Commercial Awareness Update 23rd January

May outlines 'hard Brexit'

On Tuesday, PM Theresa May outlined a 12-point plan for a ‘hard Brexit’ and the upcoming negotiations with the remaining 27 EU countries. She confirmed Britain would leave the single market and regain control of their borders. Here are some of the key takings:

• Theresa May hopes to agree a fair deal for a close relationship with the EU, but will walk away if a reasonable exit deal cannot be negotiated. In this situation, Chancellor Philip Hammond proposed that Britain could lower corporation tax (currently set at 17%) to encourage business activity in Britain, instead of the EU. Leading European Parliament negotiator Guy Verhofstadt suggests this would turn Britain into a “deregulated tax haven”.
• Britain wouldn’t be under the jurisdiction of the European court of justice, allowing it sovereignty to create and amend their own laws.
• There would be no financial contribution into the EU, giving Britain more autonomy to choose which projects to fund.
• May is committed to ensuring the rights of the three million EU citizens living in the UK. However, she also suggested one or two EU countries refused to discuss the issue at this early stage.
• Britain would leave the free trade zone (the single market) and will strive to negotiate free trade deals around the world. However, May appeared more open to reaching an agreement within the Custom Union. A Custom Union agrees a set tariff for exports from outside the union – once in the union, these goods can be moved freely across borders.
• It was confirmed both Houses of Parliament will have a vote on the final Brexit deal

The business world reacted positively to Theresa May’s announcement, which provided more clarity to the forthcoming Brexit negotiations. The pound rose 4% against the dollar on Tuesday alone, after a sharp dip on the days preceding the speech. On the most part business is strongly against a hard Brexit, so it may come as a surprise the pound rose after May’s announcement. However, the markets hate uncertainty and providing clarity is likely to have a calming and often positive effect. This initial positivity didn’t stop analysts at Bank of America Merrill Lynch predicting May’s plan will cost up to 10% of Gross Domestic Product (GDP) over 15 years.

Questions to ask yourself… Is lowering corporation tax a viable tactic to encourage investment in the UK after Brexit? Can Theresa May achieve this plan for Brexit?

Inflation at two-year high

The UK’s inflation rate has jumped to its highest level since 2014. The annual rate of Consumer Prices Index (CPI) inflation increased to 1.6% in December, with air travel and food prices rising due to the weak pound. UK manufacturers are now paying 16% more for fuel and raw materials, which will be passed on to customers to help them maintain profitability. The Bank of England target a 2% rate of inflation but projections suggest it will be significantly higher by the end of 2017. Bank of England governor Mark Carney believes consumer confidence will be knocked by highly levels of inflation this year, causing an economic slowdown.  

Apple has announced a price increase of 25% for apps in the app store. UK prices will now match US prices numerically, so if it costs $0.99 in America it would cost £0.99 in the UK. Current currency rates and the cost of doing business in a country have been cited by Apple as reasons for the increases. 

In other news, Apple has filed a $1 billion lawsuit against chip manufacturer Qualcomm. The Korean company owns a number of patents and licenses their microchip technology. Apple claim they have abused their position as a market leader by overcharging them. Apple also suggest Qualcomm aimed to punish them for their cooperation in a South Korean investigation into Qualcomm's licensing policy.

Questions to ask yourself… Are there any benefits of high inflation? Should governments be doing more to encourage competition in the market place?

Dispute over Link cash machines

The future of free cash points is in doubt after banks called for a 20% reductions in the fees a bank incurs. Most of the 70,000 Link ATMs are free for the customer with banks pick up the costs. If you withdraw money from a cash point which doesn’t belong to your bank, there is a 17p charge which your bank pays to the bank that owns the cash point. For ATMs not owned by a bank – like at stations – there is a 25p charge which gets paid to the independent ATM operator. This is the charge banks want a decrease in fees or they have threatened to stop covering the cost – which will either mean the customer pays the fee or the cash point will close.

With the increase in debit card and contactless payments, banks suggest it isn’t economically viable to continue spending such large sums of money funding cash withdrawals. An agreement between Link and the banks is likely to be reached within the coming weeks. If not, there’s a possibility the public will go back to having to use their own bank’s ATMs for free withdrawals.

Questions to ask yourself… With new contactless technology, are ATMs becoming redundant? Should banks fund cash point withdrawals?

Angry Birds creator opening up in London 

The creators of Angry Birds are set to open a studio in London tasked with the development of new multiplayer games for mobile. The Finnish company Rovio will hire 20 people in central London over the next two years, after choosing London over other European cities for its expansion. The company laid off 100 employers in 2014 due to slower than expected growth following the massive success of the Angry Birds app in 2009. Recently, the success of the Angry Birds film boosted revenues and they hope to continue to bounce back with new development in London.

Question to ask yourself… How can London continue to strengthen as a tech hub?