Wednesday evening business bulletin

Jul 2 2008 By Andrew Mernin

The high street squeeze tightened its grip on Marks & Spencer today after the retail giant’s worst sales performance in three years and a shock profit warning.

Chief executive Sir Stuart Rose said consumer confidence levels had ``deteriorated markedly" in the past three months as shoppers came under pressure from soaring petrol, food and energy bills.

The sales gloom sent shares in M&S down 25% - wiping around £1.25bn from the value of the company - as analysts rushed to lower forecasts.

The update - a week earlier than expected - caught the City off-guard with a 5.3% fall in UK like-for-like sales in the 13 weeks to June 28. This represents its worst quarter since April to June 2005.

M&S added that director of food Steven Esom, who joined from Waitrose just over a year ago, was leaving the company immediately after a ``significantly weaker" performance from the food business.

The company posted annual profits of £1bn two months ago for the first time in more than a decade, after a revival led by Sir Stuart in recent years.

But today’s figures are the latest in a series of chastening trading updates from the group as clouds gather on the high street.

The UK faces a 100,000 rise in unemployment over the coming two years, according to projections today from a respected international economic body.

Joblessness rates will increase from 5.4% of the workforce in 2007 to 5.8% in 2009, with total numbers reaching 1.8 million on the International Labour Organisation count, said the Organisation for Economic Co-operation and Development.

The OECD’s annual Employment Outlook report also confirmed gloomy forecasts for the UK economy which the 30-nation body published in June, when it sharply downgraded predictions for GDP growth.

After a fall from 2007’s healthy 3% to 1.8% in 2008, the OECD expects growth in the UK to tumble further to just 1.4% next year.

The projection contradicts Chancellor Alistair Darling’s Budget forecast of 1.75%-2.25% growth for 2008, followed by a rise to 2.25%-2.75% as the economy picks up again in 2009.

Construction activity slowed at its fastest rate for at least 11 years last month as the sector was hit by a sharp slump in housebuilding, a survey revealed today.

The Chartered Institute of Purchasing and Supply (CIPS) said its Construction Purchasing Managers’ Index - which measures overall industry performance - dropped 5.1 points to 38.8 in June, the biggest monthly fall since the survey began in April 1997. A figure of 50 represents growth.

The CIPS housing activity index dropped to 25.6 in June from 32.7 the previous month, also the lowest reading on record.

Both other industry sub-sectors registered falls as well, with commercial activity down from 43.6 to 41.1 last month, and civil construction down to a new record low of 40.0, from 52.5 in May.

The construction sector has been among the worst affected by the recent economic slowdown, with borrowing harder to come by as a result of the credit crunch and soaring raw materials costs taking its toll.

Today’s CIPS survey came as Britain’s biggest housebuilder Taylor Wimpey warned it was laying off 900 jobs in the UK to cope with the downturn. The firm said its house completions fell by a third during the first six months this year, and that it was not expecting any recovery ``in the short-term".

The pound at 5pm was US$1.9930 compared to US$1.9930 at the previous close while the euro at 5pm was £0.7964  compared to £0.7916 at the previous close.