The prospect of lower interest rates, and a boost to the stockmarket, was provided by the minutes of the previous Bank of England meeting held at the start of June. It showed a reversal of one vote among nine arguing for higher rates to the position of two votes among nine pushing for lower base rates; the remaining members in each case voting for no change.

The Monetary Policy Committee meets again on Wednesday, with a decision made at high noon on Thursday. The consensus is for a continuation of rates at 4.75 per cent, but the number voting for a cut could increase. Possibly more likely is a quarter point decease in August, to coincide with the quarterly inflation report.

Difficult conditions for the property market have some influence on the decisions to be made, but of greater importance is the struggling state of high street retailers. This year is proving to be tough as shoppers rein in spending on the never-never.

Supermarket group Somerfield publishes full year results tomorrow, but to some extent the numbers are merely a side show. The company has announced that it is in discussions with a number of potential bidders. One such bidder has had a look at the books, and done a runner. Sales are expected to be flat at £4.5bn, with pre-tax profits coming in at around £58.5m.

In a similar vein, clothing group Matalan publishes a trading statement on Thursday. Given the retail climate, the numbers will not impress. The company has said that March and April sales had dropped by 8.8 per cent. It is thought that Matalan has suffered at the hands of supermarkets selling clothes, but even the latter have experienced a fall-off in sales.

From the point of view of investors, retailers only make up a small proportion of the stockmarket, so there is plenty left to invest in. Lower interest rates are good for markets. Cheaper debt for companies translates straight through to higher profits. Higher profits mean higher dividend payouts. Higher dividend payouts mean higher share prices. Higher share prices mean higher client portfolio values. Happy Days.

It is not only equities that benefit. Fixed interest stocks with a set coupon become relatively more attractive, as the comparative cash rate falls. While yields fall, the capital value increases. As the name implies though, the interest is fixed, so the total return increases.

At the same time, US interest rates are rising, feeding through to a lower dollar/sterling exchange rate. A significant proportion of UK stocks have earnings repatriated from the US, translating through as higher sterling equivalent earnings. Higher profits mean...etc... We have been here before.

Locally, another bright spark is Darlington-based van hire group Northgate. The company today reveals its full year numbers to April 30. Profits are expected to have raced from £45m to £55m. The recent Spanish acquisition, Fualsa, has boosted its earnings growth and the company stated, in an update on May 3, that the utilisation of its vehicle fleet was running as high as 90 per cent. The dividend is expected to increase from 17.6p to 20p. At the risk of becoming repetitive...higher dividends mean......etc.

* For investment advice contact Anthony Platts on 01642 608855.

Published: 05/07/2005