Marketwatch: Sainsbury's tipped to reveal slow profit growth

The supermarket sector is proving increasingly competitive as cash-strapped consumers are resistant to price hikes caused by commodity price inflation.

But Sainsbury's is one of the strongest players in the market - its like-for-likes excluding fuel grew by 2 per cent in the past half, compared to 1.3 per cent in the last quarter at Morrisons and 1.2 per cent at Tesco's UK stores in the last half year.

Analysts expect Sainsbury's to improve its profit before tax and exceptional items again this half but not by the same margin as a year ago when it announced underlying profits up 18.5 per cent to 307 million. Analysts' consensus is for adjusted pre-tax profits of 330m - an increase of 7 per cent.

Arden Partners analyst Nick Bubb, who is expecting underlying pre-tax profits to increase to 329m, said: "Seven per cent growth is not fantastic and Sainsbury's is still nothing like as profitable as Morrisons or Tesco and it's their bottom-line that they really need to work on."

However, Evolution Securities claimed last week there were problems ahead for the profitability of Sainsbury's and the rest of the UK supermarket sector.

It believes the food market in the UK is too competitive and this week downgraded Sainsbury's shares from "neutral" to "reduce" and Tesco from "reduce" to "sell".

It is advising investors to look instead at continental supermarkets, such as France-based Carrefour and Holland-based Ahold, where competition is less fierce.

The real growth in the supermarket sector is coming not from like-for-like sales but from a space race, with the rush to open new stores now the biggest in the history of the UK supermarkets.

Sainsbury's is planning to expand more rapidly than any of its competitors over the next year by increasing its store space by 2 per cent or 3 per cent through opening new supermarkets and its Local convenience stores, which will eat away at its profits.

Banking giant Barclays reports third quarter figures on Tuesday in the last of the updates from Britain's major banks.

All eyes will be on the performance of its star investment banking arm Barclays Capital, but the issue of banker pay is also likely to come to the fore once more.

Barclays has a track record of bumper bonus handouts for traders at BarCap - the di vision that easily accounts for the biggest slice of profits.

It paid out 2.7bn in cash and deferred share bonuses for 2009 and said at the 2010 interims that it had already set aside 1.7bn for staff bonuses.

Part-nationalised counterpart Royal Bank of Scotland raised eyebrows by revealing its investment banking pay and bonus compensation ratio rose to 40 per cent in the third quarter - up from 32 per cent in the previous quarter and 35 per cent a year earlier - despite lower revenues.

Given news of lower third quarter investment banking results at both HSBC and RBS, analysts are also expecting a drop for BarCap.

But Barclays was helped at the half-year stage by plunging bad debts, a trend likely to have continued into the third quarter. The sharply lower write-downs helped BarCap deliver 3.4bn of profits in the first half, which was 80 per cent of its overall 3.9bn profits haul.

Following America's move to pump more cash into the US economy, Wednesday's quarterly inflation report from the Bank of England will be watched keenly for clues as to the thinking of UK policymakers.

The Bank had access to the report when it opted to hold both rates and quantitative easing (QE) on Thursday - a decision that came a day after the US Federal Reserve announced another $600bn (370bn) of QE.

Experts believe the report will likely show the Bank remains generally relaxed about stubbornly high inflation, currently running at 3.1 per cent in the UK.

Monetary Policy Committee member Andrew Sentance has repeatedly called for a quarter point rise in interest rates to fend off inflation in the UK.But the Bank's central view in the inflation report is expected to confirm that Consumer Prices Index inflation will fall sharply in the medium-term.