“The pound enjoyed a welcome bounce after Kwasi Kwarteng manoeuvred his first U-turn as Chancellor by scrapping the proposed cut to the 45% tax rate, with sterling jumping from $1.1088 to $1.12646 in less than two hours,” says Russ Mould, Investment Director at AJ Bell.
“The U-turn is important for two reasons. First, the market was panicking about the cost of the tax cuts and how that would push up Government debt and in turn raise the prospect of reduced public spending and benefit cuts.
“Removing one of the key components of this seemingly flawed plan provided some relief, and you saw that in how the pound rallied and 10-year gilt rates briefly fell below 4%.
“The other factor to consider is that Kwarteng has effectively admitted to a massive policy error only weeks into his tenure as Chancellor. If Liz Truss is to establish any credibility as Prime Minister, can she afford to have anyone on her team who has effectively scored an own goal in the opening game?
“The fact that both the pound fell back and gilt rates started to move higher after the news had been digested is the market’s way of saying there are still plenty of problems with the Government’s finances, state of the consumer and business, and economic outlook. With or without the 45% tax cut, the country still faces challenging times with individuals and companies finding life a lot harder.
“The FTSE 100 fell 1% to 6,827, dragged down by miners, financial services and consumer goods specialists. Many of these earn in dollars and so a stronger pound – if even if it just a temporary move – is bad for them.
“The FTSE 250 fared even worse, falling 1.1% to 16,983, with travel companies, tech and Asian-related investment trusts among the worst performers. Most of those will be linked to gloomier global economic activity rather than simply what’s happening in the UK.”
Telecom Plus
“The utilities market has been a tough place in 2022 if you’re not one of the big operators but Telecom Plus has managed to forge a path to growth, helped by weaker rivals falling by the wayside.
“The company’s Utility Warehouse brand has chimed with hard-pressed households – offering bundled energy, broadband and insurance services at attractive prices (at least in relative terms).
“Telecom Plus’ appeal to customers goes beyond price as it enables them to just deal with one supplier – helping to keep a lid on the dreaded life admin. The energy price cap has also helped on the affordability front.
“Buying energy in the wholesale market could still be a challenge in the coming months with a cold winter expected but Telecom Plus has demonstrated its ability to survive and thrive so far this year, helping to give investors at least some confidence in the forward outlook.”
Tortilla Mexican Grill
“Surging meat prices have taken a slice out of margins at Mexican fast-food chain Tortilla – overshadowing news that the company’s expansion plans are ahead of schedule.
“Tortilla joined the market a year ago and in the early days as a public company it’s important not to make any big errors, as they will be seized on by the market and it can be difficult to regain credibility once it’s been lost.
“While Tortilla had previously said it had the ability to flex its offering thanks to a simple menu based on readily available basic ingredients, it could have done a better job of preparing investors for the risks of being exposed to rising protein prices.
“What’s even more disappointing is a weak summer sales performance. Tortilla’s proposition should have been suited to a summer when the Covid shackles were finally off.
“While it blamed overseas holidays, the heatwave and rail strikes for the disappointing performance, it probably makes more sense to draw the conclusion it is finding it hard to stand out in a crowded Tex-Mex market. With cost-of-living pressures mounting, there is an increasing risk Tortilla could fall flat.”
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