Britain still in recession

Well the long-awaited Friday has come and Office for National Statistics has revealed its preliminary estimates on UK’s GDP. On the contrary to the economist’s forecasts that UK’s economy will grow by at least 0.2% increase, the data shows that output fell 0.4% in Q3 from the Q2 in 2009. This decline in GDP makes “this the longest recession the British economy has experienced since records began in 1955. Because of this unexpected decline, Gordon Brown has received a lot of criticism on his “rescue plan” which turned to be a complete failure the minute the GDP was published on Friday.

I read several stories from Telegraph.co.uk, The Wall Street Journal, Bloomberg.com, Money Marketing and none of them in particular have anything positive to say. Each article discuses how disappointing the news is and some chose to discuss politics and Labour Party.

After all the speculations in the media about recovery in past few weeks this news of UK’s economy shrinking really comes as a shock. It made me think whether the media was actually trying to make people more confident and get them spending because there was a fear all along that something like this might happen?

The main story is as I already stated above the UK’s decline in GDP which is suggesting that we are still in recession. This would be 6^th consecutive quarter of falling GDP and in comparison to our neighbours we are not doing well. One of the stories from Telegraph.co.uk is all about comparing Britain to the rest of the world. According to them France, Germany, Japan, and China are out of recession whereas Spain and US are still “in the game” with UK. I think it can be argued is China was ever in the recession; their exports declined as countries around the world stopped buying their cheap products but China managed to expand it economy in Q3 2009 by 8.9% compared to the same period last year. If you ask me, they were never in recession. However if you were to ask me why the UK , also known as 6^th largest economy in the world, is ‘behind’ its peers I would say because UK relies much more on financial sector than any other neighbour country. I do not think we should be too much worried about this ‘falling behind’ because we have a greater fear of enjoying even slower economic growth due to prior high dependence on City, poor public finances and our log-term need to increase savings. Poor confidence is what’s holding back UK’s economy. I do believe that UK can benefit from their neighbour’s recovery in terms of more investment, higher export revenures. Our currency dropped 1.2 percent to $1.6421 and 1.2 percent against euro to 91.29 pence after the data was published.

Telegraph and Wall Street Journal both started off with the headline directly attacking Gordon Brown and his Labour government. “Britain still in recession: Gordon Brown’s rescue plan accused of failure” and “UK Economy Shrinks, Dealing Blow to Brown”. Bloomberg and Money Marketing focus more on the new, facts and figures. There is little bias present if any in all articles; it could be argued that Telegraph and Wall Street Journal are on the side of Conservative Party because in their articles there is more negative note to the government for Gordon Brown and this failure to pull us out of recession. Articles are easy to read as long as you have some basic knowledge of economics and finance. The story is big and will have a great influence on the economy as we have seen what happened to the currency when data was published. I am just concerned that this will decrease the confidence even further.

Sources:

Telegraph.co.uk http://www.telegraph.co.uk/finance/financetopics/recession/6415120/Britain-still-in-recession-Gordon-Browns-rescue-plan-accused-of-failure.html

The Wall Street Journal - http://online.wsj.com/article/SB125628626596003463.html

Telepraph.co.uk - http://www.telegraph.co.uk/finance/financetopics/recession/6414851/Recession-how-Britain-compares-with-the-rest-of-the-world.html

Bloomberg - http://www.bloomberg.co.uk/apps/news?pid=20601087&sid=aj5TAN5rzuJk

Money Marketing - http://www.moneymarketing.co.uk/uk-in-longest-recession-on-record/1000802.article

AS

Too early to declare recovery

Well finally after all those headlines about UK economic recovery and “we are out of the recession” talk, this week I came across some new which I believe are more realistic. After two of my blogs above which are about retail sector, service sector and increase in Burberry sales and how all that indicates we are getting out of the recession, here is a blog which contradicts all that.

Must say part of me was happy to see headlines like the one from The Independent saying “Too soon to talk of recovery, say Item club forecasters” or the one from BBC News stating “Too early to declare recovery”.

This week I have read three articles from The Independent, BBC News and Sky News Online.

All three articles base their stories on Item club forecasters who use “the same economic forecasting model as the Treasury” so predict how well is economy doing now and how will it be doing in the future. One can argue that this might be a little bit bias, but I choose to believe them because Ernst & Young Item club if the City’s most “influential forecasting group”, well established and as stated above use the same forecasting model as Treasury. The main story is that the forecasting group expects economy to grow a lot less than it was speculated in the news recently. Treasury will release the GDP figures on Friday this week and those figures were long-awaited; they will show GDP for July and September 2009. Expected economic growth for these two months is near zero. Let me just quickly remind you that “British economy has not grown since the first quarter of 2008”. Ernst & Young say that the best UK can hope for 2010 is 1% growth. They also used the word “anaemic” to describe the growth over the next 12-18 months. The group noted that the process of recovery will be painful as the government plans to cut back on spending, tighten the policy, restore VAT to 17.5% (starting from 1^st January 2010), increase the National Insurance Contributions, introduce a new 50p tax and introduce a new programme of spending restraints. The group also pointed out that quantitative easing (which is policy of pumping cash into the economy) by Bank of England was “disappointing” and according to BBC News it seems that little of that money ended up increasing bank lending. Furthermore Professor Peter Spencer, Ernst & Young’s chief economist, believes banks used the money to rebuild money reserves and “improve liquidity”.

The story from The Independent is really short with very brief overview of the news. The story does not go into depth and provides the reader with some of Peter Spencer’s quotes. There is a little bit of negative note to the story, but I believe it is because of the nature of the news which is saying that it is not all that good after all. There is clear sarcasm in the sentence “Britain’s economy is widely expected to officially move out of recession on Friday when GDP figures are released for the third quarter of the year”. After this sentence the rest of the story is about not all that positive view of Item Club on the growth of the economy and recovery. Obviously the news is important and it could be said that the news is ‘big’ but the way it was written it is hard to say for who the story was written for.

Article from Sky News I found extremely confusing. Entire article is in quotes and opinion of Professor Peter Spencer. The story is even more pessimistic than the one from The Independent. It uses phrases like “anaemic”, “bumps along the bottom”, “substantial pain next year”, “double dip”; all in relation to economic recovery. Even from reading the headline I was almost sad, “Bumpy 'Recovery To Bring Substantial Pain” followed by the first sentence “Britain is set for a ‘bumpy ride’ along the road to economic recovery, economists warn”. Which economists warn? There is only one mentioned and that is Peter Spencer. I think they should have included more views of different economists. There is even a picture of people shopping and underneath “consumer demand is unlikely to fully recover next year”. Honestly I do not know if the story can get any more pessimistic.

Moving on to the story I liked the most. The article from BBC News was objective and no bias whatsoever. Must admit sub headlines like ‘substantial pain’ and ‘zero growth’ are not very optimistic either but the story overall does not give a completely dark picture of the economy and its future growth. What I really likes it that BBC News knows that not all the readers are familiar this certain economic expressions and therefore give short and precise explanations alongside. The language used is very clear and easy to understand, no metaphors or sarcasm involved. I think that BBC News has the headline which matches exactly what I was trying to say in my previous blog and this one as well and that is “Too early to declare recovery”.

Once again I do believe that after everything that happened in previous year is having big, huge influence on people, economy, government, society as a whole and that there are many thing that need to be improved before we can ‘declare recovery’. Financial services have been fit by economic downturn very hard, even though it could be argued that it was caused by financial services, and jet I read in the newspaper today that bonuses in banks are expected to increase 50% and could reach £6 billion. Not to go away from the original story, but I believe that this increase it bonuses is a though through ides by the banks because they will need to retain people next year as income taxes are going to rise from 40% to 50% for total annual earning more than £150,000.

After all these news I am very excited to see the GDP figure on Friday. I must say that my view of the economy in the future is more less the same as of Item club, but I still hope that the ride to recovery will not be as hard as Item club predicts.

Sources:

The Independant (2009) “Too soon to talk of recovery-say Item club forecasters”

URL: http://www.independent.co.uk/news/business/news/too-soon-to-talk-of-recovery-say-item-club-forecasters-1804643.html

Sky News Online (2009) “Bumpy Recovery To Bring Substantial Pain”

URL: http://news.sky.com/skynews/Home/Business/Ernst--Young-Item-Club-Warns-Of-Bumpy-Economic-Recovery-For-UKWith-GDP-Growth-Of-1-In-2010/Article/200910315408707?lid=ARTICLE_15408707_ErnstYoungItemClubWarnsOfBumpyEconomicRecoveryForUKWithGDPGrowthOf1_In2010&lpos=searchresults

BBC News (2009) “Too early to declare recovery”

URL: http://news.bbc.co.uk/1/hi/business/8313245.stm

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Burberry enjoys sales rise

Let us talk about fashion this week. Certainly many girls have some interest in fashion, buy Vogue or Marie Claire week by week or browse thought Selfridges, well I am no different. My sister and I have this unwritten rule of spending Sunday morning walking up and down Selfridges browsing from floor to floor even though rarely we buy anything. I think it is her escape from Canary Warf and my hour away from Regent's Park, well Regents' College precisely. Moving on, the story that caught my attention this week is the increase in Burberry sales.

I read the story in Telegraph.co.uk, Guardian.co.uk and Reuters.

The story is that 150-years-old British brand experienced increased revenues in Q2. They reported revenues of £343m, on the contrary to the analysts’ forecast of £320m-£335m. This upwards movement in revenues was mainly caused by increase in demand for Burberry handbags, leather good and their well know print scarves. Retail sales were mainly increasing in Europe and Asia whereas in markets like US and Spain Burberry experienced declines. Overall retail revenue was up 16% (£163m). Growth was the strongest in Britain and North Korea which might be because tourists are attracted by weaker currencies. I have to say maybe a month ago I went to Bicester Village which is a shopping outlet an hour way from London where Burberry has its shop as well. Literally the queue was going around the shop and people were just coming out with hands full of Burberry bags. Due to this positive outlook, Burberry is planning to open 15 new stores worldwide even though they currently have “122 outlet stores, 255 concessions, 90 franchise stores and an e-commerce business in over 25 countries”. In my opinion this is a bit rushed decision. Luxury goods firms were fit by recession very hard. People faced decreases in their salaries, job redundancies, and smaller disposable income consequently stopped buying luxury products. Even people who maintained their wealth or increased it during the recession stopped buying as well because of uncertainty what might happen tomorrow. Burberry did experience decrease in wholesale revenues by 21% but that was caused by 23% of customers cutting back on their orders to reduce unwanted stock.

Telegraph and Reuters have very similar headlines both suggesting that Burberry handbags are driving this increase in revenues whereas Guardian headline is more neutral saying “Burberry enjoys a sales rise”. Having read all three articles, I must say that Guardian ‘won me over’ again. The article focused mostly on the reasons for this rise in Burberry sales, used a lot of figures to support the story throughout keeping my attention all the way to the end. The language used is very clear, no need to have any financial / economic background in order to understand. The story is not ‘big sexy news’, but is still interesting to see how recession is affecting this market segment and how this luxury good brand is dealing with it. As I wrote in my previous blog, a lot of newspapers today are writing about our economies ‘healing’ from the recession and suggesting that financial crises might be over by the begging of 2010. I personally disagree; all these small improvements are still ‘too small’ to say that this ‘big economic downturn’ is over.

Telegraph story is very short, but gets strength to the point. Concentrates more on the share prices of Burberry; something that was not covered to great extend in Guardian. Again I must say Reuters is the one I liked the least. It might be just the stile and structure that does not appeal to me. They use a lot of figures and I think is it easy for the reader to get confused with all that numerical data. However the audience for Reuters might be financial analysts or investors in which case the structure and content of the article makes sense. One thing I noticed is that all three articles mentioned how hard luxury goods sector was fit by recession and that this slight improvement in Burberry performance might be a signal that ‘hard time’ is over and that ‘better time’ is about to come for luxury goods/services companies. Guardian decided to mention which celebrities were present at Burberry’s fashion show three weeks ago here in London; names like Victoria Beckham, Twiggy, Gwyneth Paltrow and Samantha Cameron. Does this really matter in the story? It certainly made me think. Can it be that company asked them to write this story and mention these names?

To sum up, I must say well done Burberry. All three articles covered the story very well, each concentrating on different things like, reason for increase in sales, share prices, competition performance etc. From the latest news we can also see that Burberry’s rivals such as Richemont, Swatch and LVMH are experiencing increase in their performance. It seems like confidence is coming back. Furthermore I believe that there will always be demand for luxury goods to some extent, more or less depending on where we find ourselves in economic cycle. However ‘Passion for fashion’ will always be there.

Sources:

Telegraph.co.uk “Burberry handbags drive rise in revenue” http://www.telegraph.co.uk/finance/newsbysector/epic/brby/6323776/Burberry-handbags-drive-rise-in-revenues.html

Guardian.co.uk “Burberry enjoys sales rise” http://www.guardian.co.uk/business/2009/oct/14/burberrygroup-londonfashionweek

Reuters “Handbags and snoods help Burberry top forecasts” http://www.reuters.com/article/rbsApparelAccessories/idUSLE11480720091014?pageNumber=2&virtualBrandChannel=11604&sp=true

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Two year high for services growth

Most of the headlines this week suggested that UK is recovering from the recession, which for me is still hard to believe. Story that caught my attention this week was the growth of service sector in the UK implying that recession might be UK’s past. Why this was so interesting to me is because my family owns a business in service sector in Serbia which is not doing that well in fighting the impact of economic crises.

The stories I read are from BBC News, Times Online and Telegraph. They are all very straight forward with the message they are want to get across and for the first time since I started writing this blog, I can say that all three sources I used seem to be objective and unbiased.

The story is that UK service sector “grew at its fastest rate for two years during September” from 54.1 in August to 55.3 in September. According to the Chartered Institute of Purchasing and Supply (CIPS) it is the fifth month above the 50 level and this is enough to indicate expansion in the sector. All three articles agree that particularly strong businesses within the sector are hotels, restaurants and companies offering services to other businesses (B2B). However as in the most cases in the economy there are winners and losers; “activity fell in transport, storage, communication and personal services”. Although further redundancies are expected which will increase the level of unemployment and it will be hard to predict if this growth in service sector is going to increase further or not. What I really liked about all three articles is that they all concluded the story by saying that one needs to be aware that even though service sector is doing great at the moment it does not give enough evidence that the overall economy will be doing the same. And that is exactly why I do not like to see so many headlines in the news suggestion that the recession is over when we still stand on ‘shaky’ grounds. I do agree that service sector play a big role in the economy, but all this upward movement has to be well examined and taken with caution. In my opinion all three sources did a very good job in term of getting the news across to the audience and they still gave few facts and quotations by experts in field that this news does not mean we are out of recession; it might imply that we are on a good path.

All three sources use a few numerical facts to back up their argument which also gives stories more certainty and weight. Colin Ellis at Daiwa Securities noted that “Even if the economy does not return to growth in the third quarter, joblessness is likely to rise for several months to come”. Both BBC News and Telegraph used the same quotation to explain that that are still weaknesses in the economy despite the significant rise in services sector. On the other hand Telegraph and Times Online use the same quote by Howard Archer, chief UK economist at HIS Global Insight. He gave the figures ‘cautious welcome and said “given the dominant role of the services sector in the UK economy, this strongly endorses belief that the economy returned to growth in the third quarter”. The language used is formal and clear; all articles explain the story really well so that even someone who is not from business/ economics or finance field can understand what is happening. I think that these stories were written because they are of the importance for UK’s economy and this increase in the performance of the sector has the impact on many businesses. In my own view it is not world breaking news, but it is still worthwhile communicating because service sector plays a big role in UK’s economy and therefore is likely to affect it to the great extend. BBC News and Times Online have very similar headlines both saying that there is a growth UK’s services sector. On the other hand, Telegraph chose to write a headline which states that there is service industry growth and implies that this reinforces belief that the recession is over.

This time it was hard to pick my favorite article because all three of them communicated the news clearly and objectively just as I like it. I still do think it is early to say what this increase will bring to UK’s economy since nowadays it is harder and harder to predict anything. UK out of recession certainly sounds good but the question remains: when?

Sources:

BBC News (2009). Two-year high for services growth

URL: http://news.bbc.co.uk/1/hi/business/8290336.stm

Times Online (2009). Growth of UK services hits two-year high

URL: http://business.timesonline.co.uk/tol/business/economics/article6861482.ece

Telegraph (2009). Services industry growth reinforces belief that the recession is over

URL : http://www.telegraph.co.uk/finance/economics/6261418/Service-industry-growth-reinforces-belief-that-the-recession-is-over.html

Retail sector enjoys unexpected sales growth in September

One of the stories that caught my attention this week was about the improvement of retail sales in September according to Confederation of British Industry (CBI). I read the same story from three different sources, Guardian.co.uk, Reuters UK and Bloomberg.com. Despite my expectations, these three sources each delivered the story differently.

The story is about an unexpected growth in retail sector for the month of September. Retail sales rose +3% from -14% in August. Since April 2009 retail revenues have been going downwards which makes it 5 month of continues decrease. The credit crunch and its effects were said to be the main reason behind this downward movement in retail sales. However this sudden increase might be seen as a path to stabilization of the sector. Many analysts still remain suspicious because there are still obstacles consumers are facing in terms of their disposable income and buying power. A record low interest rate of 0.5% enables lower mortgage costs which can imply that consumers should start to experience more disposable income. The survey by CBI reveals that “mortgage approvals are staying close to the highest level in more than a year last month”. CBI data indicates that UK economy might be recovering but the strength of the recovery is still questionable.

Reuters UK
The story is very short and gives a reader very brief overview of the current situation in retail sector. There is no information that would give weight to the story which is very different from both Bloomberg and Guardian. All the information in the story could be said in two to three sentences. It does not give enough information to the reader. In the sentence “CBI’s distributive trades survey reported sales balance rose to +3 in September from -16 in August, matching April’s high” it expected from the reader to know what CBI stands for and what does +3 represent. This is not the case in the stories from Bloomberg and Guardian. Story is very much neutral, but gives an impression that it was written to fill out the space or that the writer was ‘one story short’. The language used is simple and clear but it is the content of the story that makes an article a good one.

Guardian and Bloomberg
These two stories are very similar in the way they deliver the news. The content of the stories is almost the same. Both stories have a positive attitude towards the topic. Bloomberg story is more narrative whereas Guardian uses a lot of quotations by the experts in the field. Both are very straight forward to the point, but Guardian uses much more numerical figures to justify what is written. Two exactly the same sentences by Andy Clarke, chairman of the CBI Distributes Trades Panel, where both used at the beginning of the each article. Bloomberg chose to mention the program by The Bank of England which is planning to “buy £175 billion of bonds with newly created money to bolster the economy” which was not mentioned in Guardian. This might be because of their certainty of what their readers are interested in and what information might be important or not to them. Bloomberg’s story is shorter, easier to read, has very straight forward information and is clearly not taking sides or being bias. It is exactly what Bloomberg’s readers need as they are in the office, online, scanning all the new information and news that might affect the market. Guardian language is more formal, easy to read and understand even though it uses quite a lot of economic terms.

The article I liked the most was from Guardian because I believe it provided me with useful and clearly written information. The article I was really disappointed with was the one from Reuters UK. It just failed to deliver the clear message and in depth information; it was very basic and unclear; compared with these other two sources Reuters is very much behind in my opinion.

Sources:

1) Christina Fincher (2009) “Retail sales show surprise gain in Sept-CBI”. Reuters.com
URL: http://uk.reuters.com/articlePrint?articleId=UKTRE58S1N420090929

2) Graeme Wearden (2009) “Retail sector enjoys unexpected sales growth in September” Guardian.co.uk
URL: http://www.guardian.co.uk/business/2009/sep/29/retail-sales-rise-september/print

3) Brian Swint (2009) “U.K. Retail Sales Index Rises to Highest Since April, CBI Says”
Bloomberg.com
URL: http://www.bloomberg.com/apps/news?pid=20670001&sid=aerl.JkzGacE