U.K. Retail Stocks Upgraded at Morgan Stanley on Rate Outlook

U.K. retail stocks were raised to ``in-line'' from ``cautious'' by Morgan Stanley analysts who said the industry has underperformed the market and will benefit if the Bank of England lowers interest rates.

Rate reductions ``have proved to be a catalyst for the sector in five of the seven rate-cutting cycles over the last 20 years,'' analysts including Brooke Bone wrote in a note to investors dated Nov. 14. The industry ``has de-rated to such an extent that its valuation now stands at below 12 times consensus earnings -- its lowest point for 12 years.''

Morgan Stanley economists predict the bank will cut rates by 25 basis points to 5.5 percent in December, according to the report.

The analysts upgraded Kingfisher Plc to ``overweight'' from ``equal-weight'' and have a price estimate of 230 pence on the stock. The shares rose 6.1 pence, or 3.5 percent, to 182.4 pence yesterday. Analysts also recommended Marks & Spencer Group Plc, Next Plc, and Signet Group Plc.
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