Tuesday preview: CPI inflation expected to soften, Ashtead reports

While Theresa May continues talks with her potential Northern Irish kingmakers, inflation data will be published on Tuesday that is expected to be largely unchanged, while a few companies report results including Ashtead, Crest Nicholson and Halma.

Amid the political vacuum post the indecisive general election result on Friday, economists and investors were looking ahead to the Bank of England's June meeting on Wednesday and Thursday.

Although the recent surge in inflation is of concern to the BoE's rate setters on the monetary policy committee, even a stronger rise from Tuesday's consumer price index is unlikely to coax the committee into raising rates.

Indeed, many economic sages were predicted after the election result that there will be no movement on rates from the MPC until the first half of 2020 at the earliest.

However, with UK wages growth proving rather anaemic, the rise in inflation is putting the squeeze on households, which bodes badly for an econonmy that has relied on consumer spending for growth over recent years.

A month ago, annual CPI inflation ran at 2.7%, up from 2.3% the previous month and the highest rate in more than three and a half years.

Calendar effects played a role in pushing inflation up, with the main driver being the reversal of an Easter effect on air fares, which rose by 18% month-on-month after dropping the prior month.

Excluding more volatile rices, core inflation still increased from 1.8% to 2.4% as clothing prices and energy bills rose.

However, April's CPI reading was in line with the MPC's Inflation Report projection.

The Office for National Statistics will publish the price data at 0930 BST, with the consensus for the monthly figure to ease to 0.2% from 0.5%, but for the annual rate to remain at 2.7% and core CPI to stay at 2.4%.

"We also think that we are seeing more upward pressure from the pass-through of last year’s falls in sterling," said HSBC, expecting headline CPI to have edged up a little further in May, to 2.8%, as sterling effects continue to pass through.

But the bank reckons that CPIH, the ONS's preferred new measure of inflation as it includes owner-occupiers' housing costs, will hold steady at 2.6% y-o-y, given weakness in owner-occupied housing costs.

Company reports

Analyst favourite Ashead reports full year results, with the consensus forecast pointing to profit before tax of £792m.

Investors like the company for its access to the US construction market, where Sunbelt is expected to produce revenue of $3.58bn with EBIDTA of $1.77bn.

Analysts at UBS said the focus on the company's outlook tends to be on capex guidance for the new financial year. After guidance to spend the upper range of the £1.0-1.2bn in the last year, the ‘early look’ on 2018 capex was for not much change.

"We believe this indicates a slowing in organic volume growth, and Ashtead may outline plans to accelerate M&A as a result – which we see as dilutive to ROIC."

Halma's pre-close update in March confirmed that trading had been in line with expectations and Barclays said its estimates were unchanged.

"We will look for detail on the progress at the recent acquisitions, in particular Firetrace and CenTrak, which produced a stronger H2 performance, following the shortfall relative to expectations in H1.

"Management has stated that delays to major contracts at both should be rectified in time for shipments to commence in H1 FY18E, which should provide a strong fillip to group performance in the current year."

For Crest Nicholson's interim results, the housebuilder already disclosed average selling prices 22% to £389,000 due to a better mix.

This should lead to revenues of £435m and, said UBS, an operating profit of £80m at a margin of 18.5%.

Merlin Entertainments is expected to report a trading update, though UBS said it didn't see the Legoland and Madame Tussdauds owner publishing many numbers but for it instead to be "a rather qualitative statement", with Midway trends expected to have improved, especially in London "which we believe is benefitting from increased inbound tourism".

"We are very interested to hear whether the attacks in Manchester and London have had any notable impact on visitor numbers thus far. We do not expect any strategic update with the release."

Capita is also due to report a short trading statement ahead of closing its first half though H1 results themselves won’t be published until mid-September.