BUSINESS LIVE: GDP shrinks 0.3% in Q4; Close Brothers scraps divi; Centrica boosted by price cap jump

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘British Gas owner Centrica’s turnaround appears to be almost complete, with the group making great progress over the past three years. There was a strong recovery in its British Gas Energy (BGE) division, with performance boosted by higher allocations to the UK price cap in the first half.

“But it should be noted that most of these tailwinds should have been taken into account now and, in the medium term, the underlying operating profits of this division are expected to moderate from £751 million to around £150-£ 250 million per year.

‘The British Gas Services division has been in a difficult situation in recent years, plagued by scandals and poor levels of customer service. Customer numbers fell 8% in 2023 as cost-of-living pressures led customers to look for providers with the cheapest deals.

“Most of this customer change occurred in the first half and things seem to have stabilized since then. The group has invested heavily in improving its service levels and is starting to show this through lower job rescheduling and complaint rates. Margins here are heading in the right direction and the division is back to making slim profits.

“With underlying net cash of £2.7bn, equivalent to around 37% of the group’s market capitalisation, the recently reinstated dividend saw a big boost and the buyback program is on solid ground.”

Investors in ride-hailing app Lyft endured a bumpy ride after a “clerical error” in results sent the stock up more than 60 per cent, before doing a sharp 180-degree turn.

Lyft soared in after-hours trading on Wall Street on Tuesday after suggesting it would reach profits of £725 million this year. Within minutes, shares soared 67 percent to $20.

Package travel group Jet2 has raised profit expectations thanks to excellent booking levels at the start of the year.

The group told investors that its future bookings for winter 2023/24 are currently up 17 per cent and that the average price of both flight-only products and holiday packages remains “solid”.

It said bookings for February and March 2024 had shown “similar trends to recent months”, prompting the group to raise its annual profit forecast before exchange rate revaluation and taxes to a range of £510 million to £525 million.

This is an increase on previous guidance of £480 million to £520 million.

‘We are pleased with how the 2024 financial year is ending and are encouraged by the early bookings for summer 2024.

‘While we recognize that there are many demands on consumers’ discretionary income, we believe that our Customers appreciate the time they spend away from our Rainy Island and want to be properly cared for during their vacation.

“As a highly trusted and customer-focused holiday provider, we remain confident that you will continue to travel with us to the sunny spots of the Mediterranean, the Canary Islands and European leisure cities.”

NatWest will appoint interim boss Paul Thwaite as Dame Alison Rose’s permanent replacement after she resigned in disgrace amid the Nigel Farage debanking scandal.

Directors of the state-backed lender meet today to discuss the announcement along with full-year results tomorrow.

Dr Roger Barker, Policy Director at the Institute of Directors, said:

‘Confirmation that the UK economy failed to avoid a technical recession in the second half of last year is a psychological blow for businesses.

‘A 0.1% drop in December translated into negative growth of 0.3% for the entire quarter. As this was the second consecutive quarter of negative growth, the technical recession criterion was met.

‘In December, production figures were dragged down by a 0.1% fall in the services sector and a 0.5% contraction in construction. However, the productive sector actually grew by 0.6%.

‘Looking at the year 2023 as a whole, the economy grew by 0.4%. The December numbers don’t make a significant difference to the bigger picture: that the economy moved largely sideways last year. Furthermore, the current technical recession cannot be compared to the last recession in the first half of 2020, when GDP fell by more than 20% in a single quarter due to the onset of the Covid pandemic.

‘Business leaders will now turn their attention to the future. Recent data from our members suggests that business confidence has improved slightly in recent weeks. It is important that this progress is underpinned by the political decisions of the Chancellor and the Bank of England.’

Close Brothers Group will not pay any dividend for the current financial year, and the lender has told investors there is “significant uncertainty” over the outcome of the Financial Conduct Authority’s review of the car finance industry.

Thomas Pugh, British economist at RSM UK:

‘The quarter-on-quarter GDP contraction of 0.3% in the fourth quarter of last year means the UK finally fell into the long-awaited recession in the second half of last year. However, that recession is probably now over and set to become one of the smallest the UK has ever experienced.

‘It is true that the economy will remain stagnant during the first half of this year, but by the summer inflation should return to around 2%, interest rates will probably fall and consumers could enjoy significant tax cuts. This will kick-start a consumer spending-driven recovery that should allow the economy to finally return to growth.

‘Indeed, a recession gives the Bank of England more cover to pivot towards lowering interest rates as early as spring.

‘Overall, today’s data reinforces our view that the fourth quarter of last year will represent the nadir of a particularly painful period of stagnation for the UK economy. But now we find ourselves at a turning point. Interest rate cuts are likely to come in the spring and growth should gradually improve in the first half of this year and recover further after the summer and into 2025.’

Marcus Brookes, Investment Director at Quilter Investors:

‘The contraction in UK GDP in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labor market and low productivity growth, but also adverse weather conditions.

‘These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, amid persistent high inflation and interest rates, as well as changes in purchasing patterns.

‘Some of these challenges are temporary and have already begun to ease. The inflation rate remained stable at 4% yesterday when many were predicting an increase. In the coming months, we expect inflation to fall, which could ease pressure on UK households and support the consumer-led recovery of the economy.

‘The key indicator to watch is inflation in the services sector, which accounts for the bulk of UK economic activity and employment and reflects the strength of wage growth and consumer demand, which are crucial to the recovery. from United Kingdom. As inflation stabilizes and then reduces, the Bank of England is more likely to cut interest rates to stimulate economic activity and investment.

‘The UK economy faces challenges and uncertainties, but it also has many strengths and opportunities. It has a dynamic economy with a skilled and flexible workforce, and the UK is expected to overcome many of the current difficulties and emerge stronger and more resilient in the future.’

Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services:

«Today’s GDP figures confirm that the UK fell into a very mild economic contraction towards the end of 2023, with moderate economic activity lasting into the festive season.

“The data is evident of deflated activity across all key sectors of the economy, from manufacturing to services and retail, as well as construction activity, which was negatively affected by the inclement weather.”

‘However, while there is an impression of economic stagnation, better times are surely ahead. As winter progresses, the delayed impact of high inflation and high interest rates will work its way through the economy and inflationary pressures will ease, allowing the Bank of England to reduce the base rate come summer.

The British economy contracted 0.3 per cent in the final three months of 2023, a bigger drop than expected, leaving the country in a technical recession, new data from the Office for National Statistics shows.