Andrew Murray-Watson: Is the rain here to stay on the high street?

A downturn could turn into a full-blown retail recession by the end of the year
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The Independent Online

It never rains but it pours. Half of England is still struggling to clean up after the appalling floods of the past two weeks. And on Tuesday some London residents were bombarded with hailstones the size of hazelnuts. Wasn't this summer predicted to provide another record-beating heatwave?

And just as inevitably, nearly every company with a bad set of numbers to report has been using the weather as an excuse. Retailers are especially prone to blaming the elements when things don't go well: it's too hot, it's too cold, it's too wet, it's not wet enough - the list of whinges goes on and on. Food and drinks companies, pub and restaurant chains, insurers, travel groups and all manner of leisure companies claim precipitation bashes profits as well. Of course, the weather can be a factor - for clothing retailers in particular. But more often than not it is used to disguise more fundamental ills.

Marks & Spencer, for so long the darling of the high street in the City, will this week tell the market that it is not immune to wider economic conditions. And if M&S is hurting, then everyone else will be feeling the pain as well. The British Retail Consortium, rarely an upbeat organisation admittedly, is predicting very hard times.

It is far too early to say conclusively, but maybe we are about to witness a retail downturn that could turn into a full-blown high-street recession by the end of the year. Mortgage payments are going up as discounted lock-in periods end, petrol is set to go through the £1 per litre mark - again - and more of us are looking at the size of our credit card deficits with growing concern.

I am also concerned that because we have enjoyed such benign economic conditions for so long, there may be an unwillingness to recognise that when it comes to a downturn, it's a case of when rather than if.

Who will feel the pinch first? Retailers. One thing is for certain: it helps to explain why Apax and Permira ditched their attempt to sell New Look for a reported £1.8bn.

Good neighbours

I gather that the new Chancellor, Alistair Darling, has made a good impression in the Treasury, For a start, I hear that he actually consults his officials - in stark contrast to his predecessor, who only ever discussed his plans with a very small coterie of allies.

But as a politician who has realistically risen as high up the greasy pole as he is ever likely to get, what does he do now? The comprehensive spending review, now delayed until this autumn, will tie his hands when it comes to significantly altering public spending over the coming years.

Scope for changes to the tax regime is also limited, given the proximity of his next-door neighbour in Downing Street. The Prime Minister is hardly likely to look favourably on any divergence from the economic path he has mapped out over the past decade.

As Chancellor, Gordon Brown had, in many ways, a greater influence over domestic policy than Tony Blair. But that legacy has not passed to Mr Darling. There is no Granita pact to influence the relationship between the inhabitants of No 10 and No 11 and, as a result, Mr Brown retains his authority over the country's finances.

Hopefully we will see small tweaks to the tax regime - on the private equity industry, for example - but there is no point expecting any great reform in the way the Exchequer carries out its business. I doubt that on most spending priorities, including education, the NHS and Iraq, there will be much, if any, disagreement.

The one point of contention between Mr Brown and his new Chancellor is over ID cards. Mr Darling has stated publicly that he sees little merit in introducing the controversial scheme, while Mr Brown is an advocate. As they are expected to cost several billion pounds, ID cards could be one of the only causes of tension between the new Prime Minister and his loyal bean counter next door.

Apple of O 2's eye

I can confidently predict that there is going to a crimewave this winter. Across the land, tens of thousands of iPhones are going to be nabbed from pockets and bags as perhaps the most eagerly awaited gadget of all time hits Europe.

The iPhone, in case you have been living on a different planet for the past six months, is Apple's mobile phone-iPod hybrid. In the US, where it went on sale last week, more than half a million were sold in the first couple of days.

It looks like O 2 is going to win a bidding war to become the mobile carrier for iPhone in the UK. But will the company benefit? It has been reported that Apple is demanding a share of revenues from O 2 customers using an iPhone. That slice of the action will largely nullify any benefit O 2 gains from winning customers from its rivals, who are desperate to get their hands on one of Apple's little wonders.

But if O 2 is confirmed as the chosen carrier for iPhone, it will be good news for Carphone Warehouse and other third-party retailers. Had Vodafone picked up the Apple contract, the probability is that the iPhone would only have been available in its own stores. Expect Charles Dunstone, the chief executive of Carphone, to be the first person in the UK to get his mitts on the new gadget.