Goldman’s recession warning

CORONAVIRUS could push the UK to the brink of recession in the coming months, a top investment bank has warned.

The outbreak will cause a ‘substantial’ near-term hit to economic growth, decimating the tourism industry and slashing leisure spending as Britons stay indoors, say Goldman Sachs analysts.

It will cause a headache for new Chancellor Rishi Sunak, who is due to present his first Budget next week. But analyst Sven Jari Stehn said: ‘The budget may now focus more on measures to safeguard public health than a broad-based expansion of spending.’ Goldman Sachs expect the economy to be flat in the first three months of 2020 and to contract by 0.2 per cent between April and June.

The FTSE 100 slid by 1.6 per cent yesterday, wiping another £27.6billion off the value of Britain’s biggest listed companies.

CONTRACTOR Capita shed more than a third of its value after admitting its restructuring is proving more difficult than expected.

Chief executive Jon Lewis has been trying to simplify the outsourcing giant since he was parachuted in to turn it around in 2018, following profit warnings.

Capita – dubbed ‘Crapita’ by its critics – has 63,000 staff across a range of industries and is known for being the collector of the BBC licence fee.

It was long a stock market darling and was the contractor of choice for Tony Blair’s Labour government, when it was the poster child for outsourcing.

But Lewis wants it to move away from low-value, labour-intensive contracts to focus on high-tech work, such as IT and providing services to other businesses, so that it stands out against its competitors such as Serco, Mitie and Interserve.

But, the group warned yesterday, this is coming at a price – one that saw it swing to a £62m loss in 2019 and prompted debt to spiral to £791m from £466m in 2018.

This was at least £100m more than investors were bracing for.

Revenues fell 6pc to £3.7bn, as it also warned the amount of cash it expects to generate this year was lower than it previously thought, which spooked traders and analysts. Shares plunged 38.4pc, or 48.6p, to 77.9p – a move Lewis said was ‘a massive overreaction’.

It was a much better day for another struggling contractor – construction specialist Kier

Group. It soared 28.1pc, or 28.5p, to 130p, as a huge push to cut costs appeared to be paying off.

Revenue dipped 9pc to £1.9bn in the six months to December 31. It stayed in the red, with a loss of £41.2m but its main overheads were cut to £14m from £35m in the same period of the year before.

The group has cut jobs and closed offices, though the restructuring programme itself came at a price of £49m in the six-month period. Chief executive Andrew Davies said there are two buyers looking to snap up its housebuilding business, Kier Living.

Davies, who took over last April, has been trying to sell it since he finished a review last summer.

After solid gains on Wednesday, the FTSE 100 dipped back into the red, falling 1.6pc, or 110.16 points, to 6705.43.

Excitement that more central banks could cut interest rates, following the example of the US Federal Reserve, wore off as the coronavirus epidemic appeared to gain more steam, and cases in the UK jumped.

The FTSE 250, which is more sensitive to events that happen in Britain, fell 2.1pc, or 419.7p, to 19,323.13. Premier Oil dived 14.4pc, or 11.42p, to 67.66p as record production could not counter a fall in oil prices, which knocked 36pc off profits, which fell to £79m last year.

The company, which is trying to buy North Sea oilfields from BP and South Korea’s Dana Petroleum and get a refinancing deal approved, said its priority is still to pay down debt. It believes the acquisitions and refinancing would help with this and has committed to its operations being carbon neutral by 2030.

Elsewhere, Russian gold miner and processor Petropavlovsk gained 6pc, or 1.25p, to close at 22p after it was promoted to the FTSE 250 index. And over on AIM, legal and professional services firm Knights Group lost 5.5pc, or 25p, to close at 430p after it bought two firms.

It has taken over Shulmans for up to £20m and ASB Law for up to £8.5m, which will add another 219 fee-earning staff to its team.

Knights will raise £20m by selling new shares to fund the deals and costs.