earlier this month expectations were raised that income tax rates were set to be increased before it became clear that the Chancellor probably wouldn’t be able to get the changes past her own MPs. Not only has this shredded what was left of the Chancellors credibility, which was already low to begin with given the reversals seen with respect to spending cuts, but its also shattered the idea that this government has any credible plan at all for dealing with the problems facing the UK economy. With expectations already low and anecdotal reports that Treasury officials are as equally clueless about the inner workings of the bond markets, there is little expectation that Rachel Reeves, or anyone in government, can deliver anything meaningful at all when it comes to boosting growth. There may be some minor tinkering when it comes to stamp duty on shares, but there are very low expectations that this Chancellor, or anyone in this economically illiterate administration will be able to reverse the clouds of pessimism hanging over the UK economy. This week alone we’ve had more businesses announcing that they wouldn’t be investing in the UK, citing an increasingly expensive business environment, the latest being Eurotunnel following on from Exxon earlier in the week, and the CEO of Sirius Real Estate also saying the UK is un-investable. All the while speculation around Reeves' future has continued with the very real possibility that this could well be her last budget as Chancellor, as internal infighting inside the government gets worse.

2) US Q3 GDP – 26/11 – with the US economy growing at a solid annualised 3.8% in Q2 it’s hard to imagine a scenario that could see the US central bank cut rates not only in September most recently, but December as well, which markets have been pricing quite strongly in recent weeks, although some of those rate cut expectations have been trimmed in recent days. In Q3 the economy is expected to have remained solid with some estimates of 4% when the latest numbers get released. Of course, all of this came before the US government shutdown which was not only the longest ever, at over 6 weeks, but also saw 42m Americans lose all of, or at least a significant proportion of their access to their SNAP benefits, aka food stamps, while 3m federal workers also saw their wages stop. Against this backdrop, how the economy may have performed in Q3 is not likely to be top of mind for many US policymakers, it will be how much of a slowdown the US economy is likely to have undergone in the opening weeks of Q4, and the effects that is likely to have on inflation, but also the labour market in the days and weeks ahead and into year end. 

3) US Personal Spending (Oct) – 26/11 – likely to have seen a significant slowdown in spending during October given the numbers encompass the shutdown period assuming the data is available. Throughout the months of June, July and August personal spending was solid, along with personal incomes Gains of 0.5%, 0.5% and 0.6% were consistent, however the lack of data since then is likely to be a concern, and as a result we could well see a sharp slowdown if the Bureau of Economic Analysis is able to pull the numbers together given it was also affected by the US government shutdown.  

4) easyJet FY 25 – 25/11 – not been a great year thus far for easyJet shares which fell in July after the airline reported a £25m hit to their Q3 results from French air traffic control strikes (£15m) as well as higher fuel costs. Nonetheless, management were able to report record headline profit before tax of £286m, £50m higher than the same period last year, an increase of 21.2%, although this was helped by the timing of Easter which was later in the year. Despite this the shares have struggled and while still above their April lows have oscillated around the 480p level for most of the last few months. Group revenue was 10.9% higher at £2.9bn, helped by an 8.5% rise in total revenue per seat. Passenger revenue rose 9.7%, while ancillary revenue rose 5.6%. Q4 forward bookings were 67% sold, with the EasyJet holidays operation expected to deliver full year profit in excess of £235m. In Q3 revenue there saw a 27.4% increase to £428m. While expectations are for another solid quarter, and a solid improvement on last year, even with customers leaving their decisions until much later due to economic uncertainty expectations remain firmly on how easyJet sees its Q1 guidance against a backdrop of a UK economy that is clearly struggling.   

5) Kingfisher Q3 26 – 25/11 – in the leadup to its H1 numbers Kingfisher share price had drifted to its lowest levels in 4 months over concerns that a squeeze on retail spending could hit revenues and profits. In late August the weakness was exacerbated after Deutsche Bank issued a note warning that fears over higher unemployment could constrain consumer spending. In response to some of these concerns over lower spending patterns, B&Q announced it would be cutting 650 management positions throughout the business in order to retain control of its higher cost base. When the H1 numbers were released in late September, it would appear that many of these concerns were overstated after total sales saw a 0.8% increase to £6.81bn, while statutory pre-tax profits increased by 4.1% to £338m, sending the shares sharply higher. The improvement was helped by a 100bps increase in gross margin, while retail profit margins also improved, rising 40bps to 6.6%. Underlying like for like sales rose 1.9%, helped by a 1.4% improvement in Q2, which saw a strong UK performance from B&Q as well as Screwfix, with LFL sales growth of 4.4% and 3% respectively. As a result of this strong summer performance Kingfisher upgraded its full year guidance for adjusted pre tax profit to the upper end of its £480m and £540m range, as well as raising FCF estimates to between £480m to £520m, the shares hitting a one year high late last month. While there were some improvements in the French business this continued to act as a drag, with total sales seeing an H1 decline of 2.1%, although there was an improvement in both profit and margin.     

6) Mitchells & Butlers FY 25 – 27/11 – the hospitality business has always been a challenging area when it comes to improving margins and no less so when it comes to pubs and food. Mitchell and Butlers, like JD Wetherspoon has seen its share price struggle in the face of rising prices, higher costs in the form of wages as well as taxes, not to mention energy costs. While the shares saw a decent recovery off their April lows, rising to 9-month highs in July the shares have drifted back somewhat since then, with the recent weakness exacerbated by their September year to date trading update. The owner of the Harvester, Toby Carvery, and All Bar One chain of pubs and restaurants report like for like food sales of 4.1% and drink sales of 4%. Total year to date sales rose by 3.9% with annual cost inflation set to come in at £130m or 6% of their cost base.   

7) Halfords H1 26 – 27/11 – when Halford’s published its preliminary full year results in June the shares fell sharply from 18 month highs, after reporting underlying profits before tax of £38.4m, and group revenue of £1.71bn. Autocentres reported a 0.8% decline in revenue to £710.3m, while the retail division which includes cycling posted a 0.8% increase to £1.05bn. LFL sales increased by 2.5%. Cashflow improved to £43m, an increase of £13.6m on 2024, helped by lower inventory of £12.3m, which helped lower interest expense.  In the context of current trading, management said it was in line with expectations albeit with a cautious outlook for consumer spending. We did see a bit of a pickup in October after the retailer reported a strong uptick of 4.1% in like-for-like sales in the 26 weeks to 26^th September. Reported group sales growth was 3.3% with autocentres seeing a gain of 3.4, with margins also seeing an improvement due to various cost savings. The company maintained its outlook for underlying profit before tax to between £36m and £39.8m for 2026.