November 12, 2018

Pegler’s market report – 13.11.18: Mixed message for UK growth forecasts

Mixed message for UK growth forecasts

According to the latest economic data from the European Commission (EC) the UK will sink to the bottom of the European economic growth league next year to join Italy as the slowest-growing economy in the EU, before falling further the year after to possibly secure the bottom position all alone. The EC’s gloomy predictions are based on a soft Brexit – meaning Britain is expected to lag behind all its EU peers even if Theresa May can reach a deal with Brussels before 29 March.

It comes as the wider global economy is unsettled by Donald Trump’s trade disputes with China and Europe, which have reduced demand for manufactured goods and stifled business investment. Despite the weaker outlook for the UK economy, growth figures have shown Britain managing a better performance than the eurozone over recent quarters.

The Office for Budget Responsibility (OBR) forecast UK growth of 1.3% in 2018. The fiscal watchdog then expects growth will accelerate to 1.6% in 2019, dipping to 1.4% in 2020. That’s significantly better than the EC’s prediction of just 1.2% growth each year. So, Britain might not be in as much peril as some believe.

Retailers have called for action from the government to support the UK’s battered high streets after new data showed the number of shops, pubs and restaurants lying empty has soared by more than 4,400 in the first six months of this year. Pubs were among the hardest hit, with a 6.5pc decline in numbers over the six-month period as people drink more at home and young people consume less alcohol, while running costs rise. Retailers experiencing the biggest losses were electrical goods stores, fashion shops and news agents. Estate agents also suffered heavy closures.

Mike Ashley’s Sports Direct has bought Evans Cycles out of administration but has warned that it may have to close half the specialist retailer’s 62 stores, putting about 440 jobs at risk. The cycle retailer, which has headquarters in Crawley, has faced fierce price competition, particularly from the fast-growing online sports retailer rival Wiggle. Evans, which traces its roots back nearly 100 years, had been seeking a buyer after its management team said they needed £20m for a turnaround plan that its former private equity owners were unwilling to fund. Sports Direct bought House of Fraser in a similar prepack deal in August and is also thought to be interested in buying Debenhams, the department store group in which it owns a large stake.

Half-year results at J Sainsbury were boosted by the hot summer and the supermarket’s takeover of catalogue retailer Argos. However, the group cautioned that the “consumer outlook is uncertain” as it heads into the key Christmas trading period. Sainsbury’s, which plans to merge with rival Asda creating Britain’s biggest supermarket chain, said like-for-like sales rose 0.6pc in the six months to 22 September. At £132m, profit before tax was 40.0pc lower than in the same period a year earlier as Sainsbury’s wrote off £170m in costs related to restructuring store management teams, integrating Argos and preparation for the Asda deal.

By David Pegler, Brighton Capital Management