A busy week for UK blue-chip results sees figures from Vodafone, BT and Sainsbury’s, while the Bank of England’s latest economic forecasts are likely to make grim reading.
The UK’s third biggest supermarket, Sainsbury’s, is expected to post a 10% rise in interim profits on Wednesday.
Analysts are predicting underlying profits of between £260m (€318m) and £270m (€330m) from a period of intense competition between the UK’s biggest grocers.
Sainsbury’s posted like-for-like sales growth of 4.3% for the 16 weeks to October 4 – slightly better than market expectations – but the City seized on chief executive Justin King’s comments over a “particularly challenging” economic environment.
The firm – along with Tesco – has fought back with campaigns such as Feed your Family for a Fiver and by growing its own label basics range to 550 products to help customers on tighter budgets.
Despite concerns over discount rivals, Royal Bank of Scotland analyst Justin Scarborough said fears over customers trading down were overplayed and the store was in fact picking up shoppers deserting the likes of Marks & Spencer and Waitrose.
“We believe the market is underestimating how far Sainsbury’s business model has moved over the past four years and, as such, it underestimates the company’s ability to operate in current trading conditions,” Mr Scarborough added.
The firm’s share price however suffered a recent blow when tycoon Robert Tchenguiz sold a 10% stake in October after ailing Icelandic bank Kaupthing - one of Mr Tchenguiz’s financial backers – called back a loan.
Mobile phone giant Vodafone posts its first results with new chief executive Vittorio Colao at the helm on Tuesday.
In July Mr Colao took over from former head Arun Sarin – who led the company for five years.
But he comes to the job at a difficult time as investors worry about the impact of a looming recession on the business.
Although still one of the biggest companies in the FTSE 100 Index – worth some £57bn (€70bn) – Vodafone’s shares have fallen by almost half since the beginning of the year.
The company took a particular hammering in July after it suffered from weaker trading in the UK and Spain, as well as lower than expected sales of equipment such as handsets and USB data cards in the three months to June 30.
It warned that this would leave annual revenues at the foot of its expected range of between £39.8bn (€49bn) and £40.7bn (€50bn).
For the half-year however underlying earnings are expected to rise to between £7.2bn (€8.8bn) and £7.3bn (€8.9bn), up from £6.56bn (€8bn) last year.
A weaker showing in Europe has been more than offset by its emerging markets business, which lifted overall revenues by more than 30%. In India, where the group bought Hutchison Essar last year, Vodafone added more than five million customers in the first quarter.
Prospects in these fast-growing markets look healthy. According to research from Informa Telecoms & Media, mobile phone sales are set to reach $200bn (€156bn) by the end of 2013 with emerging markets such as Brazil, Russia, India, and China accounting for 60% of the market.
The Bank of England’s latest projections for inflation and growth on Wednesday are set to show how sharply prospects for the UK economy have declined in the past three months.
Its August forecast – which predicted flat growth next year – was gloomy enough, but the worst crisis to hit the banking sector for more than a century after Lehman Brothers’ collapse is now sending the UK headlong into recession.
Bank Governor Mervyn King publicly acknowledged this for the first time in October as he charted an “unimaginable” series of events, including a £400bn (€489bn) bail-out for the UK banking sector and the nationalisation of Bradford & Bingley.
Economists will be eagerly scanning the Bank’s quarterly inflation report to gain hints on how low rates could have to go next year for the Monetary Policy Committee to hit its 2% target in two years’ time.
The MPC – which cut by a shock 1.5% on Thursday – is now in the grips of a battle against deflation as the UK slides into recession.
This marks a reversal of its worries earlier this year over inflation roaring to more than double the target at 5.2%.
Investec chief economist Philip Shaw said experts would look for a more detailed explanation of the MPC’s bold decision to bring rates to their lowest level for more than 50 years.
“Prospects for interest rates look highly uncertain, but our main case view is that the Bank rate will be down at 2% by spring next year.
“In the meantime, the scheduled data is likely to remain on its current trend, namely plummeting price pressures, subdued retail activity, a weak housing market and higher unemployment,” he warned.