Weekly Financial News Roundup
The first full week of 2009 was characterised by gloomy trading updates with few exceptions, from the retail sector and the announcement of a further 0.5% cut in the Bank Rate. Taking it to below 2% for the first time since the Bank of England was founded, 315 years ago.
On Monday high street retailer Marks & Spencer announced job cuts of 1,200 – taking the number of jobs in the retail sector lost or threatened in the last three months to over 3,500 – and the closure of 27 of its stores, including 25 smaller "Simply Food" outlets after poor trading over the Christmas period. Two other High Street names, Debenhams and Next announced figures for like-for-like sales over Christmas, on Tuesday and while their performance was less than stellar, the figures were at least, in line with analysts' expectations. Both companies have been offering discounts of up to 70%, in an effort to encourage consumers to part with their cash, but Debenhams announced a 3.3% fall in sales in the last 12 weeks while Next announced a fall of 7% in the 24 weeks to Christmas Eve. Share prices in both companies rose nevertheless following the announcements, Debenhams by 30% and Next by 7%.
Tuesday also saw the swansong of another High Street icon Woolworths', as its final 200 stores closed for business for the last time at the end of the day. Woolworths' entered administration last November, with debts of £385 million and in the absence of a buyer, administrator Deloitte had no option but to bring down the shutters on the Woolworths' operation entering its centenary year. Woolworths' is, just one of a growing list of household names – including MFI, Officers Club, The Pier and Zavvi – that have closed or entered administration recently. In other news on Tuesday, Sterling continued to strengthen against the euro with €1 costing just over £0.92, following a fall of 2½ pence to just over £0.93 on Monday; earlier predictions that the pound would achieve parity with the euro sooner, rather than later, therefore proved unfounded. Elsewhere, the Financial Services Authority (FSA) announced that its temporary ban on short-selling – the practice of "borrowing" shares, for a fee, and selling them in the hope of buying them back at a lower price – will be lifted on January 16th, although compulsory disclosure of short-selling positions will be required for a further six months.
Doom and gloom for the motor industry too on Wednesday, with the announcement that eight consecutive monthly falls in the number of new cars sold in the United Kingdom resulted in an annual fall of just over 11%, when compared with 2007, and the lowest total since 1996. Sales for December fell by just over 21%, year on year but this was still substantially better than the figures for November, which were down nearly 37% on those a year earlier. Wednesday also saw speculation ahead of the meeting of the Monetary Policy Committee (MPC) of the Bank of England on Thursday, with a cut of at least 0.5%, and maybe even 1% in the Bank Rate widely anticipated. The rate has already been cut from 5% to 2% since October but any further cut would be historic as the rate has never before dipped below 2%. Vicky Redwood of Capital Economics was quoted on the Sky News website saying "We think that a 1% cut is very possible. And even if the MPC does now start to proceed more cautiously with a smaller cut, we still think that rates will end up at or close to, zero before long."
There was some more positive news towards the end of the week, with Sainsbury's reporting its "best ever Christmas performance" with a growth in like-for-like sales of 4.5% in the final quarter of 2008. High street retailers JD Sports and Jessops followed suit on Friday, both recording an increase in like-for-like sales for the last five weeks. JD Sports reported a 2.8% increase during that period, as well as a 3.8% increase in sales for 2008, as a whole, whilst Jessops reported a 3.1% increase, despite the figures for the last three months being down nearly 6% overall. Share prices in both companies leapt as a result, JD Sports by 12% and Jessops by as much as 20%. Debenhams and Next reported falls in like-for-like sales, by 3.3% in the last three months, and 7% in the last six months, respectively, but the figures were in keeping with expectations and share prices in both companies, once again rose on the news.
Less positive news for the British Government on Thursday with the European Central Bank (ECB) deeming Britain unfit for monetary union, even if it wanted to join the single currency. ECB board member, Lorenzo Bini Smaghi was quoted on the Telegraph website saying, "Great Britain does not meet the entry criteria for the euro. The public deficit will rise to around 6% [of GDP, or "Gross Domestic Product"] in 2009 and even higher in 2010. Sterling's exchange rate is not yet sufficiently stable." This should come as no real surprise to Prime Minister Gordon Brown, Chancellor Alistair Darling – or anyone else, for that matter – with pre-Budget tax cuts likely to increase borrowing to approaching £120 billion this year, and Sterling repeatedly hitting record lows against the euro and other major currencies in recent weeks. Belgium, Greece and Italy were allowed to join European Monetary Union without complying with the entry regulations – which stipulate a maximum budget deficit of 3% of GDP – but this is not the case with the United Kingdom.