Finimize - 💥 Bank of England breaks UK

What’s going on here?

Accenture, the American tech consulting (and soon-to-be AI) behemoth, announced some unexpectedly strong quarterly earnings on Thursday.

What does this mean?

Accenture earns its crust by offering brains-for-hire to firms planning major system revamps, and over time it’s evolved into a top-tier adviser for cutting-edge tech endeavors. So with mega-trends like cloud computing still flying high, and corporate clients almost universally gung ho about artificial intelligence, it wasn’t a total surprise that the firm’s quarterly revenue and profit swept past analysts’ forecasts. With just one quarter of its financial year left to go, then, Accenture was able to fine-tune its earnings prediction for the rest of the year, which wound up looking brighter than before.

Why should I care?

The bigger picture: Another AI play.

Accenture announced this month that it’ll invest $3 billion – roughly half of its cash reserves – in AI. So over the next three years, the company’s game plan is to recruit hotshots in the field and develop new solutions for clients. If that gambit works, Accenture’s “bookings” – a yardstick investors use to forecast future revenue – could get a serious lift from clients keen on its AI offerings. After all, there’s probably a serious high-tech skills war brewing right now: if Accenture can snag the top talent, it might become more of a money-making machine for shareholders.

For markets: Remember the cost cycle, not just the revenue cycle.

Investors are all abuzz about AI’s revenue potential, but they might be forgetting to take stock of the cost factor. Take Microsoft: it’s pegged as an AI victor, but it hasn’t detailed the capital costs its robo-jaunts involve (think servers and equipment). And Accenture? Well, despite being a low-capital-expenditure people business, its AI expansion could squeeze profit margins. So, while the attention-grabbing tech might be a revenue bonanza, remember: firms have to shell out on pickaxes before they can hope to strike gold.

What’s going on here?

The Bank of England (BoE) announced a bigger-than-expected interest rate hike on Thursday, raining more pain onto Brits on the housing ladder.

What does this mean?

Fresh data out on Wednesday showed that the UK’s “core inflation” (that’s the price of goods and services, minus roller-coaster sectors like food and energy) shot to 7.1% last month, the highest level in 30 years. So the BoE decided to try and slam on the brakes by cranking up the “base rate”, which sets the tone for the rest of the country’s interest rates, from 4.5% to 5%. That jump, to the highest level since 2008, was double what economists had expected. And the kicker: investors now reckon we’re heading for at least a 6% base rate by year’s end. With Bloomberg Economics saying a 6% interest rate would trigger a UK recession, the country looks caught between an economic rock and an inflationary hard place.

Why should I care?

For you personally: Hit after hit for homeowners.

Around 40% of British mortgage holders either have a variable interest rate, which will increase quickly with central bank rates, or a two-year fixed rate, which will jump up soon enough. Case in point: around 1.6 million fixed-rate mortgages due for an update in 2024, meaning these ever-climbing rates will see millions of Brits paying more every month – an unwelcome squeeze that’ll pinch cash-strapped households even tighter.

For markets: No good deed will go unpunished.

The UK government isn’t planning any extra help for mortgage holders just yet. But if things do get worse and it eventually steps in, it’ll likely lead to even more government borrowing, with high-interest-rate repayments weighing on the economy. The relief for households, meanwhile, could stoke the fires of inflation all over again, and push interest rates higher still. In short, any well-intended short-term relief could end up making the bigger picture look even grimmer.