Retail round up - Sunday papers

Archived article dated Sunday May 25th 2008

Rival chains check out Somerfield stores, Analysts predict Bank rate will be cut to 4.5%, property sales to fall by a third.

The Sunday Telegraph

The Co-operative Group is in early talks with rival supermarkets, including Asda and Wm Morrison, about selling on a raft of Somerfield stores if its bid for the retailer is successful.Somerfield's large rivals are examining the retailer's 900-strong store portfolio to identify stores that they would like to own. Tentative discussions between the Co-op and its rival retailers are known to have started. The exact number of outlets that the Co-op will look to sell on to rivals has not been determined. But one supermarket chief executive believes that 200 stores could be put on the market. One "Big Four" supermarket is known to have been approached with a dossier of stores that the Co-op would consider selling. However, an executive close to the Co-op said that the chain has played the more passive role in the talks. This executive said that the Co-op had been approached by all of the "Big Four" - Tesco, J Sainsbury, Asda and Morrisons - who are "jockeying for position" for the stores that it discards. "They are all looking to see which stores the Co-op doesn't want. They are all wanting to be part of it," a food retail executive said. The outlets in question are likely to be large, out-of-town stores because the Co-op has been concentrating on opening smaller 'convenience' and mid-sized stores in recent years. One supermarket executive said that the exact locations of the stores the Co-op sells on will be determined by the Office of Fair Trading. Following the recent Competition Commission report into the supermarket sector, the OFT has to examine all store sales between large supermarkets to see if they alter the balance of the local market. This means that the conclusion of the carve-up could take some time.

The Sunday Times

Economists still expect further interest-rate cuts before the year-end in spite of sharply rising inflation and a warning from the International Monetary Fund this weekend that there is no scope to relax monetary policy in the short term. A survey of analysts by Idea-global.com shows a median expectation of a 4.5% Bank rate by the end of the year, from 5% now. Analysts think the Bank will cut rates to head off a sharp slowdown in the economy even as Mervyn King, the governor, writes a series of open letters to the chancellor to explain why inflation is so high. The first of those letters is expected next month with the release of the May inflation figures, which will show consumer price inflation edging higher than April's 3% rate. When the rate exceeds 3%, King has to explain what the Bank is doing to get it back to the 2% target. If the rate stays above 3%, he is required to write further open letters every three months. The Bank fears that inflation will stay above 3% for the next nine months while some City economists fear that it will not drop back below 3% until the middle of next year. “The monetary policy committee may well feel the need to hold official interest rates at 5% for the next few months before cutting again as a result of rising inflation outturns,” said George Buckley, an economist with Deutsche Bank. “However, we continue to expect two further rate cuts, the next at the end of the third quarter. We maintain our view of a 4.5% trough by year-end.”

The Observer

Less than 5 per cent of homes in the UK will change hands this year, according to property research company Hometrack. This will represent the lowest level of activity in the housing market since the early 1990s. Hometrack says the number of people buying and selling will fall by 35 per cent. And the Council of Mortgage Lenders predicted last week that house prices will have fallen by 7 per cent by the end of 2008. 'This is the big issue at the moment,' said Richard Donnelly of Hometrack. 'People will be moving house on average once every 20 years.'

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