UK at risk of prolonged recession

Bear market

The economic outlook experienced “frightening" deterioration in the final three months of 2008, business leaders have warned.

The British Chambers of Commerce says there are no positive features in its quarter four economic survey, which is the worst on record for both manufacturing and services since the survey was first published in 1989.

The UK is now facing a very serious recession, the organisation warns, with the downturn deepening at an “alarming pace”. The survey shows that exports as well as domestic demand are down, and confidence is low.

David Frost, director-general of the BCC, says the UK’s economy is facing exceptional threats.

“These are truly awful results with the scale and speed of the economic decline happening at an unprecedented rate,” he adds.

The BCC calls on the government to focus on supporting the production sectors of the economy, and roll out a national recovery plan as soon as possible.

David Kern, the BCC’s chief economist, warns that official measures have, so far, failed to alleviate the downturn. However, he believes that a prolonged recession can still be prevented if action is taken now.

The high street

Meanwhile, the high street has reported its worst December for sales for 14 years with clothing, furniture and homeware sales all taking a big hit.

Other than food and footwear, all retail sectors saw sales fall last month from the same period in 2007, making December 2008 the worst month for sales since records began in 1995. The British Retail Consortium, which produced the figures, says heavy discounting was unable to rescue shops’ Christmas performance, with only footwear being given a boost from the sales.

The BRC says December was a game of two halves for retailers, with the first two weeks particularly tough with many people not hitting the high street until the week before Christmas when the early clearance sales began.

Stephen Robertson, director general of the BRC, says the figures are “truly dreadful” for nearly all retail sectors.

“Non-food retailers had a torrid December despite a blizzard of promotions and deals, which would have hit margins,” he adds. “Many hard-pressed customers couldn’t be seduced into spending.”

Online shopping, however, did reverse the trend with non-food sales up 30%. Sharon Hardiman, head of non-store retailing at the BRC, says this indicates customers are increasingly confident with leaving internet shopping until nearer Christmas.

She adds: “Some retailers offered later dates for guaranteed Christmas delivery this year. While this is a fast-growing sector, it still represents too small a part of total spending to compensate the poor performance of retailing overall."

Retail experts say that December’s performance typically sets the scene for the year ahead – suggesting that 2009 will be even tougher than 2008 for the high street.

Helen Dickinson, head of retail at KPMG, says: "That this was the worst December sales performance since the survey began 14 years ago is testament to the severity of the shift in mentality of the consumer. Although the food sector continues to hold up, most non-food retailers are having to manage the double whammy of falling sales and falling margins and this doesn't look like changing any time soon."

Even supermarket giant Tesco is feeling the pain, with its latest results showing sales rose by just 2.5% over the Christmas period. The store blames "challenging" conditions for its disappointing results, which leave it lagging behind its big four rivals of Sainsbury's, Asda and Morrisons.

Andrew Higginson, finance director at Tesco, says the figure is the weakest the company has seen since the last recession.

Although Morrisons is yet to unveil its figures for the period, it is still expected that Tesco will remain behind its rivals, as analysts predict growth of approximately 9% for Morrisons. Last week, Sainsbury's exceeded analyst expectation by posting 4.5% sales growth over the 13-week period to 3 January, while Asda doesn't disclose like-for-like sales.

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