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In this week’s update we discuss the strengthening pound, the importance of the retail sector, elections on both sides of the Channel and Jimmy Choo’s being put up for sale.
1. Market watch: Pound rises as FTSE falls
Last week the pound jumped and the FTSE 100 fell after Theresa May announced plans to hold a general election. The pound rose by 2.2% against the dollar, as it reached $1.28 – it was lower than $1.22 in mid-March. As the pound rose, the FTSE 100 lost 2.5%, recording its lowest level in the last ten weeks. A stronger pound decreases profits for international firms, as their revenues are lower when converting to sterling. Analysts predict the election announcement wiped off £45 billion from top UK firms due to the dip in the FTSE 100, but there are benefits to having a stronger pound, which are discussed in more depth below.
The retail sector faced more bad news last week, as the Office for National Statistics (ONS) reported the biggest quarterly fall in sales in seven years during the first three months of 2017. Sales in shops and online fell by 1.4%, compared to the previous quarter. This poor performance has been linked to increasing inflation, and could show a lack of consumer confidence in the economy. The weaker pound has led to more costs associated with importing and manufacturing goods, which has in turn caused price-hikes and a decrease in consumer disposable income.
There was some good news for the British economy this week, though, as the International Monetary Fund (IMF) upgraded UK growth predictions for the second time in three months. They now believe the UK economy will expand by 2% (up from 1.1%), which is likely to make it the second-fastest growing economy worldwide. The outlook for the global economy is looking more positive too, with forecasts predicting expansion by 3.5% in 2017.
Questions to ask yourself… Is the stronger pound a good thing for the UK economy? Is spending in the retail sector a good measure of consumer confidence?
2. The French election
On Sunday, the French public voted in the first round of their presidential election, with Centralist Emmanuel Macron and the National Front’s Marine Le Pen making it through to the final round on 7th May. This represents a significant shift in French politics, as candidates from the mainstream parties were soundly beaten. With all the votes counted, the Socialist candidate Benoit Hamon only managed to pick up 6.3% share of the vote – a historic low for party.
What did it do to the markets?
The markets have reacted positively to the result of this first round and the Euro jumped 2% against the dollar to its highest level since November. Marine Le Pen is seen as a threat to the establishment, but business is banking on Macron to win comfortably. In the first round, the former Investment Banker and ex-economy minister beat Le Pen by 2.25% of the vote and other, now unsuccessful - but still influential, candidates have urged their supporters to back Macron. The polls currently predict Macron to win around 62% of the vote and as the pro-EU, pro-business central candidate, business heavily favours him. If Le Pen were to be successful, she plans to hold a referendum on EU membership within six months.
Questions to ask yourself… If Macron does win, is this a good thing for Britain? Why has there been a shift away from traditional political leaders?
3. Election Watch
Over the next six and a half weeks our media outlets are going to be dominated by the general election, as the main political parties campaign across the country attempting to win your vote. For many it could get quite tedious, so for this update we’ll pick out a few of the key points raised each week to discuss.
Tories tax pledge
In their 2015 manifesto, the Conservative party pledged not to increase VAT, national insurance or income tax until 2020. However, it looks like Chancellor Philip Hammond is set to ditch this policy if they are elected on 8th June. Recently, Hammond tried to raise national insurance for the self-employed, but was forced to perform a u-turn. Many believe this ‘tax lock’ is too limiting for a government aiming to reduce Britain’s deficit. There is also doubt surrounding whether the Conservatives will continue to back the triple lock on pensions for the same reason.
Labour leader, Jeremy Corbyn, aimed to woo voters this week by suggesting his party would introduce four new bank holidays if elected. The proposal gives British workers a day off on St. David’s Day (1st March), St Patrick’s Day (17th March), St George’s Day (23rd April) and St Andrew’s Day (30th November). Corbyn also came under fire yesterday as he refused to support Labour’s commitment to trident – an issue which threatened to divide the party last year.
£500,000 funding for the Liberal Democrats
In the 48 hours after the snap election was called by Theresa May last Tuesday, the Liberal Democrats raised £500,000 from grassroots supporters. The UK’s third largest party were almost wiped out in the House of Commons during the 2015 election, but this financial backing by their suppporters coupled with a recent by-election win suggest that the party has made significant gains. The Labour party reportedly only managed to raise £200,000 in the same timeframe with a similar scheme.
Should we trust the polls?
The polls failed to predict the Conservative majority in 2015, the EU referendum result and Trump’s win in November, so it’s probably worthwhile being sceptical about their ability to correctly predict the result. For this election, the poll of polls (an aggregate score of all the main polls) has predicted the Conservatives will win around 44% of the vote – currently 19 points in front of the Labour party. The bookies also believe it’s almost certain Theresa May will win a majority in the House of Commons – but are they right?
The one thing you need to do today…
Sign up to the electoral register! If you’re a current student then you’re likely to still be at university on the 8th of June – either doing your exams or celebrating finishing them. Therefore, it’s worth thinking about how and where you will vote. You can sign up to the electoral register at your university address or if you haven’t already at your home address – but you have to do this before 22nd May. If you’re already registered and don’t want to register to vote at your university, you may want to look into doing a postal vote. 18-24 year olds are clearly engaged in politics but the age group is notorious for low turnouts at the polls, potentially leading to under-representation. The best way to change this is to go out and vote.
Questions to ask yourself… Does Jeremy Corbyn have a realistic chance of winning the election? Will extra bank holidays decrease productivity in the UK? Why is the turnout so low for the 18-24 year olds?
4. Jimmy Choo up for sale
Luxury fashion retailer Jimmy Choo has put itself up for sale as part of a “strategy review”. The publically listed company is exploring options which will provide the most value for their shareholders. The company is currently valued at £682 million and has recently enjoyed strong sales in Asia and the UK, due to the weaker pound. However, in previous years the luxury shoe maker has seen sales growth slow – 2% in 2016 compared to 7% in 2015 – especially in their US and European markets.
JAB Luxury hold a majority 68% stake in Jimmy Choo and has declared their supported for the sale, but suggest there’s no guarantee it will happen. There hasn’t been an approach for the company to date. Regardless of this, the share price rose 8% on the back of this latest announcement.
Question to ask yourself… Will Brexit help the luxury fashion sector?