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MAGGIE PAGANO: Chancellor welcomes GDP figures by praising public, with bounce-back a ‘testament to their grit and determination’










The latest GDP figures showing that the economy was back to its pre-pandemic level in November suggest the recovery this year will be far better than most economists have been predicting. 

The November figures – showing growth of 0.9 per cent – were higher than just about all the forecasts, with output improving across the economy, and construction and retail performing well. 

Put into context, this means the economy was 0.7 per cent larger in November than in February 2020. These are all great signs that life is getting back to normal, although the tightening of Covid restrictions in December, coupled with staff absences and supply chain hiccups, may have slowed growth in the Christmas month. 

On manoeuvres?: Rishi Sunak was to welcome GDP figures by praising the public, saying the bounce-back was a 'testament to the grit and determination of the British people'

On manoeuvres?: Rishi Sunak was to welcome GDP figures by praising the public, saying the bounce-back was a ‘testament to the grit and determination of the British people’

But the gloom may be overdone. As some of the latest corporate results have shown, December may not be as bad as the more pessimistic economists are saying. Indeed, the ONS data suggests that growth over the last quarter of 2021 is most likely to reach – or even be higher than – the pre-Covid level, so long as economic output does not dip by more than 0.2 per cent in December. 

Whether this growth can be sustained over the next few months is another matter. The continuing restrictions, rising energy bills and higher taxes on their way in April might mean the recovery starts to falter. 

But on the other side of the equation, the UK has one of the strongest jobs markets in the world, business investment is on the up and there are faint signs that inflation may have peaked at 5 per cent. 

As the OECD recently forecast, the UK is on track to be the fastest growing economy this year among the G7 countries at 4.9 per cent, so long as supply chain problems and labour shortages do not worsen. 

In contrast, the latest figures from Germany show that the country was badly caught out by the Omicron wave, which led to draconian restrictions. Its economy suffered rising inflation as well as persistent supply chain problems, with GDP in the last quarter falling by 0.5 per cent. If you look at the early full-year estimates of 2.7 per cent growth for last year, Germany is now the weakest economy in the G7. It’s no surprise that Rishi Sunak sounded so relieved yesterday on hearing the latest figures. Seeing sterling back up to its highest level against a trade-weighted basket of currencies since the Brexit vote in June 2016 will also have cheered him up. 

What was interesting was how quick the Chancellor was to welcome the figures by praising the public, saying the bounce-back was a ‘testament to the grit and determination of the British people’. 

He got the grit bit right, and it was a far better recognition of the country’s animal spirits than the usual politicians’ patronising quips about hard-working people. Sunak is clearly on manoeuvres.

Defending productivity 

Defending the realm may be a costly affair, but it’s one that brings benefits in more ways than one. 

Research commissioned by BAE Systems showed that in 2020 the defence group – which has more than 50 sites around the country – supported 143,000 jobs and contributed more than £10billion to GDP, equal to 0.5 per cent of the economy. More than 40 per cent of its workers are based in the most deprived local authorities, communities in which BAE invests more than £700m. Or you might call it levelling up. Two thirds of employees are in highly-skilled engineering roles with an average productivity of £83,000 per employee, some 17 per cent higher than the average in the manufacturing sector and almost 30 per cent higher than the average. 

In 2020, BAE invested £93m in skills and training on 2,000 apprentices and nearly 600 graduates. This year alone, BAE will recruit 1,700 apprentices and graduates. 

BAE’s research should be sent pronto to Michael Gove – who is due to publish his long-awaited report into levelling-up – and Business Secretary Kwasi Kwarteng. There are two lessons for them to take away. The private sector is by far the best mechanism to distribute wealth, while the defence industry is so valuable to the economy that the UK’s defence companies should not be allowed to be gobbled up by private equity or overseas buyers. The takeover of Blue Prism comes to mind.

Quiz champion 

Nicola Sturgeon may have clamped down on Scots going out over the Christmas period, but Glasgow-based, high fashion retailer, Quiz, still managed to celebrate. 

Until the tightening restrictions, Quiz saw sales climb by a fifth, doing well in stores and online. Good to know that womenfolk across the four nations are still dressing up for parties – legal ones, that is.   

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Many moons ago on a work trip to Tokyo I interviewed the head of Ito Yokado, one of Japan’s biggest supermarket and fast food chains, now part of the Seven & I group.

In exchange for granting an audience, the then chief executive, Masatoshi Ito himself, wanted to know from me how on earth Marks & Spencer managed to make such fabulous margins on its ready-made meals.

He was moving into convenience foods – one of the first in Japan to do so – and was desperate to know how M&S got away with charging such high prices for cheddar cheese topping on a baked potato.

Trusted: While M&S has had to trim back on margins, the profits on its convenience foods are still plump while the quality is one of the best to be found on the High Street

Trusted: While M&S has had to trim back on margins, the profits on its convenience foods are still plump while the quality is one of the best to be found on the High Street

Mr Ito wasn’t knocking M&S, but wanted clues so he could do the same. It was a good question then, when the group was the pioneer in ready-meals, and remains so today.

While M&S has had to trim back on margins, the profits on its convenience foods are still plump while the quality is one of the best to be found on the High Street.

And it’s these high standards in the food division which have powered M&S to be the fastest growing grocer over the Christmas period. 

With sales up 10 per cent, it reported its highest-ever revenue for the festive period, which will help it to make a healthy £500million for the year. 

As the company adverts repeatedly tell us, ‘This is not just food, it is M&S food.’ For once, the slogan may be right.

As other retailers are reporting as well, there is a big shift in how customers are shopping. It also looks as though M&S joined forces with Ocado in the nick of time as online sales – and in-store pick-ups – rose by just over 50 per cent. 

Sales were down in the stores by 10.8 per cent while stores in retail parks outperformed those in city centres.

What’s also interesting is that while the rest of the grocery trade is mainlining on price cuts, M&S has kept its head and so far avoided going into battle on pricing. Quite the reverse.

At the half-year stage, chief executive Steve Rowe made the point of saying that maintaining quality is core to its food business, and that it would be ending promotions on some lines and improving ‘Dine In’ meals to ensure customers maintain their perception of ‘trusted value’.

While it’s a horrible expression, the strategy makes sense. Despite recent problems, M&S is still one of the great legacy brands which customers do trust and will continue to do so. 

It also suggests quality will remain the Holy Grail, one which will feed into higher margins. Mr Ito would be pleased.

The big question now is whether the big US and UK private equity houses on the prowl for opportunities in the grocery market – especially the ones which missed out on Morrisons – will take another peek at M&S. If so, the shares, despite a strong rise in the past 12 months, are still looking rather cheap.

The Two Martins

A couple of the City’s biggest beasts are also on the prowl: The two Martins – Sorrell and Gilbert.

Former WPP boss Sir Martin Sorrell is out hunting for deals again, having just snapped up the Californian-based data consultancy, 4 Mile Analytics, to add to the Media Monks subsidiary, part of his S4 Capital group.

Over at AssetCo, Martin Gilbert, founder of Aberdeen Asset Management, now known as Abrdn, has come out tops in the bidding war for boutique asset manager River & Mercantile, after Premier Miton Group pulled out.

The pair might be brilliant deal-makers but it’s time they renamed their businesses. S4 sounds like an ageing pop group and AssetCo is ditchwater dull, though at least both are better than Abrdn.

Despite Brexit

Remember Project Fear? How there would be a bloody exodus of talent from Britain and a mass migration of bankers from the City? There were warnings that 230,000 jobs would be lost because of Brexit while JP Morgan claimed it would have to move 4,000 roles.

Yet at the latest tally, around 7,000 financial jobs have gone elsewhere while JP Morgan has lost 400. Of course there are bound to be shake-outs, but that will be because of business evolving, rather than Brexit.

The prophecies of doom were always political, never based on financial, practical or geographic facts. While no-one wants to crow, the fact is that the general jobs market – and the City – are in fine shape. 

What’s more, headhunter Hays says Brexit has boosted opportunities for Brits, and that the UK is now one of the strongest recruitment markets in the world. Tant pis.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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The ruckus over customers being given heat saving tips by energy suppliers disguises a bigger problem – that British homes are among the most poorly built and leakiest in western Europe.

So when the cold weather does set in – and energy prices spike as they have done over the past few months – households face a big hike in heating bills.

As well as lousy Government policy on the energy price cap, much of the blame should also be laid at the door of Britain’s big housebuilders, which for decades have been putting up low-quality housing.

Lagging behind: Too many homes built in the UK over the past 50 years are in the dark ages compared to those on the continent where double, if not triple glazing is par for the course

Lagging behind: Too many homes built in the UK over the past 50 years are in the dark ages compared to those on the continent where double, if not triple glazing is par for the course

They have been allowed to get away with such poor standards on all aspects of building – from insulation to quality of workmanship – because of lax Government regulations.

Too many homes built in the UK over the past 50 years are in the dark ages compared to those on the continent where double, if not triple glazing, and underfloor heating are par for the course.

Who can forget the damning Dispatches TV programme two years ago about the hundreds of new-builds by Persimmon, our second biggest builder, which had multiple defects from no fire safety barriers to wobbling walls? Yet Persimmon had a five-star rating from the Home Builders Federation.

Which is why all the various plans afoot by the Government to help customers with energy bills in coming months are just sticking plaster, and missing the bigger issue.

It’s only by insisting that developers build to the highest levels in the future, and by helping homeowners improve insulation, that we will get anywhere close to solving the problem.

Households could save at least £500 a year with better insulation, according to the Energy Efficiency Infrastructure Group.

As well as a proper grown-up energy policy, the Government should be working fast to devise workable insulation schemes rather than the various gimmicky ones it usually comes up with. 

The last one, the Green Homes Plan, lasted six months. Until then, it’s worth taking on board the Ovo Energy tips to its customers to help save on heating, which have had to be withdrawn because they are deemed offensive.

Contrary to public opinion, they are eminently sensible: eating porridge for breakfast, putting on another jumper and doing a couple of star jumps are just common sense.

Supermarket cheap

As shoppers are fast finding out, a little Lidl goes a long way.

The German discounter claims to be the UK’s fastest growing bricks-and-mortar supermarket after great Christmas sales.

In the four weeks to December 26, Lidl reports sales rose 2.6 per cent, mainly because so many customers switched from other supermarkets because of its competitive pricing.

What Lidl failed to show though – like its German arch-rival Aldi – is whether the sales increase came from existing stores or its recently opened ones.

This would be pertinent to how sales are doing overall, as eight stores opened in December alone. Lidl also boasts that sales over the past two years are up by 21 per cent.

Yet Lidl’s claim that it is the fastest-growing supermarket during the festive season is under challenge as grocery tracker Nielsen suggests that Marks & Spencer was the fastest-growing food retailer, with a 9.4 per cent rise in sales over the past three months, while sales at Lidl were up 8.5 per cent.

Sounds to me rather like there is a lot of splitting of hairs going on as to who has done the best. 

But this fierce competition can only be good for the shopper in terms of prices. Such is the competition that Lidl has even promised that it will remain the lowest-cost destination.

Tesco and Sainsbury’s are now due to give their updates, so we will get a fuller picture of the overall sector. 

What is clear is that total food sales were up over the festive period and Nielsen forecast Britons spent £7billion on food in the two weeks to Christmas. In contrast, online non-food sales were down by a sharp 14 per cent in December.

Hardly a surprise, with most customers still stuck in semi-lockdown WFH limbo.

Lawyers beware

Don’t be envious that newly qualified lawyers are being offered £150,000 a year as a starting salary. Most of the firms paying these big bucks are American.

Paradoxically, one of the reasons they are having to fork out so much is that so many young lawyers are leaving: all part of what is being called the Great Resignation.

The reason they are leaving is because they are burnt out and overworked.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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That old adage, ‘When the going gets tough, the tough go shopping’, has never been more apt. 

As the latest crop of trading updates for the Christmas period from some of the UK’s biggest companies shows, the pandemic has failed to dampen the British shopper’s appetite for spending.

But what is beginning to show through in the trading results is that shoppers’ habits are changing as to how and where – and on what goods – they are spreading their incomes because of the impact of lockdowns and Covid restrictions.

As the latest trading updates for the Christmas period from some of the UK’s biggest firms shows, the pandemic has failed to dampen the British shopper’s appetite for spending

As the latest trading updates for the Christmas period from some of the UK’s biggest firms shows, the pandemic has failed to dampen the British shopper’s appetite for spending

What’s more, the companies which are doing particularly well, like Sainsbury’s, Dunelm and JD Sports, are the ones which have been quick to adapt to these changes.

To be fair, there’s luck involved too as they are already in the sectors where customers are channelling their spending, which is mainly on homes and food.

Take Sainsbury’s. It had an excellent run-up to Christmas with strong grocery sales, and notably fizzy champagne sales, reflecting how customers stocked up to feast more at home. 

Profits for the year have been upgraded accordingly. Yet at the same time, Sainsbury’s is keeping prices low, and is clearly not frightened of taking the fight straight to the heart of the German dissenters, Lidl and Aldi.

The grocer knows that keeping prices competitive and giving customers value for money is the best way to drive volume, and will continue to do so this year as the cost of living rises.

Dunelm is another to benefit from the switch. Helped by customers upgrading their homes, the home furnishings group is now upgrading its profits guidance. 

Compared to two years ago, Dunelm reports sales up a chunky 26 per cent and is forecasting £140million for the first-half of the year and a ‘material’ increase for the full-year.

Youngsters may not be spending so much going out or dressing up for parties but they are still forking out for expensive, sought-after trainers being sold by JD Sports. 

The sports chain is also putting up its profits guidance after a ‘robust’ performance and looks set to easily beat market expectations of around £810million.

It’s not often you hear such confident sentiments coming from company chief executives even in normal times, if there is such a thing. 

So it is encouraging to hear that trading so far is looking good, particularly now that the UK looks set to be one of the first countries in the world to emerge from the pandemic.

Yet the last two years will not be pain-free for many companies. Those legacy brands in the middle with city centre departments stores, such as John Lewis, Frasers Group and Marks and Spencer, will be squeezed although the likes of M&S are adapting fast, opening smaller grocery shops with a small number of ranges as an add-on.

One of the longer term shifts in spending patterns, and shopping behaviour, is that some form of ‘working from home’ is here to stay, maybe not for five days a week but certainly a couple.

That’s why online shopping is set to keep rising and why so many retailers – M&S, Greggs and even Pret A Manger – are moving out of city centres to smaller towns or retail parks to be closer to customers, many of whom will become part-time commuters. 

Analyst Susannah Streeter of Hargreaves Lansdown warns this will be a painful transition not only for legacy brands but also for the landlords of city centre properties.

Converting office space into residential is expensive and councils are notoriously slow at giving planning consent. Hopefully, they will see sense and act quickly if they want centres to survive and rates to be paid.

It’s a case of needs must.

Transitory or not

Those inflationary clouds hovering across the United States don’t look so transitory after all. Inflation has risen for the seventh month in a row to reach a whopping 7 per cent, the highest it has been for 40 years.

Price rises for energy, food, housing and new cars – up by a staggering third year-on- year – are being blamed for the jump.

While the cost of energy subsided in December – its first drop since April – food prices are still up by 6.5 per cent.

Economists say there are signs that prices are easing in some areas, such as raw materials, as supply chains recover from the bottlenecks created by the pandemic.

The Federal Reserve chief Jay Powell needs to find a more appropriate word than ‘transitory’ as well as being ultra-cautious with the timing of interest rate rises if he is to avoid tipping the US into recession.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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