“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.”
