Strength of recovery is crucial post-recession

Jan 25 2010 by Iain Laing, The Journal

WHILE the UK is expected to emerge from recession next week, outlook comments from blue- chip firms BSkyB and AstraZeneca will be important in gauging the strength of the recovery in 2010.

The long-awaited news that the UK has exited recession will come tomorrow with publication of official figures on the last three months of 2009.

After six straight quarters in decline, economists predict growth will have returned amid tentative improvements in the dominant services sector and better signs from manufacturers.

Forecasters predict gross domestic product (GDP) growth of around 0.4% for the last three months of the year, although many fear the recovery will continue to be fragile.

The UK has lagged behind other major economies in clawing its way out of recession and has suffered the longest period of continuous decline since Office for National Statistics (ONS) records began in 1955. The overall contraction in 2009 is expected to be in the region of 5%.

Economists were taken by surprise when the economy failed to begin its recovery in the July to September quarter last year. Expectations for a return to growth are pinned on the UK’s crucial services sector, while recent CBI survey data has shown an upturn for manufacturing. Data for retail and services has been less clear.

The bitter row at the top of All Bar One pubs group Mitchells & Butlers will come to a head on Thursday as the board clashes with its biggest shareholder at the company’s annual meeting in Birmingham.

Piedmont – an investment vehicle owned by billionaire investor Joe Lewis which owns 23% of the business – has put forward four independent directors to improve the company’s performance, but the board has accused Piedmont of attempting to take control of the firm.

The dispute began last year when M&B removed four directors from the board – including Piedmont’s two representatives – amid suspicions that they were not acting in the interests of all shareholders.

The board’s opponents also include John Magnier and JP McManus, the Irish horseracing tycoons, who between them own 17.6% of M&B.

Drugs giant AstraZeneca’s fourth- quarter and full-year results on Thursday will be watched for any comments on implications of the fast-receding threat of swine flu.

AstraZeneca upped profit expectations at the end of October as it said it was being boosted by additional orders for the H1N1 flu vaccine.

Vaccine sales in Astra’s third quarter helped Astra bank sales of £5.1bn, with pre-tax profits rising to £1.88bn. And it increased full-year earnings guidance, given that the rest of the swine flu vaccine sales were due in the next three months. But since then, the spread of swine flu has been easing.

Broadcasting giant BSkyB reports interim figures on Thursday after what analysts have described as a solid performance amid the recession. But the group is likely to find attention focused on its next move following the rejection of its latest appeal over the forced sale of most of its stake in ITV.

The Court of Appeal stood by the Government’s decision to force BSkyB to reduce its 17.9% ITV holding to 7.5%.

It is now thought that Sky may give up the legal battle and sell the shares to end the long-running saga. The group has already suffered losses of around £500m on the investment and the market will be keen for any clue on plans to offload the shares.