David Prosser's Outlook: Fingers crossed for a happy new year

Panto time for Sports Direct; Oh Christmas tree, oh Christmas tree
Click to follow
The Independent Online

Who to believe on the prospects for the UK's economy? Gordon Brown and Alistair Darling offered a positively upbeat assessment of our prospects yesterday. The Prime Minister said the country was well able to weather the financial storms battering the world, while his Chancellor said he felt relaxed because the economy had been transformed in recent years.

Turn to the minutes of the December meeting of the Bank of England's Monetary Policy Committee, however, and the contrast was pretty stark. Prior to the meeting, economists had said the decision about whether or not to cut interest rates was as finely balanced as any they could remember. Now it turns out that all nine MPC members voted for the 0.25 percentage point reduction announced 10 days ago.

The minutes make it pretty clear why the decision was unanimous. There was little debate about the pros and cons of a rate cut instead, the meeting appears to have considered a lengthy list of economic woes facing the country, flirted with the idea of a 0.5 percentage point cut, and then decided a smaller reduction was more sensible given ongoing inflationary concerns.

The MPC's deliberations make pretty depressing reading. The meeting moved from reports of asset price falls on financial markets to slowing economies overseas to deteriorating consumer confidence to diminished business investment. It was difficult to find the data or even the sentiment that might have justified the optimism of Messrs Brown and Darling.

Add in the impact of yet more worrying reports yesterday and it is rapidly becoming clear that 2008 may be much tougher than has previously been thought. The CBI reported a dire start to December for the retail trade, while the Royal Institute of Chart-ered Surveyors predicted zero house price growth for next year.

Indeed, whisper it quietly, but some economists believe the UK could move into outright recession next year, a prospect that has until now seemed remote. For example, on Monday, Dresdner Kleinwort, the investment bank, said it believed the chances of a recession in the UK now stand at 50-50 the sort of odds that Alan Greenspan has been offering on a downturn in the US, which most analysts had thought was in more of a state than us.

In fact, there are good reasons why we may be in just as parlous a position as the Americans. The UK may not face a housing market crisis on the scale of the disaster in the US, but it does not have the advantage of a weak currency to boost exports. Overseas sales have kept the US economy afloat in the second half of the year the UK cannot hope for similar success.

Dresdner's opinion seems to be very widely shared. A noticeable feature of the YouGov poll which yesterday gave Mr Brown such poor ratings was that half the respondents believe the UK will move into recession over the next 12 months. Indeed, that's almost certainly one of the main reasons why the Prime Minister is so far down on David Cameron in this particular poll.

Nor does the MPC have the room for manoeuvre that some people appear to think. Last month's inflation figures may have been benign, but short- to medium-term pressures that are out of our control remain think rising food and commodity prices.

Another rate cut is almost certain early in the new year, particularly given the MPC's uniformly gloomy outlook, but thereafter the cost of borrowing may not fall as quickly or as sharply as many would like. Note the European Central Bank's warning yesterday that it saw limited scope for interest rate cuts.

Not a happy way to end the year, then. But in fact we have much to be grateful for. Look back on the past 12 months: we've had a 45 per cent increase in the cost of oil, a global financial crisis, and the first run on a high-street bank in living memory. Against that backdrop, it's amazing the UK has not already been plunged into recession.

When Mr Brown was Chancellor, he was routinely ridiculed for making over-optimistic economic growth forecasts that subsequently turned out to be much more accurate than the pundits expected. Maybe his faith in the economy's resilience will not prove misplaced.

Panto time for Sports Direct

Mike Ashley may have become a pantomime villain for much of the City since the flotation of Sports Direct, but you must at least admire his frankness and his awesome self-belief.

Asked yesterday what he thought of the 70 per cent collapse in his company's share price this year, Mr Ashley was happy to play the bad guy once more. While he had been advised to describe Sports Direct's stock as "significantly undervalued", he said, his view of the decline was that it was "pathetic".

Not for Mr Ashley any seasonal message of peace and goodwill for his critics. Instead, he insisted that Sports Direct had been hit this year by events beyond its control: sales had been bound to fall this year in the absence of a major international football tournament, a problem that had been compounded by the summer's dreadful weather.

In other words, the massive collapse in first-half profits unveiled by the company was to be expected, and all those whingers in the City had been quite wrong to mark Sports Direct shares down so heavily.

Not that comparisons with last year were straightforward to make. Yet again, Sports Direct faces criticism over the lack of detail it offered in its interim results presentations.

Mr Ashley insists that comparing sales in non-World Cup years with those during which a tournament has been held is meaningless and therefore refuses to provide such data. He may or may not be right, but investors like to take those sorts of decisions for themselves, rather than being asked to trust the company when it promises to hit earnings targets for the full year.

As for that irrepressible self-confidence, Mr Ashley appears poised to reject the view universally held by both his investors and City analysts that Sports Direct needs an independent chairman. Having spent seven months searching for a replacement for David Richardson, who quit over his concerns about Sports Direct's corporate governance standards, Mr Ashley has apparently realised he has known the right man for the job all along. Step forward Mike Ashley.

It now seems almost certain that Mr Ashley himself will take the chairman's role early in the new year, as soon as he can find a non-executive deputy. Trouble is, people keep turning down that role. Difficult to imagine why.

There is one bit of good news from Sports Direct. Mr Ashley and his colleagues may have been rocked by events beyond their control this year, but he doesn't plan any such slip-ups in the fut-ure. Never mind Fabio Capello, Mr Ashley promised yesterday that he could "personally guarantee" that England would qualify for the 2010 World Cup.

Oh Christmas tree, oh Christmas tree

Is nothing sacred? Bad enough that several of Britain's biggest supermarkets have put their hands up to price fixing in the milk market. It now appears the Danes have gone one better, by attempting to rig prices for Christmas trees.

Around 4,000 Danish farmers produce about 10 million trees each year, and prices for Nordmann firs the ones supposed not to drop needles are currently 25 per cent higher than 12 months ago. Denmark's competition authorities smell a rat, having warned the industry about price fixing in the past, and have charged the Danish Christmas Tree Growers' Association with market abuse. It apparently sent members guidelines on what they should charge for their trees, despite having been expressly told not to do so.

It's another blow to Christmas, of course, but this is a business worth 250m a year and the Danes have stockings to fill too.

d.prosser@independent.co.uk

Comments