GDP figures set to clarify position of UK economy

The chances of the UK falling back into recession will become clearer this week when gross domestic product (GDP) figures for the final quarter of 2011 are published, while WH Smith and Carphone Warehouse will provide further insight into the retail sector’s Christmas performance.

GDP increased 0.5 per cent in the third quarter of 2011 but growth has since been torpedoed by a squeeze in spending caused by high inflation, soaring unemployment, austerity measures and the eurozone debt crisis hurting exports.

It is touch-and-go as to whether the Office for National Statistics will reveal that the economy contracted in the final quarter of 2011, according to economists.

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Philip Shaw, chief economist at Investec Securities, expects GDP to have declined by 0.1 per cent driven by a fall in manufacturing. He expects further falls in both the first and second quarters of 2012.

He said: “The better news is that we expect the downturn to be shallow and reasonably short.”

Carphone Warehouse will give its first update since it called time on its attempt to shake up the UK white goods and electronics market.

The firm pulled the plug on its Best Buy joint venture after losses of £46.7 million in the six months to September, and the City will be looking for further details on the operational and financial impact of closing the stores.

Elsewhere, Carphone is expected to report that ongoing strong sales of smartphones – including Apple’s iPhone 4S and Research In Motion’s BlackBerry – ensured strong UK sales in the run-up to Christmas.

Retailer WH Smith is expected to reveal a further drop in sales on Wednesday as its stores are likely to have struggled to shift a poor selection of celebrity biographies.

Analysts said like-for-like sales at WH Smith’s high street operation were likely to be down 6 per cent during the 21 weeks to 22 January, while trading in the travel side of the company located at train stations, airports and motorway service areas is expected to have dropped 4 per cent.

This year’s line-up of books featuring Apple founder Steve Jobs, comedian Lee Evans, Manchester United star Paul Scholes and actress Joanna Lumley did not amount to a “strong Christmas schedule” and would have hurt sales compared with a year ago, experts from Oriel Securities said.

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Meanwhile, sluggish trade at motorway service areas caused by higher petrol prices is expected to have been the greatest burden on the travel arm.

Despite the drop in sales, analysts remain positive on the company as targets for cost savings and gross margin gains should be confirmed.

Budget airline EasyJet publishes its first-quarter trading update on Thursday but its performance is likely to be overshadowed by interest in the ongoing spat between the company and its founder Sir Stelios Haji-Ioannou.

Sir Stelios wrote to Prime Minister David Cameron accusing EasyJet’s board of softening performance targets in order to make a £7m share payout for executive directors more easily attainable. His intervention comes as EasyJet is expected to reveal further revenues growth in its latest trading update – but analysts have questioned whether it will be strong enough to cover the rising cost of fuel and taxes.