BUSINESS LIVE: CPI returns to 2%; Berkeley ups guidance; Vodafone raises £1.4bn

Spectris shares fell sharply on Wednesday after the group warned its annual profits would miss forecasts.

The FTSE 250 precision instruments maker struggled with weaker-than-expected demand at its lab equipment division Malvern Panalytical in the first half.

It told shareholders the unit’s sales and operating profits would take a £15million and £10million hit, respectively, for the period on the back of ‘weaker demand in China’ and ‘subdued trading in pharmaceuticals’.

Vodafone Group has raised €1.7billion (£1.4billion) to repay lenders after selling a large stake in India’s Indus Towers.

The telecoms giant told investors on Wednesday it had sold 484.7million shares in Indus Towers, representing 18 per cent of Indus’ share capital, through an accelerated bookbuild.

Vodafone, which owns a 21.5 per cent stake in mobile-tower operator Indus, had initially planned to sell a 10 per cent stake, but strong investor demand promoted it to nearly double the sale size, according to Reuters.

Berkeley Group has unveiled plans for the launch of a build-to-let platform as the brownfield regeneration specialist targets growth in the booming rental market.

The FTSE 100’s firm chief executive Rob Perrins told investors on Wednesday that the launch of a build-to-rent arm was aimed at maximising returns in current market conditions.

An additional one million rental homes are required by 2031 if the nation is to address a growing rental crisis, estate agency Savills said earlier this year, with lack of supply adding to price pressure on renters.

London-listed stocks have inched lower at the open as investors juggle Britain’s headline inflation hitting the Bank of England’s target against a drop in services price inflation.

Investors grapple with a slower-than-anticipated decline in services price inflation, which the Bank of England believes offers a clearer view of medium-term inflation risks.

But Vodafone has gained 1 per cent after the mobile group confirmed it had sold an 18 per cent stake in India’s Indus Towers for £1.4billion.

Spectris is the top loser on the mid-cap index, falling 11 per cent, after the scientific instruments-maker warned of lower-than-expected profit on weak China demand.

Ben Laidler, global markets strategist at eToro:

‘May’s inflation fall to 2% from the prior 2.3% is the lowest level since June 2021 and emblematically hits the Bank of England’s 2% inflation target as prices eased across-the-board outside of fuel and transport.

‘The UK’s inflation performance has flipped in under a year from a global embarrassment, with only Turkey and Argentina worse, to its current leadership position only bettered by Italy and Switzerland amongst peers.

‘This will keep the door open to a first interest rate cut by the Bank of England over the summer and provide some welcome political relief to the government in the final weeks of the election race.’

Matt Britzman, equity analyst at Hargreaves Lansdown:

‘Berkeley is set to enter the London rental market. Full-year results were slightly better than expected, and the London-focused builder is flexing its strong balance sheet to pump cash back to shareholders.

‘The market is still soft, but green shoots are emerging, and commentary was fairly upbeat given the tricky conditions. Guidance for the coming year has been notched up, and with interest rates expected to start their journey down later this year, the near-term outlook is looking better than it has been for some time.

‘Perhaps the bigger news is that Berkeley is planning a move into the London rental market. Eager to capture some of the soaring rental demand in the area, some 4,000 potential homes have been identified to make up the first tranche of a rental portfolio.

‘This won’t be an overnight move; it’s expected to take around ten years to build the homes and get everything up and running, but it would add another string to Berkeley’s bow.’

Premier Inn owner Whitbread said business has been boosted by the Taylor Swift Eras tour.  The hotel giant said sales in the three months to the end of May were up just 1 per cent on a year earlier at £739million.

Vodafone Group has sold a bigger-than-planned 18 per cent stake in India’s Indus Towers for $1.82billion (£1.4billion), with local telecom operator Bharti Airtel picking up shares to increase its stake to nearly 50 per cent.

The UK telecoms giant, which owns a 21.5 per cent stake in mobile-tower operator Indus, had initially planned to sell a 10 per cent stake but strong investor demand promoted it to nearly double the sale size, according to Reuters.

Vodafone said it sold 484.7 million Indus shares at 310-341 rupees per share, raising 153 billion rupees, in gross proceeds that it will use to repay debt.

It has bank borrowings of 1.8billion euros against its Indian assets, which also includes a stake in Vodafone Idea , the country’s debt-saddled No.3 telecom operator by subscribers.

Indus’s stock slid as much as 9.4 per cent, before paring losses to trade down 4.3 per cent at 329.60 rupees around midday in Mumbai, with more than 750 million shares traded, already their busiest-ever session.

Anthony Codling, head of European housing for RBC Capital Markets:

‘Berkeley’s FY24 results were slightly ahead of expectations, once again demonstrating the robustness and resilience of the Group’s business model.

‘Not content with firing on all cylinders, Berkeley announced today that it is adding another cylinder to its finely tuned engine, a build to rent platform, it has also increased its FY2025 guidance by 5% to £525m – bold actions in uncertain times.

‘The Build to Rent platform is not a response pointing a weakness in the sales market, rather it points to the significant potential in the private rental market.

‘Whether looking at homes for sale or homes for rent, we have a supply shortage and Berkeley is doing its bit to supply the homes we need. We expect the shares to react positively to the results today and the enhanced guidance for tomorrow.’

High-end British homebuilder Berkeley has lifted its earnings outlook by 5 per cent for fiscal year 2025 after beating profit expectations for last year,

Berkeley, which operates across London, Birmingham and the South of England, [psted a pre-tax profit of £557.3million for the year to 30 April, down 8 per cent on the previous 12 months but beating analyst forecasts of £549.5million.

Sticky inflation in Britain has clouded the outlook for monetary policy easing, tempering expectations of a swift recovery in the housing market despite signs of stability at the start of 2024.

Berkeley CEO Rob Perrins said the launch of the build-to-rent segment was aimed at maximising returns in the current market conditions, and the group has identified about 4,000 homes across its 17 brownfield regeneration sites as an initial portfolio for the platform.

The company raised its annual outlook for pre-tax profit to £525million, saying that it continued to benefit from a strong order book and good enquiries for homes in the country’s most under-supplied markets.

Nvidia has leapfrogged Microsoft and Apple to become the world’s most valuable company as it cashes in on the artificial intelligence boom.

Shares in the US chip-maker rose more than 3 per cent in early trading yesterday – taking its value to $3.33 trillion (£2.6 trillion).

That surpassed both Apple and Microsoft, which were worth $3.32 trillion and $3.28 trillion respectively.

Luke Bartholomew, deputy chief economist at Abrdn:

‘The fall of headline inflation back to target was expected, but will still come as extremely welcome news to the Bank of England.

‘The big question now is whether underlying inflation pressures in the economy are consistent with inflation staying around 2% in the medium term, or whether inflation will start to edge higher again once favourable base effects fade.

‘On that front, there is still evidence of residual stickiness in services inflation, reflecting the strength of wage growth recently. That is why an interest rate cut tomorrow is still very unlikely. But we think the Bank’s communication tomorrow will set out a path for a cut in August, which is now looking increasingly likely.’

Thomas Pugh, economist at RSM UK:

‘Today’s news that inflation has fallen back to 2% for the first time in three years will bring some cheer to Rishi Sunak, but it’s too little too late for the Monetary Policy Committee (MPC) to cut interest rates tomorrow. What’s more, another miss on services inflation has reduced the chances of an August rate cut.

‘The slowdown in headline inflation was driven by a larger-than-expected fall in goods inflation to -1.3%. However, services inflation, which is a better measure of underlying price pressures in the economy than headline inflation, missed expectations again, only slowing to 5.7% vs expectations of 5.5%.

‘This will raise concerns on the MPC that underlying price pressures in the economy aren’t slowing as quickly as expected and makes an August interest rate cut less likely.

‘However, we aren’t ruling out an August rate cut. It seems likely that services inflation in May was still being bolstered by the impact of the 9.7% rise in national minimum wage in April, which was a one-off, as inflation in the restaurant and hotels category only slowed by 0.2ppts.

‘The outlook for 2025 partly depends on whether a new government is forced into raising more revenue in the next parliament, which could give the Bank more room to cut interest rates or whether it borrows more, which would argue for fewer rate cuts. Our base case is for interest rates to end next year at 3.5%.’

Matthew Chapman, associate partner at McKinsey & Company:

‘The UK could continue to face a mixed outlook. Wage growth and service-level inflation remain high at 6% and 5.7% respectively. And to appease concerns about domestically generated inflation, there could need to be more evidence of sustained disinflation and a slowing labour market.

‘While inflation is falling back to normal levels, price increases of 7% in housing rentals will continue to squeeze many household budgets. At the same time, near double-digit inflation in the cost of package holidays (9%) and 7% in accommodation services could steer consumers away from discretionary spending on travel and hospitality as summer holiday season approaches.’

Consumer price inflation returned to the Bank of England’s target of 2 per cent last month for the first time in almost three years, fresh Office for National Statistics data shows.

The reading, which was down from 2.3 per cent in April, was in-line with expectations and will put pressure on the BoE to cut interest rates at its upcoming Monetary Policy Committee meeting.