Retail sales rebound
Retailers are on the rebound, as the high street begins to get back on track after poor consumer spending in the recession and bad weather during the early months of the year.
Retail sales picked up by a stronger-than-expected 2.1% month-on-month in February - the sharpest jump since May 2008. However, January's heavily weather-influenced plunge in sales was revised sharply to 3% from 1.8%.
In terms of individual retailers, Next has reported an 18% rise in profits to £505.3 million for the year to January. Sales soared to £3.41 billion as consumers continued to spend despite the recession.
B&Q owner Kingfisher, meanwhile, beat forecasts with profits of £547 million for the year to January - and raised its dividend for the first time in five years.
Clothing chain Ted Baker also saw pre-tax profits soar 10% to £19.5 million with revenue up 7.2% to £163.6 million. Trading in the UK exceeded the group’s expectations although conditions overseas were tougher.
Calm seas ahead?
Retail bosses and analysts are now predicting that the sector is on the mend although concerns remain over the strength of consumer spending.
Next chairman John Barton says things had panned out well from a poor start with the drop in consumer spending proving much less than expected.
"It was an extraordinary year. At the beginning of the year we faced an unstable economy, falling sales and sterling weakness against both the US dollar and the euro, our main purchasing currencies. In the event the consumer economy has been relatively stable."
However, Kingfisher chief executive Ian Cheshire says he remains "cautious on the outlook for consumer demand across Europe".
Economists were also erring on the side of caution.
Howard Archer, chief UK and European economist at IHS Global Insight, adds: "Despite the relatively decent rebound in retail sales in February, we continue to suspect that the upside for consumer spending - and hence overall economic growth - will be limited in 2010 as households still face very challenging conditions."
And Richard Lowe, head of retail and wholesale at Barclays Corporate, says: "Although overall the market remains flat, it has moved in the right direction."
He says retailers breathed a sigh of relief after Alistair Darling left VAT unchanged at 17.5% in his Budget - although many are expecting a rise after the election.
Next says a rise in taxation would be a "worse scenario" for the consumer.
"Direct taxes will reduce consumer spending, indirect taxes are likely to be inflationary. So the outlook for the economy (and therefore for retail sales) remains dependent on policy decisions and their timing and, as yet, we have little certainty as to either," the company explains.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.