The UK manufacturing is passing through its worst phase. It recorded its sixth consecutive fall in monthly production touching the lowest figure since 1980.
Order books were also in the worst state for the first time in last 30 years. The shrinking labour market was pointing to the onslaught of a full-blown recession, placing pressure on the Bank of England to lower interest rates.
According to a release from the Office for National Statistics, the fall in manufacturing output was 0.4% in August 2008, making it the sixth consecutive fall and longest negative growth spell since 1980. The worst affected sector was the electrical and equipment which registered 3.1% fall in its output. The output in food, drinks and tobacco industry was down by 1.6% while it was less by 2.3% in the car industry and transport sector.
As per the official definition of recession, Britain could avoid negative economic growth in two consecutive quarters so far. But the analysts are apprehensive about third-quarter gross domestic product (GDP) which they feared could be minus 0.3%
According to the UK economist Alan Clarke, the grim economic situation was heading to worse and figures of output suggested that manufacturing sector was contracting while services industry was on its knees. He predicted four quarters of negative GDP growth and slow climb back thereafter.
Billionaire retail entrepreneur Sir Philip Green has blamed media for spreading scare about gloomy conditions in the retail sector, while claiming that he did not belong to the “doom mongering camp” and Bhs business was not in a bad shape despite 40% slump in its profits.
Bhs suffered a drop in sales by 4% in like-for-like sales over the past six weeks, but Sir Philip did not subscribe to the view that the high street was facing its worst situation in 30 years.
While agreeing that the market was unpredictable and competitive, he asserted that current business was not bad at all and its home products and childrenswear were doing good business up by 6% and 5% respectively, though womenswear was slightly tougher. He added that erratic weather affected sales but the last weekend turned more autumnal and was the best week in the last six months for retailer’s sales.
Sir Philip Green asked the press to stop spreading scare, adding that he was focussed on day-to-day business and not on gloomy headlines of the press. He asserted people would go on shopping and the world was not going to stop spinnning.
Bhs registered operating profit of £30.2m down from £50m from the previous year, while its like-for-like sales fell by 2.9% and total sales including those of new stores went down by 1.4% at £860.3m.
Pizza Hut, which has traded for 35 years in the UK under this name has decided to overhaul its image and menu by changing its name to Pasta Hut.
The renaming is part of company’s £100m 6-year refurbishment strategy to revamp the interiors of the chain’s restaurants, increase the number of outlets and offer a new menu to the customers.
It spent £17m in renovation of its 700-strong UK chain and plans to invest an additional £24m towards refurbishment and opening of new stores in 2009 and 2010.
In order to comply fully with the Food Standards Agency (FSA) guidelines it has made its recipes more nutritious and introduced a new menu for pasta.
The company had implemented measures to reduce salt content in its food in 2004 and is working to attain FSA’s salt targets set for 2010.
The company has successfully removed all traces of hydrogenated vegetable oils from the menu and has undertaken an ongoing programme for the removal of saturated fat.
It will now serve “hidden vegetables” in menus for children and offer a complimentary side salad.
According to Pizza Hut chief executive officer Alasdair Murdoch, the company had incorporated several improvements in the business in the last few years and wanted people to sit back and take notice.
The British Chamber of Commerce (BCC) has warned the government that the outlook for British business was exceptionally bad and it would worsen further unless the Bank of England made big reductions in interest rates and the government offered substantial tax relief.
In its quarterly survey of 5,000 firms, the BCC warned that the British economy was probably in recession mode and the Bank must decide to cut base rate by half a point as the first step to take it to 4% level from existing 5%. It urged the government to ensure that there were no further banking failures.
According to BCC’s economic adviser David Kern, it was necessary that government put a credible framework in place to deal with financial institutions which faced serious problems. He advised that current ad-hoc piecemeal arrangements should be replaced with comprehensive schemes. He suggested sustenance of smooth flow of finance to businesses at all costs. He proposed quashing of any plan for tax increase.
The survey revealed that all the indices covering profitability, sales, orders and confidence had dipped for services and manufacturing companies of all shapes and sizes. BCC described this situation as ‘disturbing’. Kern remarked that it was potentially an emergency which could be averted only if the government and the Bank of England act swiftly. He blamed the Bank for not recognising a step change in situation. He asserted that inflation was not the issue at this juncture and the domestic economy was under severe strain.
The fear of drop in demand due to global crises has made oil, metal and food prices to tumble bringing delight to the cash strapped consumers.
The North Sea crude tumbled to $84 a barrel touching the lowest level of last 12 months. The fall should bring relief to motorists and motoring organisations who had been complaining that oil companies delayed price cuts when crude fell in value.
Members of the strong Opec held quick parleys for reducing production to arrest fall in prices due to oversupply.
The US light crude which is the benchmark was down by $4 to $88, registering losses for the 4th consecutive day. Light crude prices have fallen by nearly 40% since attaining peak value of $147 in July. North Sea Brent crude also lost $6 to $84 a barrel.
According to MF Global’s Edward Meir, prevailing sentiment was indicative of synchronised global slowdown and represented a mirror image of all out expansion witnessed from 2004 to early 2007.
Oil consumption in the US, Japan and Europe dived significantly under the impact of soaring prices.
Copper prices fell by 8%, touching a 20-month low, but gold remained firm. Prices for sugar, coffee and grain came down sharply.
GlaxoSmithKline announced that it was planning redundancy of 850 jobs in Britain and US in the research and development sections for improving employee productivity and efficiency.
Glaxo employs 15,000 people in its R&D operations globally, of which 5,000 work at sites in London and Hertfordshire.
According to Glaxo’s spokeswoman the company had started consultations on cutting of jobs after reviewing its business operations. She added that it was a hard decision but the changes were aimed at longer-term strategy of investment in key areas of growth for making business more competitive in the challenging environment being faced by the pharmaceutical companies.
The spokeswoman informed that GSK was reshaping its R&D operations to exploit new scientific opportunities for improvement of productivity and this regrettably necessitated the reduction of jobs. She assured that the company would do everything possible to support those likely to be affected by the proposal.
Glaxo’s ex-chief executive Garnier had already outlined plans for massive savings of £700m by 2010. His successor Andrew Witty suggested a review of the company’s strategic priorities informing investors that the industry was facing numerous challenges since a large number of its products had lost patent protection, patients were expecting better medicines and financers were demanding cost-effective health care. He stressed that hard work was essential for obtaining bigger returns from investments on R&D.
Andrew Witty hoped that new priorities would evolve GSK into a balanced group of healthcare businesses.
The recent good weather and big upheaval in the financial market has impacted John Lewis weekly sales adversely making them slump by 8.3%.
The group, considered to be Britain’s retail sector’s barometer, registered a drop of 0.7% in sales at its upmarket Waitrose supermarkets in the week ending September 27.
John Lewis sales are being affected by the discounters Aldi and Lidl which have been growing at the fastest rate in the grocery market, attracting consumers for savings on weekly shopping.
According to Dan Knowles, director of sales operations, an unusual warm and sunny weather together with recent turmoil in the financial market led to toughest trading week.
The sales were down at all the John Lewis department stores except one. The slump was 13.3% for the home-related products while it was 7.2% for electrical and home technology and 6% for fashion sales.
The sales were however marginally high in the case of large electrical items, fitted kitchens and flooring.
According to retail analyst Freddie George it was the second week of poor performance by the department stores.
The sales in out of town John Lewis department stores were severely affected. Cribbs Causeway sales were down by 25% while Southampton and High Wycombe sales fell by 24% and 22% respectively.
Analyst Howard Archer at Global Insight argued that heightened turmoil witnessed by the financial sector had nose dived consumer confidence and spending, resulting into marked slump in the sales.
First Minister Mr. Alex Salmond expressed that there is a possibility of a positive result for Scotland after Llyods TSB’s takeover of Scotland-based HBOS. Mr. Salmond was on his way to make a presentation to Llyods TSB top brass and highlighting the advantages that Scotland could offer as a business hub.
A meeting of the Council of Economic Advisers of Scotland was held last Friday for discussing the £12.2bn takeover of HBOS. Efforts are being made both by the government as well as business leaders to keep as many jobs as possible in Scotland along with the decision making powers.
Scotland is second only to London when it comes to being a financial hub in the UK. It has more than 50% of the 20 leading financial companies having important operations over there. Besides the existing workforce, there are more than sixty thousand students pursuing higher and further education in the field of business and finance.
The merger proposed of Lloyds TSB with HBOS depicts an important and major change and also provides an opportunity to put forward a strong case for securing jobs and decision making functions for Scotland.
Scotland has been the best place in the UK for attracting jobs in the financial services sector during the past years with lower operating costs without compromising on the quality of work or service.
One of the UK’s largest rail and bus companies, FirstGroup, is all set to post a strong set of half yearly figures. The group said in an update that trading had been positive and the bus division of the UK had delivered a very strong performance.
Revenues for like-for-like ticket sales increased by 7.5% and the volume of users was steadily moving up as people were switching from other modes of transport, said the group. FirstGroup is one of the five listed bus and rail operators in the UK that have witnessed a revival in their business ever since the privatisation of infrastructure for public transport in the 1990s.
FirstGroup also has important rail franchises in the UK and has significant operations in the US after the acquisition of Laidlaw in an attempt to capture the profitable school bus market. An analyst at Collins Stewart, Andrew Fitchie said that FirstGroup had distinguished itself from rest of the companies in its peer group by having a balanced portfolio for its operations. This would keep it safe in case of a downturn. Around 50% of FirstGroup’s revenues are from long term contracts.
FirstGroup stated that its UK rail operations were doing considerably well with almost a 10% growth on like-for-like basis. The US operations also had very good prospects.
Supermarket giant Tesco has succeeded in fighting back both the credit crunch and discount supermarkets Aldi and Lidl by achieving 6.7% rise in group’s UK like-for-like sales in 26 weeks leading up to August. The company also registered a 10% jump in first-half profits.
The like-for-like sales picked up in summer though non-food sales declined sharply. Tesco was among the few FTSE 100 companies whose shares rose by 2.9p to 372.8p in the early trading on Tuesday. Tesco raised its interim dividend to 3.57p a share, a rise of 11.6%
Tesco had been facing serious a challenge from discounters Aldi and Lidl, which have become the fastest growing supermarket chains of Britain. To counter their onslaught, Tesco launched range of Value-branded cheaper products while promising to become biggest discounters in the UK market.
According to Tesco’s finance director Andrew Higginson, Tesco had been losing some of its market share to discounters, but took them seriously and started competing very aggressively in Central Europe. He informed that food sales in the UK remained solid as Tesco responded by reducing prices.
Chief executive Sir Terry Leahy claimed that some analysts were exaggerating their observation by saying that retail market was facing worst times of 30 years. He emphasised that Tesco’s business was strong, increasingly international and well placed to cope with future challenges.
The supermarket group, serving 20m shoppers a week in Britain, registered profit before tax of £1.453bn and 14% growth in sales to £28.1bn for the first half.