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What to Watch: Primark's warning on Brexit costs, Lloyds' PPI hit, and recession fears ease

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A shopper walks past a branch of clothing retailer Primark in London. Photo: Suzanne Plunkett/Reuters

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

Primark warning on Brexit costs

Primark continues to perform strongly despite the general high street gloom.

Parent company Associated British Foods (ABF.L) said Primark’s sales for the year are expected to rise by 4%, following the opening of 14 new stores worldwide.

However, the company added that on a like-for-like basis, when the new stores are excluded, sales fell 2%. Sales in the UK fell 1% like-for-like and were down 3% like-for-like in Europe.

ABF also warned it was likely to take a hit from unfavourable foreign exchange rats in future.

“Brexit related headwinds means costs are expected to increase next year, and margins are expected to dip,” said Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.

Lloyds’ PPI hit

Lloyds Bank (LLOY.L) has become the latest high street bank to warn that it will take a bigger-than-expected hit from the PPI deadline.

Lloyds said on Monday that it received a “higher than expected” number of PPI claims in August “with a significant spike in the final days before the deadline expired” on 29 August.

The bank received 600,000 to 800,000 calls about PPI claims each week in August, well above the 190,000 level it had forecast. Lloyds had set aside £650m to cover PPI claims but warned on Monday that it will likely need an extra £1.6bn to £1.8bn to cover claims.

As a result of the unexpected charge, Lloyds has cancelled the remainder of its share buyback plan for this year. The bank was due to spend a further £600m buying back its own shares in the remainder of 2019.

Recession fears ease

Fears of a UK recession eased on Monday as new data showed better than expected economic growth in July.

The UK economy grew by 0.3% between June and July, according to the Office of National Statistics (ONS). Economists had forecast month-on-month growth of 0.1%, up from 0% in June.

The data suggests the UK could be on track to escape a recession. A recession is defined as two consecutive quarters of negative economic growth. The UK economy shrank by 0.2% in the second quarter of the year and July marks the start of the third quarter.

Pound volatile ahead of crucial vote

The pound climbed on Monday after new data showed better-than-expected economic growth in July.

The currency climbed 0.14% against the dollar (GBPUSD=X), to just under $1.23, after data from the Office of National Statistics (ONS) showed that the UK economy grew by 0.3% between June and July.

The surge in the currency came even as MPs prepared to hold a second vote on another general election.

Prime minister Boris Johnson’s government will ask the House of Commons to back a snap election, even though opposition parties have insisted that the law designed to block a no-deal Brexit must be implemented first.

The pound had fallen sharply earlier on Monday against the dollar, with analysts pointing to weekend reports that Johnson could ignore the law.

British Airways strike hits parent company

Shares in IAG (IAG.L), the parent company of British Airways, were under pressure on Monday as a pilot strike caused huge disruption to service.

Thousands of passengers will be disrupted this week as around 4,000 pilots from British Airways (IAG.L) start two-day strike action on Monday (9 September) — the biggest walkout in the airline’s history.

While BA and the British Airline Pilots Association (BALPA) said that they are willing to restart negotiations over the ongoing dispute over pay and conditions, BA has had to cancel a majority of the 1,600 flights over the next two days and have advised passengers to not turn up to the airport.

Markets quiet

European markets were quiet, with all attention focused on the ECB’s next meeting on Thursday and the expected stimulus announcement it could bring.

“Expectations for the ECB are running very high,” Neil Wilson, chief market analyst at Markets.com, said.

“Whilst it seems the ECB will throw the kitchen sink at the problem of slowing growth and persistently lacklustre inflation, markets seem to want the taps, the plug, and the plumbing thrown in for good measure too. Indeed, former vice-president Vitor Constancio said only last week that markets are expecting too much from the ECB.”

Britain’s FTSE 100 (^FTSE) was down by 0.1%, France’s CAC 40 (^FCHI) was flat, Germany’s DAX (^GDAXI) was up by 0.1%, and the Euronext 100 (^N100) was flat.

Overnight in Asia, Japan’s Nikkei (^N225) closed up by 0.5%, the Hong Kong Hang Seng Index (^HSI) was flat, and China’s Shanghai Composite (000001.SS) closed up by 0.8%.

What to expect in the US

US stocks future are pointing to higher open later today. S&P500 futures (ES=F) were up by 0.2%, Dow Jones futures (YM=F) were up by 0.1%, and Nasdaq futures (NQ=F) were up by 0.1%.