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Weaker pound may not lead to higher food prices, Sainsbury’s says

CEO says commodity price falls may offset sterling drop, as underlying sales fall for second straight quarter


LONDON, Sept 28 (Reuters) – Sterling’s fall since Britain’s vote to leave the European Union will not necessarily lead to higher grocery prices, as it could be offset by lower commodities prices and stiff competition, the country’s No.2 supermarket group Sainsbury’s said on Wednesday.

Britain’s grocery sector has seen more than two years of falling prices as German discounters Aldi and Lidl have led a price war, forcing a fight back from the “big four” players – market leader Tesco, Sainsbury’s, Asda and Morrisons. Deflation in commodities has also been a major factor driving prices lower.

Most analysts and economists believe grocery prices are set to rise after a 10 percent drop in sterling following the “Brexit” vote, which makes importing goods more expensive.

A return to food price inflation, in moderation, would be welcomed by investors in grocery stocks as it boosts sales and profit margins. But Sainsbury’s Chief Executive Mike Coupe said the situation was not clear cut.

“You could argue there are some inflationary pressures as a result of currency changes but equally there are some deflationary pressures because of commodity price movements,” he told reporters after Sainsbury’s reported a drop in underlying sales for the second straight quarter.

“If you look at the northern hemisphere harvests this year, they’ve been good again and that is probably going to put some deflationary pressures in the market,” he said.

“It’s still too early to tell how they will play out.”

Coupe also said the market was the most competitive he had known in his 30-plus years in the sector with rivals continuing to push through tactical price reductions.

He said Sainsbury’s’ prices “have never been sharper” versus the discounters.

On Monday, Aldi said it would continue to cut prices to ensure it was the cheapest player.


Sainsbury’s, which this month completed a 1.4 billion pounds ($1.8 billion) takeover of Argos-owner Home Retail, said sales at stores open over a year fell 1.1 percent, excluding fuel, in the 16 weeks to Sept. 24, its fiscal second quarter – slightly better than analysts’ average forecast of down 1.2 percent but worse than a first quarter fall of 0.8 percent.

The decline was driven by deflation of about 1 percent as the firm cut prices on targeted products, such as a 33 percent reduction to 2.50 pounds for an own-label pack of 46 nappies.

However, Sainsbury’s highlighted like-for-like transaction growth across all sales channels – supermarkets, convenience stores and online – and volume growth. It said it remained confident it would continue to outperform major rivals.

Shares in the firm, already down 9 percent over the last six months, fell as much as 3.5 percent on the cautious outlook.

Sainsbury’s has both lowered and simplified its prices, reducing the number of promotions and removing most “multi-buy” deals. It has also worked to improve the quality and range of its own-brand food and general merchandise products, while investing in the growth areas of online and convenience stores.

While the firm has proved more resilient to the discounters than others, it has still reported two straight years of profit decline and analysts forecast a third for the 2016-17 year.

“We see the gradual recovery of Tesco UK as a cause for real concern for Sainsbury’s in terms of the scope for greater direct competitor attrition,” said Shore Capital analyst Clive Black, who put his “hold” rating on the firm’s shares under review.

Other analysts believe Sainsbury’s is vulnerable to a possible major step-up in price cuts from Asda and could be distracted by the integration of general merchandise chain Argos.

In its second quarter to Aug. 27, Argos achieved total sales growth of 3.0 percent and like-for-like growth of 2.3 percent.

($1 = 0.7682 pounds)

(Editing by Paul Sandle and Mark Potter)


Thomas Cook sticks to annual guidance after strong demand for summer holidays

Strong demand for summer holidays to destinations other than Turkey helped offset pressure on the travel group

LONDON, Sept 27 (Reuters) – British travel company Thomas Cook stuck to its annual profit guidance on Tuesday, after strong demand for summer holidays to destinations other than Turkey helped offset pressure on the group.

Thomas Cook was forced to lower its guidance in July after the failed coup in Turkey, formerly the company’s fourth most important market, prompted holidaymakers to change their plans. Customers changing their plans to travel to Spanish destinations rather than Turkey had forced Thomas Cook to lower its profit guidance range by 3-10 percent in July, adding to difficulties after the group warned about delayed bookings in March on worries over security.

For the twelve months ended Sept. 30, Thomas Cook is expecting to post operating profit of 300 million pounds ($389.4 million), an outlook it reconfirmed on Tuesday, with bookings excluding Turkey up 8 percent this summer.

Including Turkey, group bookings for the summer, when Thomas Cook makes all its profit, were down 4 percent, with customers opting for holidays in the Balearic and Canary Islands and the United States.

Summer bookings from the UK were higher than last year despite concerns that the devaluation of the pound after the Brexit vote in June would lower British appetite to travel abroad.

Bookings for this winter were broadly in line with last year, Thomas Cook added.

($1 = 0.7704 pounds)

(Reporting by Sarah Young; editing by Kate Holton)

Copyright(c) Thomson Reuters 2016.




Scotland threatens to push for another referendum if there is a “hard Brexit”

Scottish minister worries hard Brexit imminent after negotiation meetings

PARIS, Sept 26 (Reuters) – Britain appears to be heading for a “hard Brexit” under which links to the European Union would be reduced to little more than trade agreements, Scotland’s external affairs minister Fiona Hyslop said on Monday, citing “mood music” from recent talks.

Pro-EU Scotland’s Brexit representative, Michael Russell, has had the first of a series of meetings with British Brexit minister David Davis, Hyslop told Reuters.

The talks are part of efforts to establish a common United Kingdom position for divorce discussions with the country’s European Union partners, as British Prime Minister Theresa May has promised.

Russell will be lobbying for a “soft” exit “that looks as much like remaining in the EU as possible,” ideally including continued free movement of capital and labour, she said.

“They’ve met within the last 10 days. The process for those internal negotiations is currently being established,” Hyslop told Reuters in Paris after a meeting with France’s European Affairs Minister Harlem Desir.

“I’m worried just now that the UK looks as if it’s heading to a hard Brexit. However those internal discussions with Scotland, Wales and Northern Ireland have only just started, so we will try and shift that position,” she said.

“That’s the mood music,” she added, “but (British Prime Minister) Theresa May is keeping everything very close to her chest and is very much determining the UK position,” Hyslop said.

Some 62 percent of Scottish voters opted to remain in the EU in the June 23 referendum, in which 52 percent of Britons overall voted to leave.

Russell and his fellow representatives from Wales and Northern Ireland have no power of veto in their talks with Davis, Britain’s Secretary of State for Exiting the European Union.

However, Scotland has threatened to push for a referendum on independence if the Brexit terms are not to its liking.

A ‘hard Brexit’ would be entirely unacceptable, Hyslop added.

“We’re looking to either influence the UK position or have a position that recognises the differences within the UK, including Scotland. But we have also said that if required we are prepared to look at a referendum on independence again.

That’s not our starting point, but it’s there should it be needed.”

Britain’s vote to quit the EU has sent shockwaves through the country and the EU, where it is one of the three main economies. Economists are concerned the divorce will hurt economic growth and pro-EU politicians fear it will weaken the union.

May has repeatedly said that Article 50 will not be triggered before the end of the year, and that Britain will not get a bad deal.

Although Scots had decided in a 2014 referendum on independence to remain in the United Kingdon, Scottish First Minister Nicola Sturgeon has said the Brexit vote meant that the country was now being taken out of the EU against its will and this could justify a second referendum.

(Reporting by Andrew Callus; editing by Michel Rose)

Copyright(c) Thomson Reuters 2016.


Online retailer reports more than doubling of profits

British online fashion retailer Boohoo.com celebrates strong revenue growth

LONDON, Sept 27 (Reuters) – British online fashion retailer Boohoo.com on Tuesday upgraded its sales guidance for the third time in three months as it reported a more than doubling of first-half profit on the back of strong revenue growth driven by new customers.

The firm, which designs, sources and sells own-brand clothing, shoes and accessories online to a core market of 16-24 year-olds in Britain and globally, said on Tuesday it now expected revenue growth for the full year of 30-35 percent.

In August the group had upgraded its forecast to 28-33 percent.

Boohoo floated at 50 pence a share in 2014 but the stock was hammered after a profit warning in January last year. Its shares have since recovered strongly, closing Monday at 97.8 pence, valuing the business at 1.1 billion pounds.

For the six months to Aug. 31 Boohoo made core earnings of 16.5 million pounds ($21.4 million), up 117 percent, on revenue up 40 percent to 127.3 million pounds, reflecting a 28 percent rise in active customers to 4.5 million.

Gross margin fell 480 basis points to 55.3 percent, mainly reflecting planned price cuts and promotions.

Boohoo said comparative sales numbers for the second half are tougher than for the first. Significant investment in marketing and in IT is also planned for the second half.

It forecast a core earnings margin for the full year of about 11 percent.

($1 = 0.7696 pounds)

(Reporting by James Davey, Editing by Paul Sandle)

Copyright(c) Thomson Reuters 2016.


Four British power firms call for carbon tax extension

Power generators call on government to maintain carbon tax until 2025

LONDON, Sept 26 (Reuters) – Four British power generators have called on the government to maintain the country’s carbon tax until at least 2025, according to a letter seen by Reuters, putting them at odds with industrial groups who want it scrapped.

The carbon tax is paid by power generators for each tonne of carbon dioxide (CO2) they emit, and was frozen in 2014 at 18 pounds per tonne until 2021.

British chancellor Philip Hammond is expected to provide details on what will happen to the tax after 2021 in his autumn statement on Nov. 23.

Most British power companies support the carbon tax. Its cost is passed on to consumers through higher electricity bills, meaning companies with low-carbon generation such as nuclear or renewables can then benefit from the higher electricity prices.

“We are calling on the UK government … to maintain the carbon price floor beyond 2021, by keeping the carbon price support rate at least at its current level until 2025 to maintain secure and reliable energy supplies,” a spokesman for power generator SSE, one of the letter’s signatories said in an email on Monday.

The other signatories were Drax, Vitol owned VPI Immingham and Calon Energy.

Industrial groups have called for the government to abandon the tax, saying it has made electricity prices in Britain uncompetitive.

“The UK has some of the highest electricity wholesale prices in the EU and this is in large part due to the carbon price floor,” Richard Warren, senior energy and environment policy adviser at Britain’s manufacturers’ organization EEF, said in an email.

EEF estimates the carbon tax adds around 8-10 pounds per megawatt hour (MWh) to British wholesale power prices, which currently trade at around 40 pounds/MWh.

The power firms said the carbon tax encourages them to invest in low-carbon power generation and said it is central to the country’s efforts to meet its climate change goals.

But EEF’s Warren said the government already helps low-carbon investment though other schemes, such as its contracts-for-difference which provides a guaranteed price for electricity production.

Power generators pay the carbon tax on top of their obligations under the EU’s Emissions Trading System, which forces companies to surrender one carbon permit for every tonne of carbon dioxide (CO2) they emit.

Benchmark prices in the EU ETS have plummeted from around 30 euros a tonne in 2008 to below 5 euros, rendering them too cheap to encourage investment, the power firms said.

Britain has a legally binding target to cut its emissions by 80 percent on 1990 levels by 2050 and has embarked on electricity market reforms aimed at spurring investment in low-carbon nuclear and renewable power.

Britain also plans to phase out coal-fired power generation by 2025.

(Editing by Susan Fenton)

Copyright(c) Thomson Reuters 2016.


Mortgage approvals hit 19-month low

British banks approved 36,997 mortgages for house purchases last month, down from 37,672 in July

LONDON, Sept 26 (Reuters) – Britain’s housing market showed signs of slowing in August with the number of mortgages approved by banks falling to its lowest level since January 2015 and analysts said they expected further weakness ahead as Brexit uncertainty dampens demand next year. British banks approved 36,997 mortgages for house purchases last month, down from 37,672 in July and 21 percent lower than in August 2015, the British Bankers’ Association said on Monday. The figures extended a slowdown which began at the start of this year ahead of the introduction of a new tax on homes bought by landlords in April and Britain’s referendum decision to leave the European Union in June. “The outlook for stagnation in households’ real incomes next year, as inflation picks up and hiring slows sharply, points to a prolonged period of weakness in mortgage lending ahead,” Samuel Tombs, an economist at Pantheon Macroeconomics, said. A rise of 1.5 percent in the average mortgage value in August pointed to a slowdown in house price growth over coming months, Tombs said. Howard Archer, an economist at IHS Global Insight, said house prices would likely be flat until the end of 2016 and fall by 3 percent in 2017 as the start of talks over Britain’s exit from the EU exacerbated uncertainty about the economic outlook. The BBA said growth in net credit card lending slowed in August, rising by 136 million pounds compared with an increase of 290 million pounds in July. But consumer borrowing overall remained strong with personal loans and overdrafts rising by a net 343 million pounds, the biggest increase since May, underscoring how consumers appear to have taken the Brexit vote in their stride. The data was collected after the Bank of England cut interest rates to a new record low of 0.25 percent on Aug. 4. The BBA figures do not include lending by mutually owned building societies, which accounts for around third of mortgages. The next release of the more comprehensive Bank of England lending data is due on Thursday.

(Reporting by Peter Hobson; editing by William Schomberg)

Copyright(c) Thomson Reuters 2016.


Sterling trading near a five-week low

Sterling continues to fall after Johnson’s “divorce” comments last week

LONDON, Sept 26 (Reuters) – Sterling was weaker on Monday, trading near a five-week low, as lingering worries over Britain’s exit from the European Union drove investors to sell the currency that has steadily lost ground in the past three straight weeks.

Sterling was knocked down late on Thursday after British Foreign Secretary Boris Johnson said he expected formal divorce proceedings between Britain and the EU to begin early next year, and that two years may not be needed to negotiate a deal.

It continued to fall through Friday, losing more than 1 percent to touch $1.2915 – just over a cent higher than the three-decade low of $1.2798 that sterling hit in July, in the wake of June’s shock vote for Brexit.

On Monday, it was down 0.2 percent at $1.2947 despite a subdued greenback. Against the euro, the pound was down 0.2 percent at 86.72 pence, having hit a five-week low of 86.78 pence earlier in the day.

“The comments from Johnson around the timeframe for Article 50 to be invoked and that the Brexit negotiations do not need to take two years have had a detrimental impact on sterling,” said Jameel Ahmad, chief market analyst at FXTM.

Investors worry that an exit from the single market will drag the UK into a recession and blow out Britain’s ballooning current account deficit, already amongst the highest in the developed world at around 5 percent of gross domestic product. A wider current account deficit tends to lead to a lower currency.

On Thursday, Britain will release second quarter current account deficit data and forecasts are for a slight narrowing the gap.

“The current account data may underline once again that a demand side economic rebound increases external funding risks should the supply side of the British economy weaken from here,” Morgan Stanley said in a morning note.

“This may happen should Brexit talks not focus on the UK maintaining full market excess to the EU. Slower business investment tends to hit an economy with a delay given the multiple months’ lag between business investment and execution.”

Sterling had gained around 5 percent from its July low as of early September, as data showed the economy holding up relatively well after the Brexit vote. But after parliament returned from its summer recess, Brexit worries have come back into investors’ radar and has weighed on sentiment.

(Reporting by Anirban Nag. Editing by Toby Chopra)

Copyright(c) Thomson Reuters 2016.


Majority of UK CEOs confident about growth prospects

A KPMG survey finds 86 percent of CEOs optimistic about growth prospects


LONDON, Sept 26 (Reuters) – Three-quarters of British company bosses are considering moving operations abroad following the vote to leave the European Union, according to a survey published on Monday.

The KPMG survey of 100 UK chief executives, from companies with revenues between 100 million pounds and 1 billion pounds ($130 million-$1.30 billion), found 86 percent were confident about their company’s growth prospects and 69 percent were confident about the British economy’s growth prospects over the next three years.

However, 76 percent said they were considering moving either their headquarters or their operations outside Britain because of the June 23 “Brexit” vote.

“CEOs are reacting to the prevailing uncertainty with contingency planning,” said Simon Collins, KPMG UK chairman.

“Over half believe the UK’s ability to do business will be disrupted once we Brexit and therefore, for many CEOs, it is important that they plan different scenarios to hedge against future disruption.”

The June vote has created uncertainty over Britain’s future economic and trade relationship with the European Union.

John Nelson, chairman of Lloyd’s of London, told Reuters last week that the insurance market would be ready to move some of its business to the EU as soon as Britain invoked Article 50 of the EU’s Lisbon Treaty, which triggers the start of exit from the bloc.

Aides to Prime Minister Theresa May have suggested she hopes to trigger Article 50 early next year, opening the way for up to two years of negotiations.

Asked what would encourage businesses to continue investing in Britain following the Brexit vote, the majority of CEOs surveyed by KPMG ranked certainty over trade terms as the most important.

Only one CEO said a timetable for triggering the formal divorce process and the subsequent exit was the most important factor.

KPMG said 72 percent of the CEOs surveyed had voted to remain in the EU.

The Brexit vote has hit the British currency, with sterling skidding to a five-week low close against the dollar on Friday, but a Reuters poll this month found Britain is expected to narrowly dodge a mild recession that was widely predicted after the referendum.

More than 20 European business associations and companies interviewed by Reuters said they backed their governments’ position that Britain’s banking sector can only enjoy EU market access post-Brexit if the country still follows the bloc’s rules.

($1 = 0.7708 pounds)

(Reporting by Kylie MacLellan; Editing by Adrian Croft)

Copyright(c) Thomson Reuters 2016.


May rebuffed calls to play bigger role in EU referendum campaign

Image courtesy of DonkeyHotey


Two new books shed light behind the scenes of the lead up to the Brexit vote

LIVERPOOL, England, Sept 25 (Reuters) – Prime Minister Theresa May repeatedly failed to back her predecessor David Cameron in his fight to keep Britain in the European Union and hampered his attempts to rein in migration, according to extracts from two books about the referendum.

May, who served as interior minister under Cameron and succeeded him as prime minister when he resigned after Britain’s vote to leave the EU, backed staying in the bloc but was largely absent from the campaign.

The two books come as May faces the complex task of leading negotiations over Britain’s EU divorce, having divulged little on her intended strategy.

Extracts from a book by Sunday Times political editor Tim Shipman said that May refused to support Cameron in seeking to take a harder line on immigration in his deal with Brussels to reform Britain’s relationship with the EU.

May told Cameron that he should not press ahead with demands for an “emergency brake” to limit the number of EU migrants coming to Britain because Germany would not back it, the newspaper reported.

A separate book written by Cameron’s former head of communications Craig Oliver details more than 10 occasions when May declined to back Cameron during the referendum campaign.

Cameron’s team dubbed her “Submarine May” for disappearing when she was needed, Oliver said.

“Her sphinx-like approach is becoming difficult, with the press questioning which way she will jump,” Oliver wrote in the book, extracts of which were published in the Mail on Sunday newspaper.

Oliver said that Cameron had asked May to back his plan to crack down on migrants coming to Britain to claim social security payments but she issued a statement describing it simply as “the basis for a deal”.

The author also said that Boris Johnson – a leading “out” campaigner and now foreign minister – “wobbled” over backing a Brexit and told Cameron that he would be supporting the leave campaign only nine minutes before announcing it to the media.

In his text message to Cameron, Boris made clear he did not expect to win, saying Brexit would be “crushed”, Oliver said.

(By Kylie MacLellan. Editing by David Goodman)

Copyright(c) Thomson Reuters 2016.

Record visitor numbers recorded in July

UK sees record visitor numbers in July after EU exit vote


LONDON, Sept 23 (Reuters) – Britain saw a record number of foreign visitors in July while spending by British tourists abroad fell for the first time in more than a year, according to the first figures since the country voted to leave the European Union. With their spending power helped by a slump in the pound after the Brexit referendum, some 3.8 million foreigners visited Britain in July, the Office for National Statistics said. It was the highest monthly total on record and 2 percent more than a year earlier. Sterling’s sharp fall against the dollar, euro and other currencies since the June 23 referendum is expected to boost the UK’s appeal as a tourist destination and encourage more Britons to holiday at home. “We have an immediate and real opportunity to promote Britain as a great value destination, particularly in our long-haul high-spending markets such as China and the U.S.,” said Sally Balcombe, the chief executive of Visit Britain. Visit Britain, a public body which promotes tourism, was not immediately able to comment on how much of July’s gain in visitor numbers was linked to the weaker currency. London’s West End shopping district has reported increased spending by shoppers from around the world since the referendum. Visit Britain said 2015 had been a record year for tourism to Britain with 36.1 million visits, 5 percent up on 2014, and spending 1 percent higher at 22.1 billion pounds. July and August are the busiest months for tourism to Britain and July’s 3.8 million foreign visitors spent 2.53 billion pounds, 4 percent more than in 2015. Britons made 7.0 million trips abroad in July, 3 percent more than a year earlier. But on a seasonally adjusted basis, spending was down by 1 percent, the first year-on-year decline since February 2015. On Wednesday, the Bank of England said it had received reports from businesses of a greater number of British people holidaying at home, and an increase in foreign visitor numbers. The increase in spending by tourists in Britain could be bad news for other countries. According to tax-free shopping firm Global Blue, tourist spending on luxury goods in Britain in August rose by 36 percent while in France it fell by 20 percent.

(Reporting by David Milliken; Editing by William Schomberg/Mark Heinrich)

Copyright(c) Thomson Reuters 2016.