The chances of the UK falling back into recession will become clearer this week when gross domestic product (GDP) figures for the final quarter of 2011 are published, while WH Smith and Carphone Warehouse will provide further insight into the retail sector’s Christmas performance.
The UK’s economy ground to a halt in the final quarter of 2011 as shoppers cut spending amid the Government’s austerity measures, official figures are expected to reveal on Wednesday.
GDP increased 0.5 per cent in the third quarter of 2011 but growth has since been torpedoed by a squeeze in spending power caused by high inflation, soaring unemployment, austerity measures and the eurozone debt crisis hurting exports.
It is touch-and-go as to whether the Office for National Statistics (ONS) will reveal that the economy contracted in the final quarter of 2011, according to economists. There is now a real danger of an official recession - two quarters of GDP declines.
A fourth quarter contraction was until recently seen as the most likely outcome after warm weather in October and November hit sales of winter clothes and meant people used their central heating less.
And falling demand at home and abroad pitched the manufacturing industry, which the Government had hoped would spearhead recovery hopes, into decline.
But a better December fuelled optimism that the economy may have been flat in the quarter or even scraped meagre growth.
Retailers laid on special offers in a bid to attract shoppers, helping the powerhouse services sector, which accounts for three-quarters of the economy, to put in a better than expected performance.
Philip Shaw, chief economist at Investec Securities, expects GDP to have declined by 0.1 per cent driven by a fall in manufacturing. He expects further falls in both the first and second quarters of 2012.
He said: “The better news is that we expect the downturn to be shallow and reasonably short.
“Indeed it is quite possible that the ONS revises it away in due course, but for now expect headlines over a double dip.”
But Chris Williamson, an economist at Markit, believes the economy avoided contraction but failed to grow.
Whatever the outcome in the last quarter, prospects for the next few months remain grim.
The International Monetary Fund is reported to forecast that the UK’s economy will grow by just 0.6% in 2012.
But such is the depth of eurozone debt crisis that this would make it the best performing major economy in Europe. Germany is set to grow just 0.3 per cent and France 0.2 per cent, with the 17 nation strong currency bloc set to grow just 0.5 per cent.
Carphone Warehouse will give its first update since it called time on its attempt to shake up the UK white goods and electronics market.
Eleven “big box” shops were created after the independent mobile phone retailer joined forces with US group Best Buy in May 2008 in an effort to take on electronics players such as Dixons Retail.
But after losses of £46.7 million in the six months to September, the £1.1 billion joint venture was forced to admit that its attempt to blend competitive prices and American-style customer service had failed to pull in UK shoppers.
On Tuesday, the City will be looking for further details on the operational and financial impact of closing the Best Buy stores.
Elsewhere, Carphone is expected to report ongoing strong sales of smartphones - including Apple’s iPhone 4S and Research In Motion’s BlackBerry - ensured strong UK sales in the run up to Christmas.
While sales of smartphones are expected to be strong, there were reports that retailers were unable to keep up with demand for the iPhone 4S when it was launched in November.
Meanwhile, the pre-paid mobile phone market is understood to be weak as more customers move on to 24-month contracts in the UK.
Retailer WH Smith is expected to reveal a further drop in sales on Wednesday as its stores are likely to have struggled to shift a poor selection of celebrity biographies.
Analysts said like-for-like sales at WH Smith’s high street operation were likely to be down 6% during the 21 weeks to January 22, while trading in the travel side of the company located at train stations, airports and motorway service areas is expected to have dropped 4 per cent.
This year’s line-up of books featuring Apple founder Steve Jobs, comedian Lee Evans, Manchester United star Paul Scholes and actress Joanna Lumley did not amount to a “strong Christmas schedule” and would have hurt sales compared with a year ago, experts from Oriel Securities said.
Meanwhile, sluggish trade at motorway service areas caused by higher petrol prices is expected to have been the greatest burden on the travel arm.
But recent fears that the shift from print to electronic books would have hurt WH Smith’s sales may prove to have been unfounded.
Oriel said the average customer buys three books a year and would not be willing to purchase a device costing at least £70 to do so, and WH Smith may have even picked up some incremental sales from that market through a distribution deal with Canadian reading tablet manufacturer Kobo.
Despite the drop in sales, analysts remain positive on the company as targets for cost savings and gross margin gains should be confirmed.
Budget airline easyJet publishes its first-quarter trading update on Thursday but its performance is likely to be overshadowed by interest in the ongoing spat between the company and its founder Sir Stelios Haji-Ioannou.
Sir Stelios wrote to Prime Minister David Cameron accusing easyJet’s board of softening performance targets in order to make a £7 million share payout for executive directors more easily attainable.
His intervention comes as easyJet is expected to reveal further revenues growth in its latest trading update - but analysts have questioned whether it will be strong enough to cover the rising cost of fuel and taxes.
Broker Numis Securities has forecast revenues of around £740 million with a 5 per cent increase in revenue per seat and estimated that a 6 per cent increase in revenue per seat is needed to offset the increase in fuel prices.
Shares are 7 per cent lower than a year ago but have recovered some 40 per cent since a trough in July as passenger numbers and profits steadily improved throughout the year.
But the City is likely to be pre-occupied with the latest twist in Sir Stelios’s battle with the directors of easyJet.
Sir Stelios, who founded the airline in 1995, has also reportedly written to the company’s largest institutional investors to raise his concerns about aircraft acquisitions by easyJet and the group’s strategy.
Last year Sir Stelios was behind a defeat on boardroom pay after he campaigned against a vote on its pay report.
Sir Stelios last year told easyJet that he planned to launch another airline - called FastJet - which it later emerged would focus on Africa.
The company thought it had seen an end to the dispute after it promised £190 million in dividends to investors, landing the airline’s founder and his family about £70 million.
The unprecedented number of discounts that have become commonplace on high streets and supermarkets have squeezed the profits of Imperial Leather maker PZ Cussons, it will reveal on Tuesday.
As well as slashing prices to drum up trade, the Manchester-based toiletries maker has been struggling to pass on higher palm oil and other ingredients costs to cash-strapped consumers.
The company, whose brands include Charles Worthington haircare, Carex handwash and Original Source showergel, warned on profits in December, amid challenging trading in Australia, Greece and Thailand.
Darren Shirley, an analyst at Shore Capital, expects it to report a 13 per cent fall in underlying profits to £40.2 million for the six months to November 30.
He believes UK sales have been strong, albeit boosted by promotions, with like-for-like sales in its personal wash division up between 6 per cent and 8 per cent.
Its health and beauty division, created a year ago to spearhead its drive into higher profit margin products, should see growth of 10 per cent to 12 per cent.
The division was set up following the acquisition of St Tropez tanning products in September 2010 and it recently announced a £25.5 million deal for Australian Fudge hair styling brand, best known for its styling range, including its Hair Shaper texturising product.
Cussons has been battling higher cost prices at a time when cash-strapped consumers are resistant to price hikes and the market for toiletries is dominated by special offers.
Last year, Cussons revealed it had shrunk the size of a bar of Imperial Leather soap by 25 grams to 100 grams as an alternative to putting the price up.
Although the mainstream market was resistant to price hikes, it said consumers continued to treat themselves with premium products, such as its The Sanctuary spa treatments and St Tropez tanning.
Going forward, the group’s profit margins are set for some respite as rising prices show signs of easing, believes Mr Shirley.