Commercial awareness update 9th January by Ben Triggs

Is the UK the world’s strongest economy?

After a turbulent year, the UK ended 2016 as the world’s strongest economy, with business activity reaching a 17-month high in December. The economy grew by 2.2% last year, which was significantly higher than the Bank of England’s post-Brexit predictions, and more than Germany and the US. The UK’s Gross Domestic Product (GDP) actually rose more in the second half of 2016 than it did in the first.  Experts suggest only the German and UK economies will be in the world’s top eight by 2030, with the French economy forecasted to be less influential in the next decade.

The chief economist at the Bank of England, Andrew Haldane admitted economists’ pre-Brexit predictions were off the mark and has likened their inability to predict economic events to the ‘Michael Fish moment’. BBC Weatherman Fish infamously failed to predict the 1987 storm – Haldane likely this moment to economists not foreseeing the crash in the sub-prime mortgage market, which sparked the economic crash of 2008.

Last week, the FTSE 100 finished at its highest level ever, after enjoying its longest run of record closes since 1997. The FTSE hit 7,200 points on Friday, as the shares in housebuilder Persimmon rose 7% amid reports of strong sales figures. The FTSE has been boosted by the weak pound, which has fallen further today after PM Theresa May hinted about a ‘hard Brexit’. On Sunday, she suggested Britain couldn’t pick and choose which bits of the EU it wanted, causing the pound to sink to $1.2175 (a two-month low).  

There are many signs the UK’s economy is going into 2017 on stable ground, but economists have warned high inflation and the triggering of Article 50 will cause economic instability in the year ahead.

Questions to ask yourself… Is there anything the Bank of England could do to boost the value of the pound? Are there any negatives of a high FTSE 100? 

Consumer spend at two-year high

Brexit uncertainty doesn't appear to have impacted on consumer confidence, as spending increased in the final months of 2016 quicker than any time in the last two years. Payment company Visa found cash withdrawals and card payments had experienced a year-on-year growth of 2.8% in Q4 – a larger increase than both Q2 and Q3. Bars, restaurants and hotels showed the biggest spending increase, growing 7.3% in the period. A more established Black Friday and consumers spending more over the Christmas period contributed to this growth. It’s a significant indication of how the British public are feeling about the economy and their financial security. Spending always increases around Christmas but this growth in expenditure suggests  people are feeling more confident in their position compared to a year ago.

In 2017, consumer spend will continue to be a key indicator of confidence. Inflation has already risen to 1% due to the weak pound (and therefore more expensive imports), but it's expected to reach 2.7% next year. Experts believe consumer confidence will be affected, due to the cost of essentials increasing more than wages rise.

Questions to ask yourself… Could experts be wrong about the negative impact of Brexit in 2017? Should the Government consider raising interest rates?  

The iPhone turns 10

A decade ago today the very first iPhone was unveiled, with the aim of combining three products – a mobile phone, an iPod and an internet communications device. This was a revolutionary step forward in the mobile phone market, but took time to become the market dominating force we know today. Within two years of this launch, the App store was fully established, the price had significantly dropped and their 3G model was released, all contributing to its huge success. In 2015, there were over 231 million iPhones sold globally and Apple became the first US company to be valued at $700 billion.

What’s next for the iPhone?

In 2016, Apple saw sales of its premium product decline for the first time ever. Could it be the iPhone's boom years have past? In Apple’s biggest markets, people who want an iPhone will most likely have one and the market doesn’t grow quick enough to satisfy their growth targets. Apple’s strategy could be to lower price to increase their demand in emerging markets. Domestic brands like Huawei dominate the market in China, while Apple have been losing their share in the market. A change of pricing strategy could start to boost their market share again.  

Another possibility is Apple will be able to develop something brand new which significantly changes the marketing again. Apple CEO Tim Cook claims “the iPhone set the standard for mobile computing in its first decade and we are just getting started. The best is yet to come.” Let’s hope this is the case.

Questions to ask yourself… What makes the iPhone stand out in the mobile phone market? Does Apple need to create ‘the next big thing’ to stay relevant?