UK Companies Positioned for BOE Support

Following declines across global equity markets, investors may take heart from prominent British corporations well-positioned to gain should the BOE deliver additional stimulus.

The Continued Recovery

A series of weak economic data points last week left traders worried that global economic growth was slowing. On the one hand, this triggered a sell-off in the markets, but it also increased expectations that interest rates may fall more sharply and sooner than initially estimated. This includes the BOE, which is forecast to ease policy at a faster pace after its narrow first cut of the cycle last week.

For now, concerns over the weekend led to the FTSE 100 experiencing its largest decline so far this year. However, there appear to be signs of recovery as investors assess the new situation.

If the economy remains positive, slowing inflation combined with interest rates moving away from restrictive levels could ultimately support UK stocks. However, this depends on companies delivering on their earnings.​

Deliveroo

One of the companies that may benefit from a situation where wages grow faster than inflation, yet consumer price inflation remains within central bank targets, is Deliveroo. However, softer labour data could mean that people are less inclined to prioritise saving time on cooking over having food delivered. The focus will likely be on the company's drive to grow gross transaction value (GTV), a key performance indicator. Earlier reports showed optimism for the year, including positive free cash flow. However, if GTV falls below 6%, investors may worry that growth this year cannot be sustained.

Persimmon

High interest rates have greatly impacted the UK housing sector, and investors are anxiously waiting for mortgage rates to drop to a level supporting increased house purchases. Investors will want to understand Persimmon's views on the latest Bank of England move and when CEO Dean Finch foresees recovery. A previous trading update saw growing forward sales despite lower completions, suggesting trading may finally be improving. However, lower rates may take time to reach consumers.

PageGroup

The global recruitment firm's interim results for tomorrow will likely attract attention, as recent market weakness has been largely attributed to labour market concerns. European recruitment companies previously warned that conditions were deteriorating, and PageGroup was no exception. Investors will want to see any signs of returning growth or management comments on issues stressing the jobs market. The company already cut full-year guidance in a prior trading update.​

PageGroup in Wide Range

Stock prices fluctuated between 360 and 500 for the last year. They failed to break above the 435 resistance recently, suggesting further declines toward 300 should the 350 support give way to bears. Alternatively, reclaiming the regional top and upper range may allow the share price to reach 640, matching the overall range length.​

Source: SpreadEx / PageGroup

Key Takeaways

Following declines in global equity markets, certain prominent British corporations may be well-positioned to benefit from additional BOE stimulus. If the UK economy remains positive with slowing inflation and interest rates moving away from restrictive levels, it could ultimately support some UK stocks should they deliver on earnings. Deliveroo and Persimmon may benefit if wage growth outpaces inflation and mortgage rates drop, but economic data and company-level performance will need to prove growth can be sustained. PageGroup's interim results will indicate if recruitment conditions are deteriorating further or showing signs of returning growth.​