London open: Next surges after update as stocks rally
London stocks rose in early trade on Wednesday as investors mulled the latest UK borrowing figures, with an upbeat trading statement from Next helping to boost sentiment.
At 0840 BST, the FTSE 100 was up 0.9% at 6,943.25.
Figures released earlier by the Office for National Statistics showed that public sector net borrowing fell in June as the economy opened up again.
Net borrowing came in at £22.8bn last month, down £5.5bn from June 2020 and undershooting the Office for Budget Responsibility’s forecast of £25.2bn. Still, the figure was above consensus expectations of £20bn and marked the second-highest level for June on record.
Public sector net debt came in at £2.2bn at the end of June, or around 99.7% of GDP, which was the highest ratio since the 102.5% recorded in March 1961.
Ruth Gregory, senior UK economist at Capital Economics, said the fact that borrowing undershot the OBR’s forecast again in June reinforces her view that the economy can do more of the job in "fixing" the public finances than a fiscal tightening.
Gregory said that while debt service costs will probably stay higher than the OBR estimated over next few years, the public finances should continue to reap the benefits of a faster and fuller recovery in GDP than the OBR expects, meaning that the deficit should still fall faster.
"That said, we suspect the Chancellor will ‘bank’ any improvement in the deficit rather than scale back the planned tax hikes and spending cuts set to hit the economy. At least by 2022/23, the economy should be strong enough to cope with it."
On the corporate front, fashion retailer Next surged to the top of the FTSE 100 as it lifted full-year profits guidance after a sales rebound in the second quarter. In an unscheduled trading update, the company said it now expected annual pre-tax profits of £750m, up £30m from previous forecasts and towards the top end of estimates.
Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: "Overall, Next has proven to be one of the stronger names in retail. A bricks and mortar retailer that expects surplus cash at the end of the year, and is comfortable enough to pay special dividends is nothing short of a miracle.
"The rate of the spending slowdown will be one to watch from here, while Next is in a great position, if the last eighteen months have taught us anything, it’s that a lot can change in a short space of time."
Future rallied after the magazine publisher and GoCompare owner said full-year profitability was set to be "materially ahead" of current market expectations amid a continued strong performance.
Computacenter gained after saying it expects adjusted pre-tax profit for the first half to be around 50% ahead of the same period a year ago.
Elsewhere, stocks with particular exposure to Covid-related restrictions rose, with catering group Compass, British Airways owner IAG, engine maker Rolls-Royce, Premier Inn owner Whitbread and InterContinental Hotels among the top performers.
On the downside, Royal Mail slumped after it said revenues rose 12.5% in the first quarter as people continued to shop online with Covid lockdown restrictions still in place, but that UK parcel volumes had started to slip as curbs were lifted.
Market Movers
FTSE 100 (UKX) 6,943.25 0.90%
FTSE 250 (MCX) 22,330.38 0.95%
techMARK (TASX) 4,374.84 1.39%
FTSE 100 - Risers
Next (NXT) 8,024.00p 8.52%
Compass Group (CPG) 1,471.00p 4.14%
Rolls-Royce Holdings (RR.) 93.25p 3.59%
International Consolidated Airlines Group SA (CDI) (IAG) 165.10p 2.89%
InterContinental Hotels Group (IHG) 4,699.00p 2.62%
Whitbread (WTB) 2,911.00p 2.54%
Entain (ENT) 1,789.00p 2.43%
Associated British Foods (ABF) 2,046.00p 2.43%
Just Eat Takeaway.Com N.V. (CDI) (JET) 5,879.00p 2.37%
AstraZeneca (AZN) 8,654.00p 2.34%
FTSE 100 - Fallers
Royal Mail (RMG) 515.20p -2.90%
Avast (AVST) 585.80p -0.71%
Aviva (AV.) 380.30p -0.11%
National Grid (NG.) 921.30p -0.08%
Standard Chartered (STAN) 421.40p 0.02%
BT Group (BT.A) 179.40p 0.03%
Imperial Brands (IMB) 1,528.50p 0.03%
Legal & General Group (LGEN) 254.80p 0.12%
NATWEST GROUP PLC ORD 100P (NWG) 193.20p 0.18%
Polymetal International (POLY) 1,571.00p 0.19%
FTSE 250 - Risers
Future (FUTR) 3,470.00p 8.10%
Cineworld Group (CINE) 62.20p 6.54%
Trainline (TRN) 300.80p 4.66%
Carnival (CCL) 1,402.00p 4.63%
National Express Group (NEX) 244.60p 4.35%
Hochschild Mining (HOC) 151.80p 3.76%
Morgan Advanced Materials (MGAM) 360.00p 3.30%
WH Smith (SMWH) 1,560.00p 3.00%
Mitchells & Butlers (MAB) 264.60p 2.88%
Oxford Instruments (OXIG) 2,340.00p 2.86%
FTSE 250 - Fallers
Network International Holdings (NETW) 351.60p -4.46%
Wood Group (John) (WG.) 201.50p -2.84%
Savills (SVS) 1,038.00p -2.81%
Indivior (INDV) 148.10p -2.37%
Rathbone Brothers (RAT) 1,800.00p -1.42%
Cairn Energy (CNE) 129.80p -0.99%
Vivo Energy (VVO) 103.20p -0.77%
Vectura Group (VEC) 151.60p -0.39%
Premier Foods (PFD) 103.00p -0.39%
IP Group (IPO) 111.00p -0.36%