Ignore the data, Royal Wedding and sunshine give Britain Plc a Q2 kickstart
But a string of bullish updates from British retailers and manufacturers suggest that the second quarter could have got off to a flying start, with fine weather, the Easter holiday and the Royal Wedding all improving the national mood.
Anybody who ignores such signals from within the real economy does so at their peril. In January the pound tumbled when it emerged that the British economy had suffered a shock contraction in the final three months of 2010. The market was caught off guard again a month later when revisions painted an even bleaker picture.
Those of us who had been following closely the steady stream of profit warnings from UK retailers, travel groups and builders were not quite so surprised, particularly as we churned out long lists of companies hit by December’s big freeze and predicted a looming standstill in the construction industry.
The big question now is whether the glow left by a month of unusually sunny weather and two holidays in swift succession for Easter and the Royal Wedding will translate into a sustainable recovery, or at the very least be enough to dull some of the pain of government cutbacks and job losses.
Supermarket group Morrison is sounding very cautious this morning. In common with a growing pack of retailers it has reported stronger than expected sales thanks to a bumper April but has not raised its forecasts for 2011 as a whole, citing falling disposable incomes and economic uncertainty.
An industry survey on Tuesday showed shopkeepers are planning for a weak May after last month’s pick up.
Those in the firing line of government cutbacks also show that for some at least, the worst has yet to come. Defence giant BAE Systems said this week that it still expects sales to be hit by lower UK military spending, hinting that more job cuts may be on the way.
April’s mini-boom did, however, give fashion retailer Next the confidence to up its guidance for the first half even if analysts warned people not to assume there had been a sea-change in consumer morale.
There are also very early signs of something more than just a bit of fair-weather, party spending. Within the construction sector — such a big drag on the economy at the end of last year — shares in house builder Galliford Try are up over 9 percent today after it predicted significantly better than expected full-year results following a buoyant spring where it has been enjoying a substantial rise in home sales even if prices remain subdued. Property website Rightmove also reported this week that its average revenue per advertiser was growing strongly while upmarket property consultant Savills has flagged a strong performance from its UK residential business.
People don’t buy new houses on the back of Royal Wedding good cheer, do they?
Meanwhile software firm Sage this week reported growth across all regions for the first time since 2007, citing a tentative recovery in spending by small- and medium-sized businesses while Logica, which helps manage companies’ IT systems, beat sales growth forecasts thanks to precisely the sort of stronger private sector demand the government is pinning its hopes on.
Not everybody is having an easy time of it. DIY chain Focus is preparing to appoint administrators, putting almost 4,000 jobs at risk, while chocolatier Thorntons blamed warm weather for weak Easter trading.
Overall, though, the upbeat noises have been drowning out much of the bad news from a corporate perspective with engineering group Weir upping its profit guidance, Moneysupermarket.com saying it is trading well ahead of last year and pub group Wetherspoon describing sales as resilient. Shares in bus and train operator Go-Ahead jumped today on higher profit guidance
The economy is certainly not out of the woods yet, with many firms grappling with high raw material costs and individuals worried about their jobs, but perhaps markets should be bracing themselves for a positive surprise from second quarter GDP data after the nasty shock at the end of last year and consequently readying themselves for rate hike expectations to be brought forward again. Whether its an expression of confidence or just irrational, ‘pomped up’ exuberance, there’s no getting away from the fact that the FTSE 100 is hovering around levels not seen in almost three years.
Next week brings another flurry of corporate earnings, by the end of which we should have an even clearer picture of how Britain Plc is really faring.