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What Recession, Mate? As British Retail Sales Surge in December, Is The Recession Ending?
by Martin Denholm, Senior Editor, Investment U
Wednesday, January 13, 2010
So much for the British recession.
Figures just released from the British Retail Consortium (BRC) show that consumers shook off the country’s economic woes, plus a projected cutback in personal spending, and handed retailers an unexpected Christmas gift.
Retail sales jumped by 6% in December – the best results for that month since December 2005. Same-store sales rose by 4.2%.
Of course, those figures look better when compared to the awful retail numbers from December 2008, but the performance underlines the resiliency of British consumers. With six straight quarters of negative economic growth as a backdrop, plus an extended period of poor weather tossed in, retailers feared the worst. But Brits braved snow, ice and bitter cold to hit the stores with gusto.
Unsurprisingly, food and drink sales were particularly strong. And clothing sales notched up their best performance in five-and-a-half years.
And such a surprisingly strong end to 2009 has some cautious Brits filling their glasses half-full…
“On The Brink of Leaving Recession”
Mired in a deep recession – its first since 1991 – the U.K. is lagging behind fellow European countries like Germany and France, which emerged from recession in 2009.
And while one month’s worth of solid retail sales results doesn’t make a trend (especially in a traditionally stronger month like December), the British Chambers of Commerce (BCC) says upturns in both the retail and manufacturing sectors were enough to put the economy “on the brink of leaving recession” during the fourth quarter of 2009. Its survey of 5,000 businesses indicated a positive trend in manufacturing exports and future hiring plans.
However, the fear also exists that the holiday season was merely temporary respite from a job market, service sector and housing market that are still weak, along with business investment.
The telltale date will be January 26, when the government releases the fourth quarter GDP growth figure.
With the overall environment still fragile, the best – and simplest – way to play an upturn in British GDP growth fortunes right now is to hedge your risk with an ETF. Two to consider are…
- iShares MSCI United Kingdom Index (NYSE: EWU): The fund tracks the price and yield performance of top British stocks on the London Stock Exchange, including GlaxoSmithKline, BP, HSBC, Vodafone and AstraZeneca.
- CurrencyShares British Pound Sterling Trust (NYSE: FXB): The fund has enjoyed an 18.3% run off the stock market’s lows in March 2009. This is partly due to weakness in currencies like the U.S. dollar, against which the pound gained 11% in 2009. But sterling has also held relatively firm because the Bank of England has managed to shore up the nation’s fragile financial sector. In turn, that’s led to higher investment inflows into the U.K. from pension funds, insurance companies and institutions.
Best regards,
Martin Denholm
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