Must read: Diageo results, Bank of England rate decision

Glasses of Crown Royal Canadian whisky. Photo by Daniel Boczarski/Getty Images for Crown Royal.

Global markets

European markets have opened lower despite a rebound overnight in Asia. Earnings are front and centre in the UK - Hikma Pharmaceuticals (LSE:HIK) has plunged over 10% to the bottom of the FTSE 100 after lowering its profit forecast. Reports from AstraZeneca (LSE:AZN), Diageo (LSE:DGE), ITV (LSE:ITV), and Sainsbury (J) (LSE:SBRY)’s are also in focus as well as the Bank of England’s decision on interest rates at lunchtime, which could be a close call.

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US futures are pointing lower after a bounce back for the major averages on Wall Street on Wednesday from the AI mini sell-off earlier this week. Investors are paying attention to the Supreme Court’s questions around the legality of President Donald Trump’s global tariffs. Meanwhile, the US government shutdown, which began on 1 October enters its record 37th day.

Diageo

Diageo has reduced its fiscal 2026 outlook for sales and profit and reported first-quarter net sales down 2.2% to $4.9 billion (£3.7 billion). Organic net sales were flat in the quarter with volume growth offset by lower prices.

Diageo is facing a cocktail of headwinds including a softer US consumer environment hurting tequila demand in North America and weakness in the Chinese white spirits market. It also faces uncertainty around Trump’s tariffs, pencilling in the size of the impact at $200 million on an annualised basis. Plus, it is dealing with leadership uncertainty after Debra Crew stepped down in July, with CFO Nik Jhangiani serving as interim chief executive.

• Sainsbury’s on track to make over £1bn this year
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Shorter term, Diageo faces pressures for customers trading down to cheaper unbranded alternatives, which hurts the drinks giant’s premiumisation aspirations. Longer term, Diageo is dealing with a structural decline in drinking habits driven by younger generations who are changing their attitudes towards alcoholic beverages, with many switching to no- or low-alcohol alternatives instead.

However, it wasn’t all bad in the report – Diageo enjoyed good growth in Johnnie Walker scotch and in its consistently popular Guinness beer. Plus, its cost-cutting programme is on track for around $625 million of savings over the next three years.

Shares in Diageo are under pressure today, reflecting the company’s lowered outlook, extending a rough ride for the share price, which is down by around 30% so far this year. While there is a consensus buy on the stock from the analysts, there could be the potential for some downgrades in light of today’s update.

Bank of England

The Bank of England will announce its interest rate decision at lunchtime, with analysts expecting the base rate to remain unchanged at 4%. However, it is by no means a dead cert - the probability of a rate cut has been growing in recent days, with around a 30% chance of a 25 basis point reduction to 3.75% current being priced in by investors.

The latest economic data, with signs of easing inflation and growing slack in the labour market, point to an environment that increasingly warrants an interest rate cut from the central bank. However, there is a mega-cloud of uncertainty for consumers and businesses around the upcoming Budget, with many in both camps refraining from big spending decisions until after the government’s tax and spending plans are revealed.

It would make sense for the Monetary Policy Committee (MPC) to hold off from loosening monetary policy until after Chancellor Rachel Reeves has outlined the extent of her tax increases. However, some economists including those at Goldman Sachs and Nomura believe the Bank of England will press on with a cut today anyway.

Reeves’ address on Tuesday pushed the pound to the lowest level since April in anticipation of tax increases in the Budget. In the first half of the year, sterling strengthened considerably against the US dollar, amid the backdrop of greenback weakness, but since then the pound has been losing ground again, with declines accelerating over the last month. A rate cut could add to further downward pressure on sterling.