Commercial Awareness Update 13th February by Ben Triggs

1. Brexit bill through the Commons

Last week the Brexit Bill passed through the House of Commons without amends, as 498 MPs voted to give the government the authority to trigger Article 50, with only 114 voting against. The Labour Party and other opposition MPs proposed multiple amendments to the bill, but were unable to gain enough support to change the bill. These included:

• One amendment would have forced Theresa May to give a report back to Parliament every two months – this was defeated by 333 to 284 votes
• Another amendment called for leaders of the devolved administrations to be consulted on any final Brexit deal – again 333 MPs voted against this compared to 276 for.

What happens next?

The bill continued to the House of Lords, where it will be debated and potentially amended. As an unelected institution, the Lords cannot reject the legislation but can recommend amendments to the bill – in this case the House of Commons will be called on again to debate the proposed amendments. Debates start on 20th February and are expected to continue into March. Many commentators suggest the House of Lords will push for amends, which would almost certainly delay Theresa May’s plan to trigger Article 50 by April. However, a Government source warned the House of Lords ‘faces abolition if they block Brexit’ – urging them to deliver the will of the British people.

In other Brexit news, it’s been reported that Chief EU negotiator Michel Barnier is set to demand £48 billion from the UK to leave the EU. The payment is to cover spending the UK has already committed to EU projects up until 2020 and to fund the pensions of officials. Several figures in the EU have suggested that a trade deal cannot be negotiated until a ‘divorce' settlement has been reached. 

Questions to ask yourself… After the public voted for Brexit, should the unelected House of Lords recommend amendments to the Brexit bill? Could the negotiations over the ‘divorce' settlement cause problems for future trade deals with the EU?

2. Snapchat's IPO

After huge speculation, Snapchat’s parent company Snap Inc. confirmed it would be publically floated on the New York Stock Exchange (NYSE). The social media app is expected to be valued at approximately $25 billion and aims to raise $3 billion funding from the IPO. The high valuation doesn’t mean they are making a profit. In 2016, Snap’s revenue was $404 million, but it posted a net loss of $514 million. The valuation is largely based on the potential for large profits  – Snapchat has 158 million daily active users, with an average user going on the app 18 times per day.

CEO Evan Spiegel and co-founder and CTO Robert Murphy have total control of the business, which means they won’t give current shareholders a vote on the public offering – the first time a stock will be made public without consultation of this form. The complete control the founders enjoy is considered a risk by many investment managers.

Could Snapchat go the same way as Twitter?

Last week, Snap’s rival Twitter announced a $167 million loss in the last three months of 2016. Twitter had 319 million active users in the quarter – up 4% compared to the previous year – but their losses almost doubled. On Thursday, the social media giant’s share price dropped 12% as a result of these new figures. It was believed Donald Trump’s use of Twitter and the publicity surrounding this would lead to a financial boost, but this didn’t materialise.

In November 2013, Twitter floated on the stock exchange with shares being offered at $26. On the day it went public, Twitter ended trading at $44.94, but after this latest announcement, shares are trading below $16 per share. Twitter’s strategy for making profit has failed thus far and with a declining user base, this is unlikely to change anytime soon. Snap inc. is growing rapidly at the moment, but staying relevant and a clear strategy for revenue generation is required to avoid a similar outcome.

Questions to ask yourself… How can Snap Inc. become profitable? What are the advantages of floating on the stock exchange? Why do some consider the total control enjoyed by Snap Inc. founders a potential problem?

3. Co-op bank is up for sale

The Co-operative Bank has put itself up for sale, aiming to attract a buyer to acquire all of the company's shares. The bank was bailed out by US hedge funds after almost collapsing in 2013, and has struggled to boost revenues since, due to low interest rates. A merger with Britannia Building Society around the time of the financial crisis caused major problems and in 2013 the bank announced a £1.5 billion black hole in its accounts. To save the bank from collapsing, lenders wrote off their debt in return for part ownership of the bank (a debt for equity swap). 

Co-op Bank hasn’t managed a return to profitability since 2013 and expects to make a loss this year, making it an unattractive prospect for many potential buyers. However, it has loyal 4 million customer base and has been championed for creating a distinct ethical brand within the market. TSB has been tipped as a potential buying and have stated they would consider the acquisition at the right price. After separating from Lloyds, TSB doesn’t have the scale needed to challenge the Big Five commercial banks – merging with Co-op Bank would give them a much larger market share.

Questions to ask yourself… Given its lack of profitability, would acquiring Co-op Bank be a smart move for TSB? Why is TSB’s lack of market share an issue?

4. The recalculation of business rates

CEOs of high street giants have warned many popular high streets will lose shops, restaurants and pubs due to the recalculation in business due to take effect in April. Business rates are charged on almost all non-domestic properties in proportion to the property value – Chancellor Philip Hammond commissioned an update to account for changes in property value since business rates were last set seven years ago. The new “rateable values” will have a dramatic impact on small and large businesses, especially in areas of London and the South East where property values have soared. For instance, Westfields in Shepherds Bush will see a 102% increase. In other areas of the country, rates will go down as commercial property prices have decreased. 

A transition arrangement proposed by the Government will limit the annual increase in the first year, but owners of Pizza Express, Greene King Pubs, Wagamama and many other chains have written to Hammond asking him to reconsider the increase.

Question to ask yourself… Should the government be charging higher rates on successful high streets, while the retail sector is already struggling?

Commercial Awareness Blog 7th February by Ben Triggs

1. Revised Bank of England growth forecast

Last week it was announced the Bank of England has revised its economic forecast for 2017 and now expect the economy to grow 2% - up from the previous prediction of 1.4%. The central bank has also forecasted lower unemployment and a slightly less sharp increase in inflation for the year ahead, as they react to further signs the public and business is dealing well with the impact of the Brexit vote. Despite this revised forecast, leaders of big firms believe Brexit is ‘already damaging business’. In a survey of senior executives from over 100 of the largest 500 companies in the UK, 58% felt the referendum was having a negative impact on their business.

In a rate setting meeting at the Bank of England, it was decided interest rates will be held at 0.25% and a programme of quantitative easing would continue. Quantitative easing is a process of creating money electronically, for the purpose of buying financial assets and inject capital into the economy. The Bank of England has committed to giving a further £20.7 billion to lenders, who have had profits cut by continued low interest rates. Regardless of the positive signs for the UK economy, it is unlikely the UK will see interest rate rises in the near future.

Questions to ask yourself… How will the markets react when the Government triggers Article 50? What are the potential problems of Quantitative Easing?

2. Tesco’s planned Booker takeover

Tesco stunned the grocery sector in January by announcing a plan to acquire wholesaler Booker in a £3.7 billion deal. The takeover has run into problems lately as the supermarket giant is struggling to convince the Competition and Markets Authority the deal is in the best interest of the customer. Booker is a cash-and-carry wholesaler supplying independent retailers and also owns the Londis, Budgens and Premier brands – shops which are independently owned but run as franchises. The deal would add 5,400 shops to Tesco’s network of small stores, but this could lead to Tesco having too much control of the grocery market in some areas. 

Analysts suggest Tesco may be forced to sell over 600 stores nationwide, which are situated less than 500 metres from a Booker owned store. However, Tesco’s suggest Booker’s franchise network operates independently, playing down the potential problem surrounding competition. Lawyers from Freshfields Bruckhaus Deringer and Clifford Chance have been enlisted to provide expertise on the takeover.

Tesco owns 28.3% of the total grocery market in the UK and the Booker takeover could add a further 2% to this share. According to analysts at Bank of America Merrill Lynch, this deal could trigger a merger between Sainsbury and Morrison.

Questions to ask yourself… Will this takeover have a negative impact for consumers? Could the takeover cause problems for small shop owners?

3. Apple and Facebook post strong results

Facebook has announced another very strong quarter of revenue and profit, as they again beat Wall Street expectations in Q4 of 2016. The social media firm earnt $8.81 billion in revenue – a 51% YoY growth - and profits reached $3.57 billion. Facebook’s ‘stickiness’ and continuing growing is defying expectation, with 1.86 billion active users on the social network last quarter (a 3.9% increase compared to the previous quarter).

It was also an excellent quarter for Apple, as huge iPhone 7 sales over Christmas marked its strongest ever quarter. Their net sales in Q4 were up 3% compared to the previous year, which was helped by record revenues in their Mac and Apple Watch division as well. In 2016, Apple had experienced three quarters of declining revenue, so these figures were a welcome improvement for the tech giants.

Despite strong iPhone sales, Apple last week was overtaken as the world’s most valuable brand by Google, after five years at the top spot. Analysts calculate the brand-worth in the top company each year as part of the Global 5000 rankings. In the report, Lego took over Disney as the world’s most powerful brand. The biggest losers in the ranking were fast food chains, as they struggle to break their association with unhealthy eating.

Questions to ask yourself… Has Apple just experienced a Christmas boost or is this growth set to stay? 

4. Trump to roll back regulation

Last week Donald Trump started the process of scaling back financial regulation by ordering a review into the 2010 Dodd-Frank act. One of Trump’s key election pledges was to roll back what he believes is excessive government intervention in finance.

What is the Dodd-Frank act?

Named after the Congressmen who campaigned for the act, it was created to rein in risky practices by banks and other financial companies, while ensuring the customer was given a fair deal. Its primary aim is to prevent another financial crisis like in 2008-09. The law reduced banks dependence on debt and made them create blueprints for handling future crises. It also led to the creation of the Financial Stability Council and the Consumer Financial Protection Bureau – the latter promotes higher levels of consumer protection.

Is deregulation a good thing?

Trump’s administration suggest the legislation has failed to achieve its goals and has hurt community banks, who have struggled to comply with a number of the new laws. They believe banks will now have better ability to set prices more efficiently, therefore benefitting the customer. Wall Street reacted positively to news of the review, with increases to the share price of leading bank – Goldman Sachs rose by 4%. However, many commentators are apprehensive about deregulation, as it increases the ‘too big to fail’ thinking returning, which prevented the finance sector forecasting the 2008 crisis.

Questions to ask yourself…  Could deregulation be a positive thing for customers? Which sectors could be disadvantaged from less financial regulation?

5. Vegetable rations in supermarkets

Supermarkets have set limits on sales of iceberg lettuce and broccoli, after a harvest drought caused by poor weather in southern Spain. Tesco has stopped customers buying more than three iceberg lettuces, while you can’t buy more than three broccolis from Morrison. The aim is to restrict larger buyers, such as restaurants and caterers, so regular customers don’t lose out. Approximately 80% of the UK’s vegetables comes from southern Spain and the bad weather across mainland Europe has also affected contingency supplies from Greece and Italy.

Leading supermarkets are trying to boost supply by importing vegetables from America. However, this will cost significantly more and is likely to lead to increased prices for the customer. It’s reported that Tesco icebergs now cost 79p, up from 50p.

Question to ask yourself… Is the UK too reliant on foreign imports? 

6. And finally... £1 million prize for engineers who made the selfie possible

The four engineers who created the technology which made the selfie possible have been awarded with the £1 million Queen Elizabeth Prize – the world’s top award for engineering innovation. Working in USA and Japan over many decades, they developed the imaging sensor technology used in all digital cameras and smartphones today. Their work made most film based photography redundant and made Skyping, instant digital photography and streaming digital films possible.

Question to ask yourself… How much impact has this invention had to the modern world? 

Commercial Awareness Update 30th January by Ben Triggs

1. Trump’s first week

Donald Trump took little time to stamp his mark as the new US President and in the process repealed a number of initiatives driven forward by Barack Obama. On his first day, he upheld his election promise and abandoned the Trans-Pacific Partnership (TPP). The TPP was a proposed economic relationship between 12 countries that bordered the Pacific Ocean, which would slash tariffs and boost trading across the region. Countries involved include Japan, Australia, Malaysia and Mexico, and in total represented 40% of the world’s economic output. Eventually, the plan was to create a new single market, but it needed all 12 nations to ratify it – only Japan had done so thus far. As the driving force behind the deal, America’s decision to pull out of the partnership leaves the TPP highly unlikely to happen.

On Wednesday a further “Trump rally” in the markets pushed the Dow Jones above 20,000 points for the first time in its history. The S&P 500 and Nasdaq also reached new highs, as the markets believe Trump’s economic policy will provide a boost for business. The Dow Jones Industrial Average shows the average share value of 30 large industrial stocks or blue chips across a range of industries. Trump’s initial plans on infrastructure and deregulation has given investors confidence in the US economy, especially in banks. Goldman Sachs’ share price is up 30.4% since the election in November.

In social policy Donald Trump came up against a huge backlash after signing an executive order banning citizens from 7 predominately Muslim countries from entering the USA. People hailing from Iraq, Syria, Iran, Libya, Somalia, Sudan and Yemen will not be allowed to enter the USA for the next 90 days and many commentators suggest this will pave the way for a permanent ban. The President has also suspended the US refugee program, stopping the admission of all refugees to the United States for four months. This decision has been met with widespread condemnation and protest across the world. A federal judge in Brooklyn ruled to block part of the ruling, preventing the government from deporting arrivals already in the USA with valid paperwork.

Questions to ask yourself… Will the global condemnation of Trump’s social policy have an impact on the US economy? Why was the TPP so unpopular in America? 

2. Government loses Brexit ruling

Last week the Supreme Court dismissed the Government's appeal on triggering Article 50, meaning Parliament has to be consulted before the UK starts the formal process of leaving the EU. All 11 justices were present at the hearing and ruled against the Government by a margin of eight to three. Therefore, a bill will have to be bought to both the House of Commons and House of Lords for debate and a vote. This is a major blow to the Government’s plan to start the formal leaving process by April. However, commentators suggest draft legislation has already been prepared and it’s expected to be a short bill. Plus, according to the ruling, the Scottish Parliament and Welsh and Northern Irish Assembly don’t need consulting on the matter.

The Labour Party, Liberal Democrats and other opposition parties are likely to demand time to fully debate the issue, therefore holding the Government fully to account and slowing down the process. Labour leader Jeremy Corbyn has encouraged his party to vote with the Government on the Brexit bill, which has led to a further revolt within the party. MP Jo Stevens quit the shadow cabinet over the issue and two Labour whips have refused to vote in favour of the Article 50 bill – whips are members of a party tasked with ensuring MPs vote in accordance with the official party line.

Questions to ask yourself… Can major political parties justify voting against the bill after the public voted to leave the EU? Should devolved regional powers have a say on the issue?

3. BT shares drop 20% in a day

On Wednesday, £8 billion was wiped off the value of BT’s shares as the extent of an accounting scandal in their Italian division was revealed. It is alleged the managers in Italy were depressing costs, allowing them to report increased profits. BT announced write downs of £145 million last year after investigating the accounting in the Italian division, but in a new statement now believed the accounting error could equate to £530 million. The 20% wiped off the share price is the biggest single fall in their share price since it was privatised in 1984. BT has also suggested a decline in government contracts in Britain is likely to decrease earning this year.

The scandal was a significant factor in BT’s third quarter profits falling by 37% compared to the previous year. The firm’s reputation has been dented, especially amongst the 700,000 small investors in the firm. The sharp fall in share price reflects a lack of optimise in the future of the corporation, as well as a mistrust.

Questions to ask yourself… What can BT do to turn around their fortunes and regain trust? Does the accounting scandal show a lack of leadership from the global head office?

4. Alphabet miss profit expectations

Google’s parent company Alphabet’s share price fell as they announced lower than expected profit figures. Revenue increased by 22% in the last quarter of 2016 compare to the previous year, with significantly more advertising revenue coming from YouTube and mobile phones, but this led to just an 8% increase in profits. Alphabet’s share price has fallen by almost 3% since the announcement.

The lower than expected profits is largelt due to an increase in costs and their tax rate. A one-off tax payment pushed the company’s effective rate to 22%, which was much higher than the previous year and expectations. Despite the profit results, Alphabet had a strong quarter and beat revenue targets for many of its key products.

Question to ask yourself… Which products will be essential for Google in the future?

5. Danish drug company to invest in the UK

Danish pharmaceutical company Novo Nordisk has committed £115 million to a new drug research centre in the UK. Based in Oxford, the firm will employ 100 scientists to investigate new approaches to treating type-2 diabetes. Many commentators suggest this is a vote of confidence in post-Brexit Britain’s scientific research sector. The government has just announced an extra £4.7 billion of funding in the life sciences sector over the next few years. With this funding and Oxford University’s reputation as a world leading institution encouraged Novo Nordisk to commit to the UK.

Many believe Brexit will make some companies think twice about investing in the UK, but it could be a logical move for many foreign firms. Since the Referendum the pound has decreased in value, making investing in the UK more viable. In this case, the Danish Krone is much stronger compared to the pound than it was a year ago, so it’s cheaper for the company to acquire or build research facilities and pay scientists in the UK.

Questions to ask yourself… Why is it important the UK maintains its position as a leader in scientific research? Should this investment be seen as a sign of post-Brexit strength?

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?

16th January Commercial Awareness Update by Ben Triggs

1. Pound falls further ahead of May announcement

The pound fell to its lowest level against the dollar since October amid reports PM Theresa May will outline plans for a ‘hard Brexit’ this week. The pound is currently trading at $1.20, which makes it 20% down since Britain voted to leave the EU back in June. May is expected to signal plans for Britain to leave the single market and regain control of their borders. The announcement is due on Tuesday and is likely to give the greatest insight into the government’s plan for Brexit. The full negotiating strategy is unlikely to be outlined, but the tone and language used will give a strong indication of the current thinking.

The PM has already said Article 50 would be triggered by the end of March, allowing Britain to start negotiating the post-Brexit deal. There has been some good news as the EU chief negotiator stated it was important for the remaining 27 EU countries to have easy access to the City and London’s financial institutions. This is the first time Michel Barnier has softened from his hardline approach, suggesting a ‘special’ relationship could be forged.

In America, President-elect Donald Trump has backed Britain’s decision to leave the EU and believes they are ‘doing great’. During his first UK interview - with former cabinet minister Michael Gove for the Times - Mr Trump has promised the USA and UK will do a quick trade deal. Barack Obama previously suggested Britain would be at the “back of the queue” when it came to a trade deal with the US, but this doesn’t appear to be the case with the new President, who starts on Friday. However, a deal cannot be done until Britain formally leaves the EU in 2019.

Questions to ask yourself… Should Theresa May outline her full strategy for Brexit to the public? Is too much of Britain’s economic power centred on London?

2. Eight billionaires 'as rich as half world's poor'

An Oxfam report has revealed the world's eight wealthiest individuals have a combined wealth equal to that of the poorest 3.6 billion people. The research into inequality found the gap between rich and poor was “far greater than feared”. However, Oxfam’s interpretation of the figures has been questioned, as well as their focus on the super-wealthy. Some suggest Oxfam should more focused on encouraging economic growth and eradicating poverty. The former is more likely to be achieved if they are “making sure the economic cake is getting bigger”, UK economist Gerard Lyons claims.

Labour leader Jeremy Corbyn has proposed a wage cap for the highest earners in the UK, including ‘fat cat’ CEOs and footballers. Corbyn has yet to outline his plan for the cap, but suggests it would be more than the £138,000 he currently earns. Findings from a recent research survey suggest a majority of the public would support this policy, with only 30% disagreeing with it in principle. However, experts suggest it would have disastrous consequences for the UK economy, without guaranteeing reduced levels of inequality. If wages were capped, the top talent is likely to move abroad to seek bigger wage packets – this would force big corporations to do the same to access the best talent for their business - therefore harming the UK economy.

Questions to ask yourself… Is wealth creation the best way to improve poverty levels around the world? Is Jeremy Corbyn’s suggested wage cap a workable policy?

3. Tesco and Morrison’s Christmas boost

British supermarkets Tesco and Morrisons enjoyed strong performances over the Christmas period, as the ‘Big Four’ continue to fight off competition from discounters Aldi and Lidl. Morrisons had their best figures for seven years in the 12-weeks to Christmas, with like-for-like sales increasing 2.9% compared to the previous year. It’s been a good period for supermarkets overall as sales increased by 1% in December. The big winners were Tesco, as they continue to show an increase in sales after recording a loss in 2015. 

Discount supermarket Aldi reported record figures after a 15% increase in December sales. With inflation set to rise and continuing economic instability, more people could turn to the cheaper alternatives - Aldi and Lidl. Many predict the ‘big four’ could become the ‘big six’ by the end of the decade. Aldi aims to double the amount of stores it owns in the UK over the coming years, which is likely to further disrupt the dominance of the current ‘big four’. Asda has been effected most by the rise of the two discounters and struggled this Christmas, recording a 2.4% decline in like-for-like sales.

Questions to ask yourself… Will Aldi and Lidl continue growing their market share? How can Asda turn their fortunes around?

4. The Stoke Central by-election

Labour MP Tristam Hunt is quitting as an MP to take over as the head of the Victoria & Albert museum in London. Hunt will vacate his Stoke Central parliamentary seat and set up a by-election. The constituency is traditionally a Labour stronghold, but UKIP are ready to launch a major challenge. Stoke had one of the biggest leave votes in the UK during last years’ EU referendum and it’s thought new UKIP leader Paul Nuttall could stand for the seat they have a genuine chance of winning. In 2015, the Stoke Central constituency was notable for its low turnout - just 49.5% - which gives plenty of scope for Labour’s competitors to engage the disengaged voters.

Hunt refused to serve in Jeremy Corbyn’s shadow cabinet after the former was elected as Labour party leader in September 2015. He follows Jaime Reed in resigning from the party, and could open the door for more Labour MPs to follow. Corbyn is faced with a tricky by-election and a poor current showing in the polls. Anything other than a convincing victory for Labour in Stoke Central could spell trouble for Corbyn's leadership.

Questions to ask yourself… Should more be done to ensure MPs stay in office for their full term? Is the Labour Party in irreversible decline?

5. And finally…

This morning the iconic billboard lights at Piccadilly Circus were turned off for renovation work to begin. The lights have been on continuously since World War Two - only going off due to power cuts and special events. The six screens will be replaced with a one-screen display, which boasts one of the highest resolution LED displays for its size in the world. The work is scheduled to be completed in the autumn, and the new screen will show advertising as well as weather and news updates. About 100 million people pass through Piccadilly square every year, making it one of the most valuable advertising opportunities in central London.

Question to ask yourself… Is physical display advertising still relevant in the digital age?  

Commercial Awareness Update 19th December by Ben Triggs

1. Christmas strikes

Workers across a range of sectors will strike over the Christmas period causing disruptions to transport and the postal service just before the holidays. Today 3,000 employees at Crown post offices will walkout over concerns over pension changes, job security and cuts. The Post Office continues to make wholesale changes to modernise its service and become more efficient. They have reduced losses from £120 four years ago to £26 million last year, and aim to break even next year. 

Meanwhile, rail strikes continue on Southern as conductors walk out for two days this week. Earlier this year Southern announced it would be down-grading the role of conductor on its services, as new trains with driver operated doors are set to be introduced. The RMT Trade Union claim the strikes are necessary to protect customer safety, as well as the jobs of their members. For those planning to travel around Christmas, there’s more bad news as British Airways cabin crew members belonging to union Unite, will strike on Christmas and Boxing day. However, both sides hope the row over pay can be solved and the strikes called off – talks are ongoing. 

These strikes will be problematic for many in the UK, but compared to times of mass-industrial action these are relatively small-scale. Before Thatcherism, the Trade Unions had much more power and it wasn’t uncommon for whole industries to strike – many of which were state owned. In 2015, fewer days were lost to strike action than any other year since records begun in 1965. The Winter of Discontent and other strike action led to 29 million working days lost to industrial action in 1979, compared to just 170,000 last year.

Questions to ask yourself… Do the unions still have too much power to strike? Could the strike action mean the public turn against the unions? Does this strike action suggest an attitude of gloom within Britain?

2. Boost for the banking sector

Last week the FTSE 100 rose above 7,000 points, as shares in leading banks made significant gains. Royal Bank of Scotland closed 4.7% up and Barclays’ share price rose by 2.4%, helped by the announcement of increasing interest rates in the US. On Wednesday the Federal Reserve announced it would hike its benchmark interest rate by 0.25% to the range of 0.5% to 0.75% - with three more increases planned for 2017. 

This is unlikely to affect customers directly, but the higher interest rates will allow banks to charge more for lending to other banks. In general, higher interest rates are good for banking as it gives them the opportunity to make more profit. It’s only the second time in a decade interest rates have gone up in America.

In other banking news, Barclays have sold their French retail banking division to private equity firm AnaCap. Barclays are selling off their assets in Europe as they aim to streamline operations. Earlier this year, the bank sold its African operation and have scaled down in Italy, Spain and the Middle East.

Questions to ask yourself…  What is the long term impact of increases in interest rates? Is this a good thing for the global economy?

3. Apple and Ireland to challenge European tax ruling

Apple and the Irish Government are set to challenge the European Commission’s ruling that the US tech giant has to pay Ireland €13 billion in back taxes. The Commission ruled the tax deal Apple did with Ireland was illegal because it allowed Apple to pay much less than other companies in the country. Apple’s European headquarters is in Ireland, where corporation tax is set at 12.5%. 

Apple are set to challenge the ruling claiming the European Commission has overlooked the advice from Irish tax experts. The Irish Government will also challenge the ruling, claiming EU regulators have interfered with national sovereignty and have misinterpreted Irish tax law. It may appear odd for Ireland to challenge something which will increase their tax receipts, but the Government maintaining a pro-business stance and maintaining good relations with Apple could be more beneficial in the long run.

Questions to ask yourself… Should countries be giving favourable tax deals to large corporations?  What are the disadvantages of Apple having their European headquarters in Ireland?

4. JustEat’s spending spree

Food delivery app JustEat has announced plans to acquire rivals Hungry House and Canadian company SkipTheDishes. They claim to have reached a deal with Hungry House’s German owners Delivery Hero to acquire their competitor for £200 million – which could rise by £40 million dependent on performance.  

JustEat has acquired a number of its competitors in 2016 as they grow their global market share. In August they bought the assets of British start up takeaway.com and have also acquired takeaway delivery services in Spain, Italy, Brazil and Mexico. JustEat reported a 59% increase in revenues to £171.6 million in the first six months of 2016.

Commercial Awareness Update 12th December by Ben Triggs

1. Murdoch bids for Sky

Ruport Murdoch owned 21st Century Fox has tabled a bid to takeover Sky. The company already owns 39.1% of the telecommunications company, with Murdoch offering £11.25 billion for the remaining stake – valuing Sky at £18.5 billion. Sky’s share price has struggled this year and many believe the company will lose out as a result of Brexit. However, with a 15% decline in the Sterling compared to the Dollar, British companies have become an attractive proposition for foreign investment. 

Fox chief executive James Murdoch was made Chairman of Sky earlier this year, leading to further speculation over a takeover. However, this has concerned many investors who want to ensure Sky’s board push to secure a higher bid from the US media giant. MPs have also raised concerned about a lack of competition in the media industry if this bid was to go ahead. The Government has a responsibility to stop monopolies in a particular industry being detrimental to the customer.

Fox has until 6th January to outline their intentions regarding the proposed takeover. This deal looks very likely to happen and Sky’s share price rose 30% last week on the announcement of the takeover bid.

Questions to ask yourself… Could it be problematic for Murdoch to own more of the British media industry? Should the government be encouraging foreign takeovers of British companies?

2. Strong week for markets

It was an excellent week for the FTSE 100 as mining and oil were the big winners in the markets. Oil prices increased by nearly 5% as the non-OPEC (Organisation of the Petroleum Exporting Countries) oil producing nations agreed a deal to limit production, leading to Royal Dutch Shell’s share price rising by 3% and BP’s 2%. It was also a good week for the British mining industry as unions are on the verge of a deal with Tata Steal to keep their Port Talbot plant open and save thousands of jobs.

It wasn’t all good news in the markets - shares in Capita fell by 14% as the outsourcing firm issued a profit warning and said they would be selling off assets. Earlier this year the City was expected the firms profits to be £614 million for the year, but the latest announcement suggests it will only be at £515 million. It was also a bad week for Sports Direct who’s share price lost 7.5% after it was revealed their half year profits were down 57%. 

Questions to ask yourself… Why does an increase in oil prices have such a big impact on the markets? What can Sports Direct do to turn things around after a poor year?

3. Decline in ‘everyday’ biscuits

Sales in the ‘everyday’ biscuit have sharply declined in the UK, as consumers favour healthier snacks and more indulgent treats. The UK biscuit market is worth £2.4 billion, but sales in the everyday biscuit category fell by 7.1% compared to the previous year. Rich Tea, Custard Creams and Digestives were some of the hardest hit, as the premium category of biscuits made significant gains. 

People in the UK appear to be eating less biscuits, but when they do treating themselves to higher quality, more expensive treats. Healthier oat biscuits are also seeing a grow in sales, suggesting Britain is becoming more health conscious. 

Question to ask yourself… Does our biscuit eating habits reflect a more health conscious Britain?

4. The European Central Bank (ECB) takes it foot off the accelerator – just a bit

The ECB has been directly buying government bonds of European countries in an effort to reduce the interest rates that companies in those countries need to pay in order to borrow money. This works because as the ECB buys bonds, the yield (or interest rate) that those bonds offer go down (click here for an explanation). The lower interest rates feed through to loans that banks make to individuals and companies (in theory, at least). With lower borrowing costs, people and businesses are more likely to borrow, and thus spend, money – therefore boosting economic activity. The fact that the ECB is decrease support for the economy – even very moderately – is a sign that the European economy is starting to pick up a bit of steam.

5. And finally… 

Amazon launched a concept grocery store in Seattle with a revolutionary premise: no queues! Shoppers scan their smartphone on their way in, take their goods and simply walk out of the store. Sensory imaging and artificial intelligence is used to determine what the person bought – and charges their Amazon account accordingly. The program, called Amazon Go, has the potential to revolutionise retail – but also highlights how improving technology can threaten jobs (e.g. no more cashiers).

Commercial Awareness Update 5th December by Ben Triggs

1. Liberal Democrats surprise victory

Last week, Liberal Democrat candidate Sarah Olney won a surprise victory in the Richmond by-election, beating ex-Tory MP Zac Goldsmith by almost 2,000 votes. Goldsmith resigned from the Conservative Party after it was announced Heathrow was on course for a third runway and forced a by-election on the issue. However, the Liberal Democrats mobilised their supporters and turned the vote into a debate on the triggering of Article 50. During the EU Referendum, Richmond heavily supported the Remain camp and the Liberal Democrats' pro-EU stance during the by-election campaign was popular among constituents.

70% of voters in Richmond wanted to remain in the EU, but Zac Goldsmith was a vocal supporter of the Leave campaign. This is his second election defeat in 2016 after losing to Sadiq Khan in the London Mayoral election. It was also a bad day for the Labour Party whose candidate only polled 1,515 votes - down from 7,296 in 2015. 

Liberal Democrat leader Tim Farron claimed this was a rejection of Theresa May’s plan for a 'hard Brexit'. Sally Olney will take her place in the House of Commons as the Liberal Democrats' ninth MP, herself having joined politics and the party just 18 months ago.

Questions to ask yourself… Should this by-election be seen as the people rejecting a 'hard-Brexit'? What does this result say about the Labour Party’s current popularity?

2. Talk of a 'soft Brexit'

The value of the pound rose last week, as Brexit Minister David Davis admitted the Government may be willing to pay to maintain access to the EU single market after Brexit. He is the first member of May’s cabinet to openly discuss this, but Boris Johnson said this would only be a possibility at the right price. The pound reached its highest level in six weeks against both the dollar and euro, as the markets believed this announcement suggests the Government is more likely to pursue a 'soft Brexit'.

If Britain was able to do an economic deal with the EU after Brexit, it could bring more unity among the British public. There are hardline Brexiters who will believe this is a betrayal of the referendum result, but a deal to stay in the economic union could work for the majority of the public. The argument surrounding immigration and free movement of people dominated Vote Leave’s campaign and polls suggest around 70% of the population believe we should have more control of our borders. However, Vote Remain championed the economic arguments of staying in the EU and the single market. Marrying these two different stances was always going to be a difficult, but if the UK could have more control over their borders but also negotiate a deal to maintain access to the single market, it may keep both sides happy.

Questions to ask yourself… Should Britain pursue a deal to pay to stay in the single market? Should the EU be willing to do a deal with Britain on those grounds?

3. Euro falls after Renzi resignation 

The Italian Prime Minister Matteo Renzi resigned on Sunday evening after facing defeat in a constitutional referendum. The referendum proposed a broad range of changes including cuts to public spending, more streamline political processes and electoral reform – which would make it more difficult for extremist parties to gain power. It was believed a ‘Yes’ vote would provide political stability and help strengthen Italy's struggling banking system. However, it wasn't to be and the resounding ‘No’ vote casts huge uncertainty over Italian and EU politics, as well as having the potential to cause another banking crisis in Italy. 

Despite being about constitutional reform, much of the rhetoric before the vote centred on Italy’s EU membership and Eurozone. Renzi is a keen supporter of the EU, but many of the opposition parties are very sceptical. The populist Five Star Movement is gaining mass support and have promised a vote on EU membership if the party win the next election, currently scheduled for 2018. The ‘No’ vote is another major blow for the EU political elite and it has rocked the markets. The Euro is down against the pound and dollar, as speculators fear a crisis in Italy as well as an increased chance of EU disintegration. 

Questions to ask yourself… Is this another sign that the EU is destined to fail? What should the EU do to reform?

4. The cost of not sleeping well

A new study has revealed sleep deprivation costs the economy £40 billion each year due to lack of productivity. Research firm Rand Europe took data from 62,000 people and claimed the UK loses 200,000 working days a year due to lack of sleep, costing 1.86% of Gross Domestic Product (GDP). There are a range of health problems associated with lack of health, with those sleeping less than six hours a night 13% more likely to die young compared to those who get seven to nine hours. 

Question to ask yourself… Should employers do more to promote the importance of sleep? In demanding jobs, is a lack of sleep inevitable?

5. A big deal for oil 

The main news of the week was that OPEC members (a group of mainly Arab oil producing countries) agreed to cut their oil production. Less supply generally means a higher price - and that was borne out: the oil price jumped almost 15% last week. It’s now back near its highest level in more than a year. That’s good news for oil companies and oil-producing regions (including parts of America), but will also likely push overall prices higher for the rest of us (e.g. for petrol). Many analysts, however, remain sceptical that OPEC members will adhere to the deal - which means we’ll have to wait until next year to see if it’s truly effective.

6. Increasing competition

Ofcom, a regulatory arm of the British government, said that it would begin the process to formally separate BT, the telecom and internet services company, from Openreach, which is the BT subsidiary that owns and operates the UK’s main broadband network. It’s an example of how the Government will occasionally step in when they feel that a market is not competitive enough due to the dominance of one (or a small number) of companies. The idea is that a more competitive market would ensure prices remain fair for people and businesses that need internet services, a.k.a. everyone! 

Commercial Awareness Update 21st November by Ben Triggs

Dollar reaches 14-year high

The US dollar jumped to a 14-year high as markets anticipate a huge spending boom by President-elect Donald Trump. Optimism in America led to the Dollar index - which measures the Dollar against a number of other currencies - reaching its highest level since mid-2002. After the initial shock of the Trump victory, the dollar dipped but has risen ever since as the markets speculate on his forthcoming presidency. The President-elect has promised public spending on infrastructure and construction - which could cost as much as $1 trillion - and experts believe this will provide a short-term boost to the economy. This public spending can also have a positive long-term impact for the US economy, but this will rely on the projects being a productive use of taxpayers money with little long-term wastage.  

A rise in interest rates is also expected to boost the value of the dollar. In the coming months, inflation is likely to rise - especially as Trump has pledged to restrict free trade - and with the current positive economic outlook, will encourage the Federal Reserve to push up interest rates. The rates are currently at 0.5% but most believe they will be increased next month.

Trump’s pro-business and spending stance did have an impact on the bond market - it’s lost $1 trillion worldwide since the US presidential election. Low-yield ‘safe’ bonds are being sold off in what many have coined the "Trump Dump", as investors pursue more lucrative investment strategies. With inflation rising, bond prices are likely to increase - the more you pay for a bond, the lower the yield (or potential earnings). Plus, Trump’s pro-business stance has encouraged investors to take money from bonds and put them in stocks - believing they will see strong returns.

Questions to ask yourself… Is a strong dollar good for the global economy? Is the market's current positivity about the Trump presidency an example of short-termism?

Click here for Finimize's more in-depth analysis.

Facebook to expand UK workforce by 50%

Last week Facebook announced it would boost its UK workforce by 50% when it opens a new London headquarters in 2017. There are plans to hire another 500 members of staff, including high-skilled engineers, marketers and salespeople. Facebook's engineers in the current London office have helped with the development of their new product, Workplace - a business platform to help internal communication flow between staff. 

After the EU Referendum there were many companies considering moving operations out of London but it remains the tech stronghold of Europe. Google has also committed to building a new headquarters in the capital which will provide 3,000 more jobs when it opens in 2020. London Mayor Sadiq Khan suggested this investment is a “sign that London is open to talent, innovation and entrepreneurship”.  

Questions to ask yourself… What makes London a tech hub? How does Britain improve technical skills among its workforce? 

Build-up to the Autumn Statement

Chancellor Philip Hammond will give his first Autumn Statement this Wednesday, as the Government will outline its plan for the economy. The Prime Minister Theresa May is keen to help out lower income households, but most of the attention will be on how Hammond aims to boost a potentially stuttering economy after Brexit. With ex-Chancellor George Osborne’s target of cutting the deficit being scrapped, this statement could spell an end to austerity. The cost of Brexit has also been a key topic this week, with forecasts suggesting it could leave a £100 billion blackhole in the budget.

What we think could be announced:

• Hammond has suggested £1.3 billion will be spent on improving roads across the UK
• The Chancellor is expected to back Osborne’s plans to cut corporation tax from 20% to 17% by 2020
• The personal allowance on income tax may be raised - it could be increased to £11,500 from today (previously scheduled for the 2017/18 tax year)
• To encourage savings, the amount people can put in ISAs before being taxed could be raised
• The idea of reducing VAT to 17.5% may be suggested, but this is unlikely to happen this tax year
• Increased tax on employees benefits - making gym memberships, private healthcare and similar more expensive for workers

Questions to ask yourself… What is the priority for the UK economy in the next six months? Should the Government continue spending and run at a deficit?

What happened in Britain?

The UK economy got some good news last week as data showed that prices for everyday consumer goods and services (like rent, groceries, clothing, etc.) weren’t increasing as much as feared. Also, retail sales (e.g. stuff sold in stores) grew by 7% versus a year ago - the strongest increase in 14 years. Economists continue to warn that prices will rise next year (as the weak pound makes imported goods more expensive), which will mean people won’t be able to buy as much stuff. But the pain has been delayed for longer than most economists were expecting.

And finally… 

Snap Inc., the owner of popular social media app Snapchat, officially began the process to become a publicly traded company (i.e. to have its shares traded on a stock exchange via an IPO). At a rumoured valuation of $25-35 billion, it would be the biggest US tech IPO since Facebook in 2012. The IPO is expected to take place in the first half of next year.

Autumn Statement 2016: What happened

The Autumn Statement for 2016 was announced yesterday (Wednesday 23^rd November) and as a follow-up to last week’s post about what to expect, we will be running through the anticipated areas of development, what happened in regards to them, and how the Statement and its proposals will have an impact.

Office for Budget Responsibility (OBR):

As noted in our previous post, the OBR had a particularly challenging task of predicting the British economy due to the uncertainty surrounding Brexit.

The OBR predictions for the growth of the UK economy are as follows:

Year	Growth (%)
2016	2.1
2017	1.4
2018	1.7
2019	2.1
2020	2.1
2021	2.0

The OBR also forecast the amount borrowed in the coming years as follows:

Year	Amount borrowed (£bn)
2017-18	59
2018-19	46.5
2019-20	20.7
2020-21	17.2

In regards to the challenges they faced, the OBR provided a counterfactual based on what the predictions would have been had there been no referendum in June. They found that as a direct result of the referendum result, we are borrowing £3.5bn more this year, £10bn more next year and £15.6bn more in 2018-19, than we would have been without the referendum.

Public borrowing and spending:

In the Budget given by George Osbourne in May, the forecast for the financial stability of the government until 2021 was £122bn more optimistic than that given by Hammond. As a result, public expenditure will fall from 45% in 2010 to 40% this year, although certain budgets (such as defence, pensions and health services) will be protected.  

National debt is also predicted to rise to alarming levels next year (from 84.2% of GDP to 90.2%), and the total amount borrowed is expected to reach just under £2 trillion by 2021. While an increase in the amount of public borrowing was foreseen, the scale of the increase has led to concern among some economists.

Investment:

There were many calls for investment in certain areas, and Philip Hammond announced which sectors would be the focus of public investment.

Infrastructure:

As the Former Secretary of State for Transport, a high level of investment in transport and infrastructure was expected from the current Chancellor. Hammond announced an investment of £1.3bn in English local transport networks – while this decision was largely praised, some have noted its relative significance given it represents 0.08% of GDP. Hammond also expressed his plans to invest £1bn in digital infrastructure, including 5G technology and £2bn per year by 2020 into R+D funding. The above are part of the government’s goals to have invested £23bn in innovation and infrastructure by 2021. 

This extra funding for those in these sectors will be much welcomed due to the significant demand by citizens for improved roads and railways.

Housing:

There has been a notable demand in the past few years for more affordable housing in the UK. Hammond stated this afternoon his intention to invest £2.3bn into a housing infrastructure fund in order to create 100,000 new homes in high-demand areas, alongside another £1.4bn into a fund to build 40,000 affordable homes.

He also announced plans to implement a large-scale regional pilot for the Right-to-Buy schemes and a ban on upfront fees by letting agents, to be effective as soon as possible. The rest of the UK will follow Scotland’s precedent on this matter, where the fees are shifted to the landlords, who have significantly higher bargaining power than prospective tenants.

These changes in the housing industry should help increase the number of homeowners in the UK.

Taxation and pay:

It was revealed that the income tax thresholds will be raised in April 2017 (from £11,000 to £11,500) and again in 2020 (to £12,500) and that the higher rate income tax threshold will be increased to £50,000 by the end of Parliament. Furthermore, the national living wage will see a rise of 30p to £7.50 in April, which is smaller than the rise that was predicted in the March Budget.

While fuel duty has been frozen for a 7^th year, saving the average driver up to £350 annually, insurance premium taxes will be raised 2% to 12% in 2017. We can also expect to see the introduction of a sugar tax on soft drinks in 2018.

In terms of corporation tax, while there was some indication by the Prime Minister that the nation would see a further slash of tax to 15%, the Chancellor has stuck to his intentions and kept the tax level for the coming year at 17%, as was announced in March.  

Hammond intends on raising £32bn by cracking down on tax avoidance schemes.

Other:

Exports:

While there was little clarification on a Brexit strategy, some comfort has been offered to those that are concerned about a decrease in exports to the EU following Britain’s departure. The UK Export Finance funds will be doubled, a change that has been deemed as “vital for small businesses to reach new markets [especially] in the wake of Brexit” by the Chairman for the Federation of Small Businesses, Mike Cherry.

Salary sacrifice schemes:

The salary sacrifice schemes that allow employees to accept benefits in lieu of pay will be restricted, meaning that income will increase for a number of people, resulting in more taxes flowing to the State budget.

The Autumn Statement is somewhat indicative of a stable and strong post-Brexit economy; however, this is dependent on large amounts of borrowing to sustain the immediate aftermath of the referendum. The demand for investment in infrastructure was satisfied and, overall, the changes made will increase the amount of money in the pockets of the general population. However, the lack of clarity regarding Britain’s goals and strategy for leaving the EU leaves a lot to speculation – and the fulfilment of these proposals will be dependent on the terms on which the nation leaves the EU.

- Ellie Dobbyne