With applications starting to open for internships and graduate schemes in 2018, don’t miss the essential business and political stories of the week. We discuss the strength of London, personal debt on the rise, Jimmy Choo’s sale, The Guardian’s plan for a paywall and Mike Ashley’s management style. Read on for all this and more.
The enduring strength of London
The business press over the last few weeks has focused on two key Brexit-related stories – the possibility of businesses moving operations out of Britain to the EU and the Brexit transition deal. Last week saw some essential updates – here’s what you need to know.
The transition deal
Last week Chancellor Philip Hammond claimed Britain should be seeking a transition deal ending in 2022 to ease the impact on businesses after the UK leaves the EU in March 2019. Talking on BBC Radio 4, the Chancellor suggested that when we do leave Britain may not immediately change, as the interim deal will include continued access to the single market and free movement of people. Trying to persuade the EU to create something unique for the interim will be very difficult, therefore trying to negotiate for an “off-the-shelf” solution will be more likely. Hammond has also highlighted the need for an “implementation phase”, while the UK defines new trade deals. It appears that pro-Brexit cabinet ministers – including Michael Gove and Liam Fox – are willing to accept plans for a transition deal, but reports suggest there are growing rifts over the details.
Are city firms really moving out of London?
In last week’s Commercial Awareness update we discussed firms which were planning to move some of their operations out of London to the rest of the EU – the likes of Deutsche Bank and Morgan Stanley were amongst those looking towards Frankfurt. All firms will have contingency plans depending on what sort of deal the UK gets with the EU, but will also be aiming to encourage the government to go for a deal which favours businesses – could big firms be talking about potential job losses to put pressure on the government?
There was some good news for London this week, as a new report by Oxford Economics claims London will continue to outpace rival financial centres in Europe. London’s Gross Domestic Product (GDP) is forecast to grow at a rate of 2.3% per year up until 2021 – closest rivals Paris and Frankfurt’s GDP are due to rise 1.6% and 1.5% respectively. Frankfurt is expected to be the biggest winner from Brexit in Europe, but if London can prove its continued supremacy, the impact may be negligible. It may not be as positive for other regions in the UK however, as a separate study last week found the city of Aberdeen is likely to be the worst affected by a hard Brexit.
Questions to ask yourself… Should Hammond cut corporation tax to encourage businesses to maintain their activity in London? Is a three-year transition deal long enough for the UK to agree independent trade deals?
Personal debt on the rise
The Bank of England has warned that a sharp rise in personal debt could impact on the UK economy and has led to some commentators questioning whether lessons were really learnt from the financial crisis in 2008. The Bank’s Financial Stability Director Alex Brazier has said personal loans have increased by 10% over the last 12 months, but household incomes rose by just 1.5%. The total amount of personal borrowing now stands at £198 billion, with car financing growing quickest – rising 15% in the last year. The Bank has warned high street banks against complacency when it comes to lending, and told them back in June to build up their finance against the risk of bad loans.
MP Rachel Reeves, the new head of the parliamentary business select committee, warns that we could be seeing the same trends as in the run up to the financial crash. The Bank of England believes the UK is in a stronger position to deal with rising personal debt, but is encouraging banks against reckless activity. Santander has responded to the warnings by reducing its mortgage lending and loans for car purchase.
Questions to ask yourself… Should the banks be held more responsible for reckless lending? What could the Bank of England be doing to encourage less personal debt?
Three companies to watch
Retailer Michael Kors has agreed to purchase luxury fashion brand Jimmy Choo for $1.2 billion (£900 million). The British firm was put up for sale in April with significant interest from potential buyers. Michael Kors’ offer is 36.5% more than Jimmy Choo’s share price was back in April. The American retailer’s share price dipped by 4% shortly after news of the deal, which suggests the markets feel they overpaid for the acquisition – however, it did recover shortly after. Jimmy Choo’s share jumped 17% in the London markets on the news, but some in the industry are worried that the premium brand could change under new leadership.
Michael Kors have recently struggled, with sales declining 11% in the last quarter and the firm is in the process of closing down the majority of their stand-alone stores. The acquisition of Jimmy Choo will give them access to both international markets and luxury shoe markets, which they hope will work towards turning around their fortunes.
The Guardian newspaper is developing plans for a paywall, as they prepare a “plan B”, if their appeals for donations do not raise enough finances. Many UK newspapers have a monthly subscription model, in which a user pays to access large amounts of their online content. The Guardian is currently committed to free-to-access journalism and asks members for donations to keep them running. They claim this current strategy is on track, attracting 230,000 paying members online. However, the newspaper has been struggling in recent times and is currently in the process of a three-year turnaround plan. During the first year of the plan, spending was curbed and operating losses were £44.7 million – down from £68.7 million in the previous year.
Sports Direct and its CEO Mike Ashley have faced a tough 12 months. Earlier this month, the sports retailer announced its profits had dropped 60% in the last financial year, largely due to the increased cost of importing goods. It has also faced criticism about its working conditions, with MPs describing its Shirebrook warehouse as like a “Victorian workhouse”. However, there was some good news for Mike Ashley last week, albeit raising questions around his leadership style. The Sports Direct owner won a high court battle with investment banker Jeffrey Blue over an alleged £15 million deal they made in the pub. Blue claimed Ashley had verbally promised him £15 million if the Sports Direct share price hit £8 (which it did in 2014) during a boozy meeting – something Ashley denies. This isn’t uncommon for Ashley who reportedly often holds management meetings while drinking heavily. The court ruled the deal was not valid and Blue wouldn’t be paid the £15 million. It’s a slightly bizarre story, but it does teach some valid lessons – most notably, it’s important to get agreements down in writing (preferable in a contract or at least an email). And maybe the pub isn’t the best place for business meetings.
Questions to ask yourself… Is The Guardian losing a USP by potentially moving towards a paywall? How can Michael Kors turnaround their fortunes?