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In this week’s Commercial Awareness update we discuss the business lobby groups looking for a quick transition deal, the missing £490 billion, the demand for the iPhone 8, VAT evasion, a slowdown in trading and much more.
Business leaders calling for a ‘status quo’ transition deal
Five of Britain’s largest business lobby groups are calling for urgency over a Brexit transition deal, or they believe Britain will start losing jobs and investment. They plan to send a joint letter to Brexit Secretary David Davis this week, which will call for a swift agreement with the EU over a deal with similar or the same trading opportunities as Britain currently enjoys in the EU. The business lobbies include the Institute of Directors and the Confederation of British Industry (CBI), which represent some of the largest companies in the UK. They suggest large corporations will start making serious decisions at the start of 2018, which will impact on investment and jobs, if little progress has been made on a transition deal. There has been talk of big companies moving parts of their workforce to the continent, with Goldman Sachs’ CEO hinting on Twitter they will have a bigger workforce in Frankfurt after Brexit. As it stands, the EU is reluctant to discuss future trade deals until a ‘divorce bill’ agreement has been reached. However, European Council President Donald Tusk suggested reports of a deadlock over negotiations had been exaggerated.
The five biggest business lobby groups weren’t the only organisations last week to put pressure on the government - the retail industry is calling for investment in infrastructure at UK ports ahead of Brexit. The British Retail Consortium (BRC) claims this investment is essential for the transition during Brexit and ensuring it’s as easy as possible to import goods to the UK. It has also called for Chancellor Philip Hammond to freeze business rates for the retail sector - it believes with September’s inflation figures, retailers would face a £270 million jump in their business rate bills in the Spring.
Questions to ask yourself… Would a two year transition deal enough for British business? What should the key priority be for the British government while negotiating a deal with the EU?
£490 billion missing
Last week it emerged Britain is £490 billion poorer than it previously believed, as the Office of National Statistics (ONS) discovered it had overestimated the amount of foreign investment in the UK and the value of assets that UK investors owned abroad. As a result, it reevaluated British wealth and found a £490 billion hole in the country’s finances. Britain’s wealth has fallen from a surplus of £469 billion to a net deficit of £22 billion. This will make global banks and the owners of international bonds nervous, as Britain lacks the safety margin it thought it had while negotiating Brexit. What compounds this issue is that foreign direct investment (FDI) into the UK has fallen from a £120 billion surplus before Brexit (first half of 2016) to a £25 billion deficit for the first half of this year.
This latest revelation has raised serious questions about the management of the economy and how the ONS measures the UK’s national income. Sterling dropped on the announcement, and some commentators were last week suggesting the pound could drop 20% when the impact of this error was fully understood.
Questions to ask yourself… What is the immediate impact of this miscalculation? How can Britain encourage more foreign investment?
Companies to watch
Last Thursday, Apple’s share price dropped 1.5% as investors worry about a lack of demand and production cuts for the new iPhone 8. Apple doesn’t give regular sales updates, but signals from analysts and supply channels suggest poor sales for Apple’s flagship product. Many suggest Apple’s strategy could be impacting on demand, because the new iPhone X is due to be released on 3rd November (not long after the iPhone 8/8 plus) - it could be that customers are holding off to get the latest model. Many believe Apple will actually be focusing their marketing on this model, not the iPhone 8, because of its brand new edge-to-edge display and its retail price of $999, which is likely to boost profit margins.
However, this didn’t stop shares in the American tech giant trading down 1.5% at $157.30 in premarket trading on the Nasdaq last Thursday.
eBay and Amazon
A report by MPs has accused online marketplaces - like Amazon and eBay - of profiting from VAT evasion. The Public Accounts Committee claimed HMRC hadn’t responded effectively to the widespread fraud allegedly committed by non-EU sellers on these marketplaces. There is an anti-competition element to this story, as traders who aren’t charging VAT on goods in the UK can undercut prices of their competitors. These traders make more money with the cheaper prices, which boosts commissions for Amazon, eBay and other marketplaces - the report suggests they should be blocking these transactions.
Previously, HMRC estimated there is up to £1.5 billion in underpaid VAT through these online marketplaces - the latest report suggests this figure could be a lot higher and says HMRC should be doing more to bring prosecutions.
BMW’s headquarters in Munich were searched by the European Commission’s antitrust arm last week, after allegations Germany’s biggest car markers had colluded for decades. The Commission said it had carried out an “unannounced inspection” and BMW later revealed it was at its offices. The investigation started after an allegation circulated that a number of leading German manufacturers had secret meetings to agree prices they would pay for certain technology. Supposedly, they would agree which suppliers they would use and the maximum price they would pay for new technology, therefore ensuring they wouldn’t compete with each other and drive up the price they paid for the latest technology for their vehicles.
The investigation could take years to complete and if found guilty of wrongdoing the manufacturers could face significant fines. These are usually calculated based on the global revenue of their products and the length of time they carried out the antitrust activity. If the organisation chooses to support the authorities’ investigation, it can often get its fine reduced.
Questions to ask yourself… Should Apple have released two new iPhone models this quickly? Should the government keep a tighter control of online marketplaces?
How a market wide trading slowdown has affected bank’s revenues
Last week, Goldman Sachs and Morgan Stanley rounded off banks’ reporting of third-quarter profits and earnings. Across the big American banks there has been a slowdown in trading and therefore revenues from this activity. J.P. Morgan and Citigroup reported an increase in lending activity, which offset reductions in their trading division. Many banks have been building up their wealth management divisions, managing private individuals’ money and ensuring they aren’t so reliant on trading. While interest rates increase, banks should be able to make more money on the loans they administer - share prices in banks tend to go up at times when there is talk of a rates hike in America. For others, however, trading remains a vital part of their overall business activity - Goldman Sachs has been especially hit by the market-wide slowdown in trading.
Question to ask yourself… Why is trading activity currently in decline?
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Top picks for the week
To round off the update, here's two top roles to apply for this week: