The Daily Telegraph Friday 16 August 2019 *** 31Summer shoppers splashing out may have helped avoid recession
By Tim WallaceSHOPPERS spent so much last month
that they may have helped the econ-
omy avoid a recession despite the pres-
sure from the US-China trade war and
the risk of a no-deal Brexit.
Retail sales volumes rose 0.2pc in
July compared with June, defying ex-
pectations of a slump in purchases.
Sales also rose 3.3pc compared withJuly 2018, well ahead of the predicted
2.5pc increase.
Department stores breathed a sigh of
relief as sales rose 1.6pc on the month,
an improvement after six consecutive
months of decline. However, this was
largely fuelled by summer clearance
sales rather than a surge in full-price
purchases.
The Amazon Prime day of online dis-
counts on July 15 helped push retailsales to their highest July level ever, ac-
counting for 19.9pc of all sales by value- meaning almost one pound in every
five was spent over the internet.
“July’s positive sales will come as a
surprise to many as negative headlines
continue to dominate coverage of the
retail sector,” said Ian Geddes at De-
loitte. “Last summer’s strong retail per-
formance, a season defined by
prolonged warm weather, a Royal
Wedding and a football World Cup to
boot, should have been a tough act to
follow. Whilst year-on-year food sales
have struggled to repeat themselves
this July, the arrival of ‘T-shirt and
shorts’ weather in the UK combined
with promotional activity boosted
clothing sales.”
The retail industry is not out of the
woods yet, however, as the surge in
sales relied in part on heavy discount-ing. Online sales were particularly
strong, rising 12.7pc year on year, indi-
cating that the high street is not the
sole beneficiary of shoppers’ enthusi-
asm. Food sales slipped and household
goods shops also struggled.
Nonetheless the overall improve-
ment in sales indicates the strong jobs
market and rising incomes are giving
the economy more support, boosting
domestic demand even as exportsstruggle and businesses hold off invest-
ment in the face of intense political un-
certainty.
“July’s figures leave us more confi-
dent that the economy avoided another
contraction in the third quarter,” said
Gabriella Dickens at Capital Econom-
ics. “If there isn’t a no-deal Brexit, we
see no reason why household spending
should continue to underpin growth in
the economy.”FirstGroup bows
to pressure and
appoints former
rival as chairman
By Oliver GillFIRSTGROUP has bowed to share-
holder pressure by appointing the for-
mer chief executive of rival Arriva as
chairman of the troubled rail and bus
operator.
David Martin, who had been pro-
posed as director as part of a board-
room coup by FirstGroup’s biggest
investor, Coast Capital Management,
will take over with immediate effect.
He replaces Wolfhart Hauser, who
stepped down after almost a third of
shareholders voted against him at a
general meeting in June convened at
the request of Coast.
Two more directors subsequently
stepped down at the end of July after
investors revolted in a separate vote at
FirstGroup’s annual general meeting.
The Investor Forum, an influential
group of heavyweight financial institu-
tions, has piled further pressure on the
FTSE 250 company in recent weeks.
The Forum, which spearheaded a
successful revolt against Unilever’s bid
to move its headquarters out of the UK
last year, wrote to FirstGroup to raise
dissatisfaction over the pace of change
under the current management, The
Daily Telegraph understands.
Mr Martin was among a number of
directors initially proposed by Coast in
June as it sought to oust half of the
company’s board. He dropped out of
the running prior to the vote, however.
Tensions have run high between
FirstGroup and its biggest investors for
more than a year after the company re-
jected a takeover attempt from US pri-
vate equity firm Apollo.
Shareholders want the company to
offload its struggling Greyhound busnetwork in the US and many believe it
should stop operating trains in the UK.
Greyhound and FirstGroup’s UK bus
network was formally put up for sale
in May.
Earlier this week a consortium led
by FirstGroup won a 10-year contract
to run Britain’s most profitable rail line,
the West Coast Mainline, as well as ser-
vices on the fledgling High Speed 2
line. FirstGroup and Italian firm Treni-
talia will take over from Virgin Trains
in December, ending Sir Richard Bran-
son’s long association with the railways
in the UK.
Coast, which had proposed former
transport minister Steven Norris as
chairman, said it was “delighted” at
the decision to appoint Mr Martin,
whom it called “one of the most accom-
plished leaders in the surface transport
industry”.
“His appointment marks, clearly,
much needed change, and the begin-
ning of a new and productive chapter
in the company’s history, as mandated
by investors,” it added.
“There remains however much more
to be done – we look forward to the re-
maining three vacant board seats also
being filled by individuals who enjoy
investors’ support, and who hold the
requisite skill sets.”
Mr Martin is credited with trans-
forming Arriva between 2006 and
2016, overseeing a number of acquisi-
tions and the sale to German transport
giant Deutsche Bahn. He said: “Un-
doubtedly there are challenges which
we must overcome, but I am confident
in the opportunity that exists to unlock
the considerable value.”
The Investor Forum declined to
comment.Asda’s chief
blames Brexit
for slowdown
in spending
By Laura OnitaASDA boss Roger Burnley blamed
Brexit for shattering consumer confi-
dence and knocking the supermarket’s
sales in the first half of the year.
Mr Burnley, who worked with Sains-
bury’s chief executive Mike Coupe to
orchestrate its now defunct £7.3bn
takeover of Asda, said: “If ever a case
study on the impact the mood of the
nation has on UK spending habits were
needed, this quarter has provided it.
“Consumer confidence levels are at
an almost six-year low – due in no small
part to the ongoing uncertainty around
Brexit and amplified by the impact of
weather.”
The supermarket chain, owned by
US giant Walmart, said like-for-like
sales fell by 0.3pc for the six months to
the end of June. This excludes sales
from new stores. It fared better in the
second quarter, with sales up 0.5pc,
mostly due to the late timing of Easter.
Mr Burnley added: “Our non-food
business has been challenged during
the period, however, we’re satisfied
that our food business has continued to
perform well and our online growth
continues to outpace the market.”
Walmart’s boss Doug McMillon ech-
oed Mr Burnley’s remarks, saying Brit-
ain was a “challenging” market.
Profits also fell during the second
quarter, although Asda did not disclose
a number. It blamed price cuts
and sluggish sales of non-food items.
The news comes a day after Asda’s
workers protested at its Leeds head-
quarters over new contracts. The re-
tailer is promising higher wages under
the new terms but staff will no longer
receive paid breaks. They would also
have to work on bank holidays.
“We continue to work through our
contract changes with colleagues and
whilst we recognise that change is al-
ways difficult, we continue to believe
this is the right and necessary approach
for us to take in order to remain a sus-
tainable business that delivers for cus-
tomers,” Mr Burnley added. Growth industry Prairie Machine electric vehicles parked at Cory potash mine in
Saskatchewan, Canada. Owner Nutrien said it expects potash consumption to rise faster
than other types of fertiliser until 2023, and that demand may reach 75.5m tons a year.BLOOMBERGBusiness
H
e is the biggest threat to
the eurozone, the
scourge of migrants and
potentially Italy’s next
prime minister.
Matteo Salvini built
his reputation as a firebrand, taking
the Right-wing Lega Nord from its low
ebb of 4pc of the vote in 2013 to more
than 36pc in this year’s European
elections. He cut “Nord” from the
League’s name, turning what was once
a northern separatist party into a
national force.
Now he is on the brink of power. A
confidence vote scheduled for next
week could bring down the
Government, after Salvini, leading the
junior faction in the ruling coalition,
announced he would withdraw his
support for the administration.
The senior party, Five Star, has seen
its vote share tumble since last year’s
general election. As Lega gained a
commanding lead in the polls, Salvini
took his chance to bid for a new vote.What would Salvini
mean for the economy?
Salvini was the driving force behind
last year’s bust-up with Brussels.
Favouring tax cuts and higher
infrastructure spending, he says he
wants to boost the economy. The EU
worries the extra borrowing would be
a serious hazard to Italy’s already
teetering debt pile.
A long-standing Eurosceptic, he
raised the prospect of issuing debts
with a sort of parallel currency, raising
fears the eurozone’s third-largest
economy could ditch the euro.
Markets panicked. Borrowing costs
jumped. Italy fell into recession. GDP
has not recovered, rising 0.1pc in the
first quarter and holding flat on the
year. On the face of things, Salvini
favours similar steps now. His
preferred candidate for finance
minister wants to give the economy a
jolt with tax cuts and investment.
But he also wants to trim other
spending, ditching some of Five Star’s
proposals such as cutting the pension
age and dishing out a universal basic
income. Done carefully, economists
think there is room for this to work.
A deficit of 2.5pc of GDP is “notunaffordable for Italy, especially given
the current economic weakness and
the current very low financing costs”,
says Giada Giani at Citi.
Part of the appeal is that Salvini has
managed to position himself as less
risky than Five Star. “In the short run,
Salvini would to some extent have
policies that would be a little bit more
market friendly and that would speed
up what would probably be, at some
point in the next six to 12 months, a
slow recovery,” says Claus Vistesen atPantheon Macroeconomics.
“While on balance Lega’s own
spending plans are relatively more
conservative than those pursued by
the current coalition, their push to
have a flat tax is incompatible with the
fiscal constraints that Italy faces,” says
Andrea Iannelli at Fidelity
International.
If VAT does increase, it could harm
the weak economy further. “There is a
tangible risk that such a tax increase
could have a negative impact on
household spending and internal
demand at a time when another doseof weakness in foreign demand,
triggered by persisting trade tensions
and slower US growth, is likely to take
its toll,” says Loredana Maria Federico
at UniCredit.What about the eurozone?
Hostile rhetoric from the man who
would be prime minister has put
Brussels’ back up in the past, and
relations are at best uneasy. That
makes for a difficult backdrop to his
putative premiership, given that EU
permission is required to break the
borrowing rules.
Fortunately for Salvini, France’s
budget deficit is set to exceed the 3pc
limit this year. This could give Italy
cover to do likewise.
“When a Government is friendly to
Brussels, it is allowed to flout the
rules,” says George Lagarias at Mazars.
“When it is not as friendly then
Brussels remembers there are rules
binding them to whatever outcome
they wish.”
Salvini’s rise shows voters remain
unsatisfied and are picking leaders
who will not aid European integration.
“I see this as a negative milestone
towards more disruption and
centrifugal forces in Europe,” says
Lagarias, warning that populism is
here to stay. “Until we get a little bit
more economic equality and more
democracy functioning in Europe, we
will see more of this.”Will Salvini lead Italy into deep
water as he angles for power?
0.1pc
Italy’s rate of growth in the first quarter of
this year. The country’s economy is the
third largest in the eurozoneMatteo Salvini portrays his radical policies as less risky for the economy than Five Star’sSTEFANO CAVICCHI/LAPRESSE VIA ZUMA PRESS/REXThe Lega firebrand is on
the brink of being PM, but
he may actually steady the
ship, writes Tim WallaceРЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS