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Highlights
- Inflation in the UK is currently well above the central bank target of 2% and could rise above 4% by the end of 2021.
- Some retail sector companies like Kraft Heinz, have already started coming up warning of price rise to its customers due to supply chain disruptions.
The British economy is witnessing a continuous rise in inflationary pressure with the upsurge in energy prices and its impact cascading to other goods and services. Household inflation in the UK rose to 3.2% in August 2021 from 2% reported in July 2021 primarily due to a rise in energy prices in the international market and supply chain constraints, which led to the acute energy crisis in the domestic market.
The shortage of truck drivers and labour have flared up the inflation concerns. Some retail sector companies like Kraft Heinz have already started coming up warning of price rises to their customers due to supply chain disruptions.
Current inflation in the UK is well above the Bank of England’s (BoE) target of 2%. In addition, the central bank, in its September meeting, has said inflation in the UK might rise above the 4% by the end of 2021. As a result, to lessen consumption and reduce inflationary pressure in the country, the BoE might become another major central bank after New Zealand and Norway to hike interest rates.
Interest rate hikes in the UK might impact the stock market and might lead to increased volatility in certain sectors that are sensitive to the rate hikes.
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Let us look at 5 FTSE listed stocks that the UK rate hike might impact:
Kraft Heinz Co (LON:0JRV)
It is one of the largest companies globally operating in the food and beverage industry, offering various products through well-known brands.
The company has already warned that its various products like ketchup and baked beans could see price increase mainly due to a rise in raw material cost and supply chain issues because of shortage of labour and truck drivers in the UK.
The company’s current market cap stands at USD 44.996 billion as of 8 October 2021. In the last one year, Kraft Heinz Co has given a return of 18.35% to its shareholders.
AO World Plc (LON: AO.)
The company operates in the consumer discretionary sector, offering various electronic products across European countries. It also provides financial and insurance services.
The company has been witnessing high demand for its products from Germany and the UK market. As a result, its sales revenue was up by 5% in the first half of 2021. However, the demand for discretionary (non-essential) products might get impacted by the rising interest rate setting as people often cut down on non-essential expenses if they have less money in their hands. Also, the company operates in the highly competitive market segment where various companies are using innovative techniques to gain market share.
AO World Plc’s current market cap stands at £736.55 million as of 11 October 2021. In the last one year, the stock has given a negative return of 34.08% to its shareholders.
Barratt Development Plc (LON: BDEV)
FTSE 100 listed company operates in the housebuilding segment, which sells residential apartments through its three well-known brands Barratt Homes, Barratt London and David Wilson.
The housebuilding sector is highly sensitive to the rate hike. Property prices in the UK have increased significantly in the last one year as demand for new homes rose multifold due to stamp duty holidays and lower interest rates. After the end of the stamp duty holiday in July 2021, demand was still increasing as the central bank kept the interest rate at 0.1%. If rates hike happens, then demand for homes could fall, impacting the company’s revenue and profitability.
Barratt Development Plc current market cap stands at £6,496 million as of 11 October 2021. In the last one year, the stock has given a return of 17.14% to its shareholders.
Lloyds Banking Group Plc (LON: LLOY)
The UK based financial company provides retail and commercial banking services across the UK and owns one of the biggest branch networks in the country.
The banking sector is one of the important pillars of the country’s economy and is highly sensitive to the interest rate. As per market experts, the interest rate hike is considered positive for the banking sector. The company might see improvement in the net interest income and margins, which is a major revenue contributor to banking companies and impact their profitability.
Lloyds Banking Group Plc’s current market cap stands at £33,268 million as of 11 October 2021. In the last one year, the stock has given a return of 67.85% to its shareholders.
Ashmore Group Plc (LON: ASHM)
The company operates in the assets management industry, investing in various developed and emerging markets through pooled funds from retail and institutional investors.
The company has been delivering a consistent return on its investment in different markets. However, a rising interest rate scenario could see a decline in assets under management as investors might pull out funds or may not invest that frequently in the funds because of the volatile stock market after the interest rate hike. Also, the volatile stock market might impact the returns of its various funds.
Ashmore Group plc’s current market cap stands at £2,336 million as of 11 October 2021. In the last one year, the stock has given a negative return of 11.20% to its shareholders.
