WRAPUP 1-Asda, Sainsbury fire warnings over UK economy

Tue Jun 28, 2011 11:27am EDT

* Asda CFO says UK consumers are in recession

* Sainsbury FD says "hard to see light at end of tunnel"

* Carpetright profit falls

* Thorntons to close stores

* TJ Hughes looking to appoint administrator

By James Davey and Mark Potter

LONDON, June 28 (Reuters) - Two bulwarks of Britain's retail sector -- supermarket groups Asda and Sainsbury -- painted a bleak picture on Tuesday, as the pound hit a 13-month low against a basket of currencies on worries about the economy.

Consumers are in recession, the chief financial officer of Asda, the British arm of U.S. retailer Wal-Mart , told the Reuters Consumer and Retail Summit.

"Do I expect it to improve any time soon? No, I do not," Judith McKenna said.

Her views were echoed by Sainsbury finance director John Rogers.

"There is a huge, huge amount of pressure on consumers, and has been certainly for the last six months and certainly will be for the next six months," he told the Reuters Summit.

"It is very difficult to see light at the end of the tunnel at the moment."

COMPANIES GOING INTO ADMINISTRATION

The Office for National Statistics confirmed an earlier estimate that the economy grew 0.5 percent in the first three months of 2011, a muted bounce from a 0.5 percent contraction in the weather-affected final quarter of 2010.

Household spending declined at its fastest quarterly pace since the second quarter of 2009, dropping 0.6 percent. Once the effect of higher taxes and inflation was taken into account, real household disposable incomes were 2.7 percent lower than a year earlier, the biggest annual fall since 1977.

Carpetright , Britain's biggest floor coverings retailer, said it was braced for two more years of tough trading conditions as cash-strapped consumers cut back on spending.

Chocolate store Thorntons said it was to close at least a third of its own stores as a result of the tough economic climate.

The difficult conditions have also led to a spate of retail companies going into administration.

Earlier this week, department store chain TJ Hughes said it was looking to appoint an administrator.

Women's fashion retailer Jane Norman has also gone into administration, following home furnishings firm Habitat UK and HomeForm, the owner of Moben Kitchens and Dolphin Bathrooms.

Craig Yeaman at Saracen Fund Managers said the retail sector remained one for investors to avoid, adding that his portfolio was "underweight" on retail stocks and more "overweight" in areas such as energy and industrial stocks.

"It is a tough place out there and consumers are being much more cautious over their spending," he said. (Additional reporting by Sudip Kar-Gupta and Tresa Sherin Morera; Editing by Dan Lalor)

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