Highlight | Economic Outlook | 2010

Despite encouraging Christmas sales on the high street, retailers and consumers alike are cautious about prospects for the new year.

The mood on the high street

Leading up to Christmas, fashion retailer Next reported a like-for-like sales improvement of 3.2%. Shares in the company have risen by 93% over the past year.

Department store chain John Lewis reported its best-ever Christmas sales. The retailer reported revenues of £500.8 million in the five weeks to 2 January 2010, up 12.7% like-for-like on the previous year. However, both Next and John Lewis remain cautious, expecting 2010 to still be a potentially difficult year. Management at Next have warned that government action – such as tax increases, spending cuts and rising interest rates – could threaten consumer spending.

High street bellwether Marks & Spencer, however, had to settle for disappointing Christmas sales. Analysts had expected like-for-like sales to increase by 2% for the quarter to Boxing Day, but the iconic retailer reported only a 0.8% rise.

Economic outlook

Looking ahead, IG Markets Research Analyst Anthony Grech feels 2010 could be a judgement year, and that markets may end up trading sideways. World and economic leaders took some drastic steps in 2009 to ensure we avoided the first global economic depression since the 1930s, and in 2010 we may well find out whether those decisions pass muster.

In the UK, it will be interesting to see whether the government’s quantitative easing programme has a lasting impact on the recovery, and the upcoming election could dish up a few surprises for investors and consumers alike.

Unemployment

The main threat to growth in the UK remains unemployment, and forecasts are that job losses will continue to exceed job creation until 2011. Sentiment in the US is more positive, with the trend expected to turn some time in the first half of this year. In 2010, positive US labour data could bolster the US dollar, which will have an impact on a number of markets globally, including commodities, and may even drag down the high-flying gold price.

After a year in which analysts tend to agree the world economy dodged a bullet, it will indeed be interesting to see the action in the new year. Twelve months of uneven trading across a range of markets could mean a year of opportunity for investors.

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Updated: 11/01/10