The news was mixed about the U.K., as Moody’s Investors Service retained its negative outlook on U.K. banks and luxury goods maker Burberry said it would disappoint on full-year earnings on slowing global sales. However, the pound rose on news that the U.K.’s trade deficit fell in July, implying that Britain may be emerging from recession.
Bloomberg reported Tuesday that while Moody’s declined late Monday to change its negative outlook on the country’s banks, citing the recession, possible additional loan writedowns and higher regulatory costs, and Burberry dragged other luxury stocks down with it on its gloomy news, all the news out of Britain was not bad. In early trading the pound reached its highest level in nearly four months on news that the country’s trade deficit had decreased.
In a statement, Elisabeth Rudman, a Moody’s senior vice president said, “The continued negative outlook for the U.K. banking sector is driven by the U.K.’s uncertain economic prospects, pressure on profitability and downside risk for asset quality.”
The ratings agency also cited in its statement that profitability stood to be cut by tighter consumer protection in the wake of British banks’ misselling of loan insurance, Basel III capital rules and proposals to raise firewalls around retail banks.
Burberry, down by as much as 20% at one point in early trading, revealed in a statement that, among stores open at least a year, sales were unchanged in the 10 weeks ending Sept. 8, with a “deceleration in recent weeks.” Accounting for currency shifts, retail sales were up 6% after a first quarter in which sales had increased 14%.