LAST week's revised economic growth figure for the UK economy showed a modest 0.5 per cent for the third quarter, down from the earlier estimated figure of 0.6 per cent. This figure is in sharp contrast to data for both Europe and the US.

On further inspection, economic growth continues to be generated solely by consumer spending, registering growth of 1.3 per cent over the quarter. Again, this is in sharp contrast to the health of the corporate sector which produced a small loss.

Our economy is therefore at the mercy of the consumers' ability and desire to spend. Consumer resolve will be tested over coming months as the retraction in the jobs market gathers pace.

To counter this, the effects of the recent sharp interest rate cuts will eventually kick in, while increased government spending will take up some of the slack.

As a consequence of the active consumer, retailing stocks in the market have outperformed so far this year. As a sector, general retailing has posted a 14 per cent gain since January 1 against a 14 per cent decline in the market as a whole.

Marks & Spencer has received its fair share of coverage and has recovered 86 per cent since the beginning of the year. Arcadia can top that with a 200 per cent rise in anticipation of a bid at current levels from Icelandic retailer Baugur.

Steadier performances have been seen from Boots, which is broadly unchanged, and Dixons which has posted a four per cent gain. Kingfisher remains in the doldrums, having posted a 17 per cent loss. Kingfisher's share price has however begun to recover assisted by European expansion news. The company has bought a strategic 25 per cent stake in German DIY retailer Hornbach.

Likewise, Dixons has moved into Italy, purchasing a 24 per cent stake in the leading independent electrical retailer, UniEuro, for £64m.

The company looks a good fit with the Currys and Dixons branded stores.

John Pearson

divisional director

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