UK economy in focus as Q4 GDP gets released, Barclays, NatWest and BP in focus

US CPI (Jan) – 11/02 – On the economic front US Dec CPI came in unchanged at 2.7%, having been at 3% in September before the US government shutdown, helping to give the Federal Reserve cover to cut rates by 25bps just before Christmas. The slowdown in price pressures did come with a whole load of caveats, given that the report was missing a number of key data points, while many companies offered big discounts in the lead up to Christmas which is likely to have acted as a downward pull-on price. Recent PPI data does appear to suggest that price pressures are benign so it will be interesting to see if there is a modest rebound in prices as discounts roll off and 2026 gets underway.      

US Retail Sales (Dec) – 10/02 – A strong set of retail sales numbers in November saw an increase of 0.5%, as discounting and bargain hunting in the wake of the October and November US government shutdown saw a rebound in consumer sentiment leading into the Christmas period. This trend is expected to continue in the lead-up to Christmas, in the delayed December release of retail sales, however with the cold weather hitting the US in January this trend could slow when these numbers come out later this month. The recent sharp slowdown in US consumer confidence during January saw a drop to 84.5, from 94.2, the weakest level since 2014. While the December numbers won’t reflect this, be prepared for a sharp slowdown when we get the latest January numbers, unless on-line shopping takes up some of the slack with the recent cold weather. 

UK Q4 GDP – 11/02 – Having got off to a strong start in Q1 the UK economy has struggled for any sort of growth in subsequent quarters with Q2 seeing growth of 0.2% and Q3 managing to eke out 0.1%. Manufacturing saw the biggest drop in Q3, with a decline of -0.8% with the JLR shutdown accounting for the lion’s share of that, so there should be a modest rebound in the Q4 numbers. Mining and Quarrying also saw a decline of -0.4%, while recent construction activity has been even worse with the construction PMIs sliding briefly below 40 in November. The saving grace for most of last year has been the services sector which has been able to offset a lot of the weakness elsewhere, however given the recent tax increases that the sector has had to absorb over the past few months is likely to call this resilience into question. We have seen that in the latest retail sales numbers for Q3 which saw a big decline in October of -0.8% followed by another decline of -0.1% in November. We did see a mechanical rebound of sorts in December of 0.4%, however that may well not be reflected in these latest preliminary GDP numbers. The recent monthly GDP numbers may offer some clues with -0.1% in October, followed by 0.3% in November, although this could well get revised lower when the December number gets released along with the Q4 numbers this week. Either way the numbers may well just be strong enough to avert a Q4 contraction, or even stagnation, but they are likely to remain far from ideal. 

BP FY 25 – 10/02 – With the shares trading at their highest levels in almost 18 months there appears to be a lot more optimism around BP than has been the case for some time. On the face of it this appears to be more due to confidence about the direction of the business over the next few years, than in how the business is performing right now. When the company reported in Q3 profits attributable to shareholders were higher compared to the same quarter a year ago, rising to $1.16bn from $206m, but they were still substantially lower than Q2. On an underlying RC profit basis, profits were steady, coming in slightly higher than forecast, with capital expenditure notably lower in 2025, by more than $2bn, and cash flow also higher than expected. New chairman Albert Manifold has hit the ground running announcing the removal of CEO Murray Auchincloss with Meg O’Neill starting in April this year, however the company still remains well short of competing with Shell when it comes to making its operational model more efficient. With net debt still very high at over $26bn, the current fixation on buybacks over operational efficiency continues to hobble the business. With a goal to make divestments of $20bn by the end of 2027 in order to reduce its net debt, the only divestments of note have been a deal to sell its stake in US Permian and Eagle Ford shale assets to Sixth Street for $1.5bn, and a $6bn deal to sell a 65% stake in its Castrol business to Stonepeak, at the end of last year. While this is a start, the company needs to make bolder decisions with perhaps a temporary suspension of the current $750m buyback program to put its finances on a more even keel. While the initial impact on the share price may well be negative, it's unlikely to be terminal as HSBC discovered when they suspended their buyback program at the end of last year, prompting dip buyers to swoop in and lift the shares to new record highs. BP does now appear to be on the right track with a much sharper focus on their core business of oil and gas with recent discoveries in Brazil as well as a new $25bn deal in Iraq. Going forward they now need to combine that with an even sharper focus on costs, given recent weakness in oil, as well as gas prices. 

AstraZeneca FY 25 – 10/02 – For a brief while in 2025 there was concern that the pharmaceutical sector might find itself in the firing line of President Trump when it came to significant tariffs as the US administration took aim at some of its drug pricing policies. These concerns appear to have been averted for the time being with AstraZeneca cementing its position as one of the UK’s biggest companies along with the likes of HSBC and Shell with some decent gains in 2025. That said concerns about the FTSE100 losing AstraZeneca to the US haven’t gone away, and with AstraZeneca replacing its ADR with a direct listing in the US they aren’t likely to given recent comments from Pascal Soriot who has been heavily critical of the current UK government, having announced cancellations of a UK projects at Speke in Liverpool, as well as a pause on a £200m research lab in Cambridge in September. On the plus side Soriot did go to China with PM Starmer on his recent visit to China, however money talks and while AstraZeneca has been committing $50bn into the US, and $15bn into China there’s no indication of similar amounts being committed here to the UK. In Q3 AstraZeneca said that Q3 revenues rose 11% to $15.2bn, with product sales rising 9% to $14.6bn. The growth in total revenue was driven by growth across the board, not only in business areas but in the regions as well, with the best performance in Oncology which saw 16% growth and 13% growth in R&I. Despite a better-than-expected Q3 performance AstraZeneca kept its full year guidance unchanged. Total revenue is expected to increase by a high-single digit percentage, which suggests management are concerned about a weaker Q4. Total revenue growth currently trending at 11%, on a year-to-date basis. 

Barclays FY 25 – 10/02 – The share price has continued to go from strength to strength after turning round in 2024, with markets shrugging off concerns over the bank’s exposure over its exposure to Tricolor, a US auto loans lender which collapsed last year. This uncertainty saw the shares slip to a 3-month low in October last year with the bank also taking an additional charge of £235m, in respect of its exposure to UK motor finance increasing it to a total provision of £325m. As a result of this extra provision Q3 Profit before tax came in slightly below expectations at £2.1bn, taking profit before tax year to date to £7.3bn. The bank also said it took a provision of £110m on the collapse of US auto loan company Tricolor, while also saying that it didn’t have any exposure to First Brands, another US auto lender. The bank did however raise its guidance on Return on Tangible Equity (ROTE) to 11%, as well as raising its forecast for NII to £12.6bn. The bank also announced a £500m share buyback with further distributions to be announced on a quarterly basis. Since those numbers were released, the shares have risen by another 30% to be trading at their highest levels since the financial crisis back in 2008.

Unilever FY 25 – 12/02 – Not been a particularly great quarter for the Unilever share price since the company posted numbers for Q3 back in October, the shares slipping to 21-month lows in early January this year. This was despite a solid set of Q3 numbers for Unilever with underlying sales growth of 3.9%. Turnover was down by 3.5% to €14.7bn, largely due to currency effects and disposals. The ice cream business had a solid quarter with the IPO of Magnum Ice Cream company delayed until December due to the US government shutdown, listing in Amsterdam at a valuation of €15bn, with secondary listings in New York and London, and which has seen the shares post steady gains since then. The company said it is ahead of schedule on its plan to save €800m by the end of next year. The full year outlook remains unchanged with USG expected to be in the range of 3% to 5%.

NatWest Q4 and FY 25 – 13/02 – It’s been a similar story of strong share price gains for NatWest shares since the publication of their Q3 numbers. When NatWest reported in Q3 the numbers were very strong, the shares rising to the best levels since 2008. Profits for Q3 rose by 35.1% to £1.68bn, pushing profits for the year to date up to £4.35bn, an increase of 25% on last year. Net interest margin saw a big improvement year to date, up 20bps to 2.31%. The bank also raised its guidance for ROTE to 18% and said that total income for 2025 to come in at £16.3bn, having seen Q3 total income rise 15.7% in Q3 to £4.33bn. Like its peers NatWest saw loans to customers rise by 2% from Q2, while deposits slipped slightly to -0.3%. Over a 12-month period, both were higher to the tune of 3.7% and 0.5% respectively. Impairments came in at £153m, with £81m of that in respect of the integration of Sainsbury’s Bank. All in all the UK banking sector appears to be in the best shape it has been since the financial crisis, with the only risk now is that it may well draw the attention of politicians who think the sector is perhaps making too much money.

McDonalds Q4 25 – 11/02 – McDonalds recent earnings showed that US consumers remain a resilient bunch.as global same store sales rose 3.6%. US sales saw growth of 2.4%, although revenues did come in slightly shy of forecasts, albeit still up by 3%, at $7.08bn. Nonetheless profits were still better than the same period a year ago, with net income of $2.28bn. Its strongest markets were in Canada and Australia, which saw a 4.3% increase in same store sales. For Q4 McDonalds said that the US should see stronger same store sales growth fuelled by the return of its Extra Value Meals, although this shouldn’t be difficult given that Q4 last year saw sales fall sharply due to e-coli concerns which weighed on its performance.