Caution on outlook sensible

The trade appears increasingly confident the worst of the recession is behind us – albeit the worst is most definitely not over for the airlines.

Barclays Capital global foreign exchange strategist Adarsh Sinha was as upbeat as circumstances allow at last week’s Barclays Travel Forum, echoing the assessment presented to the Institute of Travel and Tourism conference by Oxford Economics chairman John Walker (Travel Weekly, June 12). A show of hands at the latter suggested no ITT delegate foresees deteriorating trading at their own company.

However, a degree of caution is sensible in light of Sinha and Walker’s qualifying remarks. Sinha suggested: “There is a strong possibility the situation could worsen. We are seeing one of the biggest experiments in economic history against possibly the biggest recession.”

Walker warned: “Consumer spending is declining and . . . this could go further. Taxes have to rise.” Indeed, Walker forecast the UK economy would grow a mere 0.1% next year following a 4.1% decline this year – adding that this view placed him “in the optimistic camp”.

Sinha spoke the same day as the Financial Times reported: “This recession fully matches the early part of the Great Depression. The good news is the worst can still be averted . . . But those sure we are at the beginning of a robust recovery are almost certainly deluded.”

Since then we have seen a report suggesting negative equity now affects one in ten UK borrowers and this could rise to 23%. Unemployment continues to rise and the Confederation of British Industry reports two-thirds of employers cutting hours and pay by various means. Inflation remains higher than forecast while wages stagnate. VAT will return to 17.5% at the New Year, other tax rises and charges are in the offing and all this must affect discretionary spending – of which travel is a major item.

That could be why travel company share values – as measured by the Travolution Index – fell on Monday to their lowest since early March. It all sounds more like the end of the beginning than the beginning of the end.