Last Week in London
London shares had a disappointing start to the week, says Quentin Smith from OMAM UK.
Mainly pulled lower by weakness in mobile phone giant Vodafone on concerns that it was poised to enter a costly bidding war for US rival AT&T Wireless, although subsequent news that Vodafone had lost out to US company Cingular Wireless helped the market to regain its losses.
Inflation rose in January to the highest in three months, pushed up by charges for financial services, clothing and airfares, suggesting that faster economic growth is boosting prices.
Consumer prices rose 1.4% last month from a year ago, in line with expectations. Prices fell by 0.5% from the previous month after a 0.4% gain in December.
Higher inflation brought with it expectations of a further quarter percentage point rise in interest rates, possibly in May, when the Bank of England next publishes inflation and growth targets, pushing sterling through $1.90 for the first time in 12 years.
The minutes of this month's Monetary Policy Committee meeting showed that Bank of England policy makers voted unanimously to raise the benchmark interest rate to 4%, citing a more broadly based global recovery and the strength of UK household spending, which may boost inflation.
Following the BoE's prediction that inflation will accelerate to its 2% target by 2006 and keep rising thereafter as UK economic growth surges, expectations are for more rate rises, with the next rise widely expected to be in May, when the BoE next publishes inflation and growth forecasts.
Over the week the All-Share gained 2.2%, with the FTSE 100 2.3% ahead and midcaps (+1.8%) and smallcaps (+1.3%) the laggards following recent outperformance.
The best sector performances came from resources and financials, the latter helped by a strong performance from Royal Bank of Scotland on good results, while consumer staples accounted for the weakest performers.
Mortgage bank Bradford & Bingley (-4.0% to 310p), reported a 19% rise in full year profit, buoyed by an increase in loans to landlords.
The company is focusing on loans to landlords, where interest margins are wider than on mortgages to people buying homes to live in. So-called 'buy-to-let' loans in the UK jumped 48% last year. Most of Bradford & Bingley's competitors focus on mortgages to homebuyers.
Standard Chartered (+1.4% to 9241/2p), a UK bank that makes about two thirds of its earnings in Asia, reported a better than expected 21% rise in profit last year as Hong Kong's economy rebounded from the SARS epidemic.
Hong Kong, which accounts for about a third of Standard Chartered's earnings, grew at a record pace in the third quarter, rebounding from its worst ever contraction, as a surge in visitors from China boosted sales by retailers.
Standard Chartered is expanding in China, India, the Middle East and Africa to reduce its dependence on Hong Kong. It has been awarded a license to open a bank in Iraq, has applied for another in Iran, opened its first branch in Afghanistan and is considering expanding into Saudi Arabia.
It also bought a South African internet bank last summer and hopes to become the first foreign lender to own a South Korean bank, if it wins its battle with Citigroup for Koram Bank.
Royal Bank of Scotland Group (+5.7% to 1712p), the UK's second largest bank by assets, reported a 17% rise in full year profit as acquisitions in the US and Britain and an increase in lending at home boosted revenue.
RBS spent about $4.5 billion last year buying companies in the US and Britain to drive earnings growth as savings from the $38bn acquisition of National Westminster Bank in 2000 wane. RBS also benefited from a surge in consumer borrowing last year, when interest rates in Britain were at the lowest level in half a century.
UK mortgage lending rose 24% last year, according to the Council of Mortgage Lenders.
