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Wednesday, 13 August - 4pm update
The Bank of England's gloomy assessment of the economy means tough times lie ahead for consumers, the UK's big retailers and ultimately their shareholders.
The Old Lady of Threadneedle Street warns that inflation is set to peak at 5% with little prospect of a cut in interest rates short term, forcing consumers to tighten their belts.
The stock market took heed of the warning and slashed the value of shares in the leading retailers.
Among those hardest hit was Marks & Spencer, down 26¾p at 269¼p, having traded within a whisker of the 300p resistance level for the first time since the start of July. Independent researcher Redburn Partners warns M&S shareholders are unlikely to see a dividend increase for the next five years as the retailer's share of the food market declines and growth falters at its Per Una fashion brand. It says a weaker food market will make the next few years “very challenging” for the group.
Also taking a hit was DSG International, the PC World and Currys electrical stores group, which slumped 11p to 53¾p, making it the biggest loser among second liners. Pali International's Nick Bubb has repeated his sell rating and is reviewing his 33p target for the shares. He describes them as “very overvalued” and urges short-sellers to hold their nerve. Rival JPMorgan has also cut its rating on DSG from neutral to underweight.
Other retailers to feel the claws of stock-market bear included Kingfisher, down 10.4p at 128p, Next, 64p off at 1016p, and J Sainsbury 22p cheaper at 345¾p. Belt-tightening by consumers will also affect the likes of Enterprise Inns, down 43p at 343p, Whitbread, 90p at 1155p, Punch Taverns, 49p at 319p, Domino's Pizza, 13½p at 188¾p, and JD Wetherspoon 32p at 257p.
The rest of the market took its lead from overnight falls in New York. The FTSE 100 index lost 70.3 to 5464.2, additionally weighed down to the tune of eight points by the number of companies going ex-dividend. These included BP, 10¼p lighter at 524¾p, Hammerson, 76p lower at 916p, RSA Insurance, down 5.1p at 143.2p, Standard Chartered, off 72p at 1418p, and Standard Life, 5p cheaper at 244p. Wall Street extended yesterday's falls in early trading this afternoon following news of the first drop in retail sales for five months and a big rise in import prices.
The Dow dropped 111.4 to 11,531.1.
The bulk of the fall in the Footsie 100 was attributed to the banks, which suffered another sell-off following big falls on Wall Street overnight, where JPMorgan Chase wrote off a further $1.5 billion of dodgy loans. It comes hard on the heels of further big write-offs at Switzerland's UBS. Royal Bank of Scotland fell 14p to 231½p, after the Commonwealth Bank of Australia walked away from talks to buy its ABN Amro business in Australia. There were also losses for HBOS, 22½p off at 308½p, Barclays, down 20p at 358½p, and Lloyds TSB, 18½p to 310½p.
Shares of Bob Holt's Mears Group, 2¼p lighter at 297¾p, have enjoyed a strong run of late, buoyed by talk of an imminent 500p-plus-a-share takeover. But Altium Securities reckons the shares have run far enough and are now up with events. It has downgraded the social housing and care home services group from buy to hold with a target of 325p ahead of interim results next week.
Altium Securities says it is forecasting profit before tax of £8.5 million for the first half of 2008 against £7.2 million in the first half of 2007.
Investec Securities has raised Signet Group, 2½p off at 61¼p, from hold to buy while upping its target from 58p to 83p following its re-rating of the shares.
SPG Media Group shares rose 1.25p to 8.87p following news that the publishing and event management company has rejected an unsolicited approach.
