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In this week’s Commercial Awareness update, we discuss the state of the economy, the impact of Hammond’s budget, Just Eat being set for the FTSE 100, Uber’s data breach and a record £10 billion spent over the Black Friday period.
The Budget Roundup
Philip Hammond announced his budget on Wednesday, setting out the government’s financial plan for the year ahead. As expected, it was what many have called a “safe” budget - here’s a breakdown of the key points you need to know.
State of the Economy
The outlook for the British economy isn’t as strong as previously predicted, with Hammond last week revising down growth forecasts. In 2017, the economy is predicted to grow by 1.5% - down from the 2% previously forecast and there have also been revisions for 2018, 2019, 2020 and 2021. However, there was some good news about employment, with a further 600,000 people expected to be in work by 2022. To address Brexit, the government will be allocating an additional £3 billion over the next two years to prepare for Britain leaving the EU.
Borrowing is another hot topic of conversation, with the government now forecasting it would borrow £49.9 billion (£8.4 billion less than forecasted in March). Borrowing next financial year is predicted to be £39.5 billion and this will reduce slowly over the next five years to £25.6 billion in 2022-23. Hammond has previously stated a plan to cut the deficit within this session of parliament, but uncertainty over Brexit and the electorate’s demands for increased spending in the public sector has made this highly unlikely.
After record turnout amongst young people in the general election earlier in the year - most supporting Corbyn’s Labour - this budget was expected to include a number of policies aimed at young people. Support for first time buyers was part of this, with stamp duty being abolished for buyers purchasing their first home under the value of £300,000. There were also some tweaks to paying back tuition fees, but many expected a bigger announcement surrounding this in the budget.
Hammond announced the personal allowance on income tax would rise to £11,850 (up from £11,500) in April 2018, with the higher-rate tax threshold also rising to £46,350 (up from £45,000). National Living Wage is set to rise more than inflation (4.4%) from £7.50 per hour to £7.83.
The budget included a number of pledges to support the growth of Britain’s digital economy. £500 million was promised for 5G mobile networking and AI, while there was £540 million to support electric cars and extra resources to upskill the nation. This included a plan to recruit 8,000 new computer science teachers (costing £84 million) and build a new National Centre for Computing.
Experts believed Hammond would announce the pay cap for nurses’ salaries would be lifted for this year, but this wasn’t mentioned in his speech. However, he did promise an extra £2.8 billion in funding and a £10 billion capital investment fund for hospitals.
Questions to ask yourself… What’s Hammond’s biggest challenge for the year ahead? Is the government doing enough for young people?
Companies to watch
App Just Eat is set to be promoted to the FTSE 100, after making its stock market debut just three years ago. Its share price has risen to 819p recently, after floating on the market at 260p in April 2014. The latest boost is due to the UK’s competition watchdog approving its £240 million takeover of HungryHouse, sending its share price up last week. The success of the company is largely down to two factors - the change in trends of consumers, who are now more likely to order food than go out to a restaurant, and its acquisitions of smaller competitors. Just Eat now has a market capitalisation of £5.6 billion, which is significantly greater than FTSE 100 strugglers Merlin Entertainment and Mediclinic International, who are both at risk of being demoted to the FTSE 250.
Car hailing app Uber faced more difficult times last week as it was revealed it concealed a data hack that exposed data of 57 million users and drivers. The firm failed to notify individuals or regulators of a hack in 2016, but also confirmed last week it paid the hackers responsible £100,000 to delete the data and keep quiet about the breach. The stolen data included names, email addresses and phone numbers, but didn’t extend to location data or bank account details. The New York state attorney general’s office announced it would open an investigation, which could lead to one of the largest fines ever for a data breach.
It has been a bad year for Uber, who has been involved in a number of scandals in the UK and elsewhere. It started back in January with #DeleteUber going viral, and since then, there have been allegations of sexual harassment and gender discrimination, a series of disputes over drivers’ pay and losing their license in London.
It’s a difficult time for the owner of British Gas, as its share price hit a 14-year low on Thursday, after it announced worse-than-expected profit forecasting for this year. The UK’s biggest energy supplier has had around 823,000 customer accounts closed since July (6% of their total) and concerns about future profits. Centrica did make a point of highlighting that it would still pay its upcoming dividends, which will equate to 9% of its share price, but this didn’t stop investors selling off their stocks - the share price dropped 15% on Thursday alone.
In recent years, Centrica has focused its business on customer-facing products - including energy supply and services - selling off some of its large power stations and oil assets. However, there are significant challenges ahead, with the government’s price cap on energy bills due to take effect in late 2018 and new suppliers undercutting British Gas on price.
Questions to ask yourself… How much of a reputational boost does being a FTSE 100 company offer UK firms? What can Uber do to start rebuilding their reputation? Should the government intervene to cap energy price rises?
£10 billion on Black Friday in UK
The big shopping weekend in Britain continues into Cyber Monday today, as retailers expect £10 billion to be spent over the period - experts predict £2.5 billion has been spent on Black Friday alone. This represents a 4% increase on the spend last year, despite many retailers being unable to offer big discounts due to high inflation and the fall in the value of the pound impacting on profits. The infamous tussles for the best bargains between shoppers seen in previous years seems to be a thing of the past, with a majority of customers favouring doing their shopping online - initial predictions believe £1.74 million was spent online every minute on Black Friday.
In America, Black Friday also brought good news for Amazon CEO and founder Jeff Bezos, whose net worth rose to over $100 billion, after the firm’s share price climbed on Friday. Amazon’s share price has soared in 2017, boosting Bezos’ net worth by $32.6 billion to make him the world’s wealthiest person.
However, not everyone is on board with the Black Friday hype and many stores didn’t take part in any promotion during the weekend, including Asda, M&S and Lidl. The chief executive of Fat Face claimed the day was “bonkers” for retailers, suggesting it was bad for customers and retailers. His suggestion may have some validity, with research showing 60% of items cost the same or less before or after the Black Friday event. Also, the boss of Harrods stated that Black Friday sales cheapen a brand.
Questions to ask yourself… Does heavily discounting stock during Black Friday cheapen a brand? Are customers being misled on the savings they make on Black Friday?