Shares started the week on a downbeat note, with the FTSE 100 index slipping 0.2% on Monday.
Housebuilders were lower ahead of the government’s housing white paper, with Persimmon off 1.7% and Taylor Wimpey down 1.6%.
On Tuesday, BP slumped 4.1% after weaker than expected results, while Pearson gained 3.6% on speculation about further cost-cutting.
Wednesday saw the blue-chip index virtually unchanged, but the FTSE 250 index hit a new record high.
Housebuilders were on the up after Redrow produced strong results and with Tuesday’s housing white paper delivering no surprises. Redrow took on 4% with Persimmon adding 3%.
Outsourcer Capita was also 3.4% ahead amid ongoing speculation about a private equity bid.
The FTSE 100 was up 0.6% on Thursday. BT was off 0.9% on concerns about splitting off Openreach, its infrastructure arm.
But British Airways owner IAG added 1.7% as it was urged to bid for Norwegian Air Shuttle.
Meanwhile mid-cap Thomas Cook lost 7.7% after reporting a first-quarter loss and warning of an “uncertain political and economic outlook”. Rival Tui was down 2%.
The market was up in early trading on Friday on better-than-expected UK trade and industrial output numbers.
Company Focus: Redrow
Housebuilder Redrow posted a very strong set of half-year results on Wednesday. Pre-tax profits were up 35% to £140m in the six months to 31 December, and the dividend was increased 50% to 6p a share.
The company reported a 13% rise in completions, a 12% increase in average sales price and a 160 basis points’ improvement in operating margin.
Net debt has reduced from £139m to £56m, giving the group gearing of 5%, which is more in line with its peers than previously.
Current trading conditions remain positive with robust customer traffic and sales, resulting in a record order book of £897m.
With confidence high, Redrow has set targets for 2019 of £1.9bn revenue, a 19.5% operating margin and 77p earnings per share.
Despite the strong results, potential negatives for housebuilders could make life tougher in the coming year. These include a reduction in consumer confidence as inflation increases and possible interest rate rises. New mortgage interest tax relief rules, due to start in April, could force landlords to sell up, increasing the supply of houses on the market.
Is consumer confidence weakening? A British Retail Consortium/KPMG survey showed retail sales down by 0.6% in January on a like-for-like basis compared with the previous year.
“After a strong end to the Christmas trading, year-on-year sales growth ground to a halt, compensated only by stronger furniture sales and a boost for some retailers from Chinese New Year,” said BRC chief executive Helen Dickinson.
“Our survey suggests that 'caution' was top of new year shopping lists and the uptick in credit card lending at the end of the last year may be short lived. With the signs pointing to upward pressures on shop prices given rising import costs, all eyes will be on the impact of inflation on consumer spending.”
House prices were down 0.9% in January compared to December, the first monthly decline since last August, according to Halifax. The annual rate of growth also eased to 5.7%.
“House prices continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates,” said Martin Ellis, Halifax housing economist.
“Nonetheless, weaker economic growth and increasing pressure on spending power, along with affordability constraints, are expected to dampen housing demand, resulting in some downward pressure on annual house price growth during the year.”
A Bank of England survey showed that businesses expect to give wage increases averaging 2.2% this year, below the consensus forecast for inflation of 2.7% and suggesting falling earnings in real terms.
Surveyors expect residential rents to rise 25% over the next five years and house prices to increase by 20%, according to research by the Royal Institution of Chartered Surveyors (Rics).
“The view is that both house prices and rents will over the medium term continue to grow at a faster pace than wages, putting even greater pressure on affordability,” said Rics’ chief economist Simon Rubinsohn.
Growth in UK industrial production hit a six-year high in December, after a stronger than expected end to the year.
Industrial production expanded by 1.1% in December, bringing the annual increase to 4.3%, according to figures from the Office for National Statistics (ONS).
However, ONS statistician Kate Davies was cautious, pointing out that December’s growth was driven by the “often volatile” pharmaceuticals industry, and growth was “broadly flat” over the fourth quarter as a whole.
Meanwhile, the UK’s trade deficit narrowed in December thanks to exports to non-EU countries.
The trade gap contracted to £3.3bn from a revised £3.6bn in November, according to ONS data. On a quarterly basis, the trade deficit narrowed to £8.6bn in the final three months of the year from £14.1bn previously, primarily due to a rise in exports of goods to non-EU countries.
Some economists have predicted that the weak pound will improve the trade balance by boosting demand for exports and lowering demand for imports. But they also caution that in the shorter term the trade gap will worsen as the cost of imported goods increases.
Company announcements that caught our attention this week
Key company diary dates
Best & worst performing sectors (rel. to FTSE 350)*
Best & worst performing stocks*
* Weekly movements up until close of business Thursday.
Main source of information: Company Report and Accounts, Bloomberg
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