Week ahead: UK inflation set to surge in March

1) UK Unemployment (Feb)/UK CPI (Mar) – 21/04 and 22/04 – With unemployment already at a 5 year high of 5.2%, and many employers reluctant to hire the labour market outlook for the UK economy was already looking dark even before events in the Middle East, despite the strong start to the year in the recent GDP data. The recent changes to the minimum wage thresholds are having a particularly toxic effect on younger workers with unemployment here north of 15% and rising. This reluctance to hire particularly in the private sector is helping to slow wage growth down to 3.3% the lowest level since late 2020, however public sector wages have remained much higher, although they also slowed to 5.9%. On the plus side the economy has been stronger than expected in the first couple of months this year, along with some growth in payrolls which saw the first increase in several months. Nonetheless the outlook still remains bleak, and with inflation set to surge sharply in March, the Bank of England’s job has only become more difficult. Much as they may want to cut rates to help the economy, the surge in inflation since war broke out in the Middle East means that we may well have seen the low point as far as the current inflationary cycle is concerned, having settled at 3% in February. That doesn’t necessarily mean we can expect to see rate hikes, but that hasn’t stopped the market starting to price them in, with significant consequences for mortgage rates. The bigger question is what happens with inflation in March, and for that we only have to look at the recent numbers out of the US and Europe, which have seen headline CPI surge by as much as 0.9% in the US and 0.6% in the EU. This means we could well see headline inflation head back to the levels we saw last summer at 3.8% in fairly short order. That isn’t rate cutting territory by any stretch of the imagination, and while we’ve seen the energy price cap fall in April, goodness only knows what we’ll see in July when the price cap gets raised.to reflect the current surge in gas prices.  

2) UK Retail Sales (Mar) – 23/04 – Having seen a surprise 1.8% gain in January, the UK consumer retrenched sharply in February. The outperformance in January was primarily driven by strong demand for artwork and antiquities, with jewellery store sales performing well. The growth seen in January was the best performance in almost 2 years, with some of the outperformance probably driven by the fact that the previous 3 months had seen little to no growth at all, due to the drab mood that prevailed in the lead-up to the November budget. The January improvement may also have been driven by consumers looking to book Easter as well as summer breaks to escape the overarching gloom that is currently clouding the economic outlook. In February normal service resumed with a -0.4% decline and this was before events in the Middle East, and the sharp increases in prices since then. The February decline was driven primarily by lower demand in supermarkets, and a sharp fall in household goods sales, along with consumer confidence dropping to an 11-month low. Given recent events it’s hard to be optimistic about what March might bring given the recent CBI survey showed an even steeper drop in sales, driven by the sharp rise in fuel prices, with many retailers expecting further weakness in April.     

3) US Retail Sales (Mar) – 21/04 – While the economies in the UK and Europe are getting hit the hardest by the energy price shock the US isn’t immune either with gasoline prices surging as a result of recent events. That said the US economy is still holding up reasonably well in comparison, despite a Q4 slowdown to 0.5%. In February retail sales in the US rose by 0.6%, more than reversing a weak January print of -0.1% which was impacted by the very cold weather which swept across the north and east of the country. A weak January print is nothing new in the US with similar weak readings in 2024 and 2025 so the number wasn’t a surprise. For February the 0.6% gain was the best in 7-months and was driven by department store sales, as well as clothing and sporting goods and book store sales. There were pockets of weakness including food and beverage sales and furniture stores. This week’s March numbers are set to offer us an early insight into how US consumers are coping with the squeeze on their incomes due to the sharp increases in gasoline prices, and where they are cutting back in order to cope with that. We’ve already seen consumer confidence take a knock and this is likely to translate into a modest slowdown as a result.   

4) Associated British Foods H1 26 – 21/04 – Saw a big fall in the share price in the wake of their Q1 trading update at the start of the year, falling to 3-year lows in the middle of March as part of a sector wide sell-off in the wake of the outbreak of hostilities in the Middle East. The Q1 numbers were pretty ugly, reporting a Q1 LFL sales decline of 2.7%. The main laggard was in Europe which saw a -5.7% decline in LFL sales, while the UK saw a rise of 1.7%. Total sales growth for the retail unit was 1%. The food business was a mixed bag with weakness in the US acting as a drag. On the numbers themselves Group revenue was £6.76bn, with retail seeing a 4.2% increase to £3.5bn. Ingredients, sugar and agriculture all saw declines, with falls of -2.9%, -4.3% and -4.1% respectively. Management also warned that they expect group full year adjusted operating profit to be below last year. Given recent events the company is likely to face challenges in both its retail, as well as its food business which means the shares could be at risk of coming under further pressure, while below 2,000p and its February peaks.   

5) Sainsbury FY 26 – 23/04 – When Sainsbury reported in January the shares saw a sharp fall, sliding to a one-month low, however the falls proved short-lived, as prices briefly hit a 12-year high towards the end of February just prior to the outbreak of hostilities in the Middle East. Not surprisingly we saw a sharp fall in most retail share prices on concerns over higher costs, as well as lower disposable income. While we’ve managed to see a broader recovery since those lows, the outlook for retail is unlikely to get any easier, as the costs of doing business increase, although Tesco showed earlier this month that this isn’t necessarily an impediment to performing well. Nonetheless, this increase in costs is likely to be two-fold, in the form of higher energy prices, but also in higher staff costs as new employment and tax rules kick in as the new tax year gets underway. The sector will also have to contend with increases in the costs of food, as well as increased supplier costs. Despite the continued pressure on consumer incomes UK supermarkets have proved themselves to be remarkably adept at coping with the pressures on their margins. In Q3 sales were up by 3.9% with Christmas sales up by 3.3%. Grocery sales were a standout performer with 5.4% during Q3 and 5.1% in the 6 weeks to 3rd January. The laggard was the Argos business which saw Q3 sales decline 1%, and the Christmas period undergo a 2.2% decline. This could well prove to be a continued drag, and there has been some speculation recently that this part of the business could be spun off, with CEO Simon Roberts not ruling out the option given some reports last year that JD. Com was interested. While this might seem a tempting prospect its unlikely to be a cost-free exercise given how embedded these are now in Sainsbury stores, as well as its supply chains, and the money spent doing so over the years. On underlying operating profits, the outlook was kept unchanged at more than £1bn, however the cash flow forecast was raised to more than £550m from more than £500m. One other concern could be the Qataris might be tempted to sell their remaining 6.8% stake in the business, given the conflict in the Middle East, having reduced it from 10.5% at the end of last year.    

6) Tesla Q1 26 – 22/04 – Tesla shares have continued to slide from their end of year peaks, with their end of year numbers in January showing a 3% decline in Q4 total revenues to $24.9bn. Of that total automotive revenues fell 11% to $17.69bn largely due to the pull forward effect into Q3 of the expiring $7,500 tax break in September. Operating expenses were also higher, rising by 39% to $3.6bn. Operating margins were also lower at 5.7%, down 50bps from the same period a year ago. Net income also fell sharply down 61% to $840m. In the full year, total automotive revenues were down by 10% to $69.25bn, the lowest since 2021, while total deliveries fell to 1.6bn, down from 1.68bn in 2024. The annual decline in total revenue was more modest, down by 3% to $94.83bn. On the plus side the company’s free cash flow was solid, rising 74% to $6.22bn, and the highest since 2022. In all other areas of the business there was solid growth with a 29% increase in storage deployed, while supercharger and stations and connectors also saw double digit growth of close to 20%. Revenue here rose 25% to $3.84bn. On the call after the Q4 results, Musk said that the Model S and X programs would be discontinued and wound down and given over to Optimus robot production. These models make up a very small part of the production line where Model 3/Y made up 422,652 in Q4, out of a total of 434,358. For Q1 we already know that deliveries have continued to slow, coming in short of expectations at 358k, a fall of 14% on the previous quarter, although they were higher than a year ago. Once again, the Model 3 and Y contributed the bulk of the total. The energy business appears to be a bigger concern, seeing a big drop in gigawatt hours to 8.8, a sharp fall in the 14.2GWH in Q4. It was also a significant decline on last year’s 10.8GWH. Hopefully the upcoming Q1 earnings will shed some light as to why there was a decline in this area with the shares down at their lowest levels since September last year.

7) Boeing Q1 26 – 22/04 – Boeing’s share price briefly hit 2-year highs in the aftermath of their full year results before undergoing a decline which saw the shares hit their lowest level in 3-months at the end of March. We’ve seen a modest recovery since then with the jury still out on whether this US stalwart can restore confidence in a business model which has taken an absolute shellacking over the past few years. Its Q4 numbers saw the business post a 57% increase in revenue to $23.9bn, with profits coming in at $8.22bn, although this was helped by a $9.6bn gain on the sale associated with closing the Digital Aviation Solutions transaction. Its various segments are still running at a loss albeit at lower levels than a year ago. Commercial Airplanes operating loss was -$632m, while Defence, Space and Security posted an operating loss of -$507m. Free cash flow saw a big improvement, coming in at $375m, with CEO Kelly Ortberg saying that he expects this to improve to between $1bn and $3bn in 2026. During the quarter the 737 program increased its production rate to 42 per month and received approval from the FAA to begin the final phase of 737-10 certification flight testing. The production of the 787 has started to transition to 8 per month, and hopes to stabilise at that rate. In 2025 the company delivered 600 aircraft, the highest number since 2018, and up from 348 in 2024, while annual revenues jumped to $89.46bn, up from $66.52bn the year before. Order backlogs also rose, coming in at a record $682bn.