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In this week’s Commercial Awareness update, we discuss the possibility for a Brexit transition deal, Netflix’s user surge, TSB’s iris recognition technology, the British skies filling up and find out which firm tops the Fortune 500 Global List.
1. Philip Hammond’s Transition Deal
The latest focus in the Brexit discourse is surrounding negotiating a transition deal to be in place for when Britain expects to leave the EU on 29th March 2019. Chancellor Philip Hammond is the biggest-name front bench Conservative leading the charge on this, as he aims to rally business and cabinet support for a deal which protects business and jobs in the interim before trade deals are negotiated. In recent weeks it has become the key topic in Brexit talks, with many leading companies (including Goldman Sachs last week) urging clarity over what this deal could look like. The last year has been defined by two terms - hard Brexit or soft Brexit - but these overly-simplistic terms don’t offer enough clarity as to what Brexit Britain might look like. With the Cabinet on board with Hammond’s desire for the deal, the length of the transition deal and what that agreement should entail is now the key talking point in the City and beyond.
Many commentators suggest Britain needs to start coming up with concrete plans for this transition deal or risk losing businesses to other European financial hubs. After a rocky period last year, Deutsche Bank has already suggested they will be moving their EU hub to Frankfurt, along with a number of jobs. Competitor Morgan Stanley has also officially announced a preference for the German city, while Bank of America Merrill Lynch has stated their preferred choice is Dublin. Many firms are holding on to see what emerges from the initial rounds of Brexit negotiations, but this won’t last forever. Stakes are currently high, but if good progress can be made with a transition deal which helps businesses, many believe the UK economy can hold strong. The PwC chief economist claims if negotiations go smoothly, they expect a “moderate slowdown, but not a recession”.
Questions to ask yourself… What does a good transition deal look like for the UK? How else can the Government encourage firms to keep their staff in the UK?
2. An unexpected dip in inflation
There was some welcome news for British consumers, as the Office of National Statistics (ONS) announced inflation had unexpectedly dipped in June. In May it reached a four-year high of 2.9%, but last month City analysts have calculated it dropped to 2.6%. Previously, experts had warned that inflation was likely to exceed 3% by the end of year, but they have been less bullish in their estimates since the new figures were released – some are now speculating that inflation might have peaked back in May. The decrease is largely down to cheaper fuel prices for motorists, as well as food prices not increasing as predicted.
The Bank of England set a target of 2% for inflation, which is currently around the same rate that wages are rising. With inflation above the target rate, consumers will have less disposable income, as their living costs become a bigger proportion of their wages. The recent hike in inflation is largely due to the weakening of the pound in the last year, as it costs British companies more to import materials and food from abroad. Over time the extra costs are passed onto the customer in price rises, especially in food and fashion. Before the UK voted to leave the EU and the pound weakened, inflation was below 0.5%.
Questions to ask yourself… Why is 0% inflation a bad thing for the economy? Will food prices continue to rise due to Brexit?
3. Companies to watch this week
Walmart tops Fortune 500 Global List
American multinational retailer Walmart has topped Fortune’s Global List for a fourth consecutive year, it was revealed last week. The list ranks the top 500 global companies in terms of their revenue in the last year. Walmart generated over $485 billion in revenues in the last financial year – over $100 billion more than Chinese company State Grid in second place. American companies make up 132 places in the list, with Berkshire Hathaway and Apple also making the top ten. BP were the largest UK company, in 12th, despite an overall trend for energy firms to perform less well than the previous year.
The 500 firms on the list generated $28 trillion in revenues and $1.5 trillion in profits last year - that’s 37% of global Gross Domestic Product (GDP). Social media giant Facebook entered the list for the first time this year, at 98 on the list.
Shares in Netflix went up 10% last week on the back of an announcement that subscribers had reached 104 million. Netflix had forecast 3.2 million new users to sign up during the second quarter, but last week they announced they had onboarded a staggering 5.2 million new members in the period. Only 3 months ago, the Commercial Awareness update reported on slowing new membership numbers in the first quarter, but this latest announcement will please the shareholders of the entertainment company.
Content output is key to Netflix and that’s where it has an advantage over competitors like Amazon or TV stations. It released 14 new seasons of their original series, 13 comedy series and much more in the last quarter alone.
Iris recognition technology will be introduced to TSB’s app for Samsung Galaxy S8 users - the first bank in Europe to introduce the technology to access bank accounts. It means users can view their accounts and start making transactions just by glancing at their screens. The technology will be available in September and TSB believe it is the most secure form of biometric authentication – using 266 unique characters compared to 40 for fingerprints. Iris scanners are expected to be a feature of most new smartphones, replacing fingerprint scanners, which will allow banks to roll out this technology further.
Questions to ask yourself… What are the possible risks with Iris recognition technology? Why did the energy sector perform worse last tax year?
4. Are the UK skies full?
On Friday, a record 8,800 planes passed through British airspace in 24 hours, as the start of the school summer holidays encouraged a spike in plane travel. But can we keep increasing the number of planes in UK airspace? According to the director of National Air Travel Service (NATS), Jamie Hutchinson, we’re reaching our capacity due to the “ageing design of UK airspace”. The Government has recently launched an aviation strategy to deal with the next 30 years, including research into initiatives like doorstep luggage collection.
Question to ask yourself… How essential is airspace capacity to the UK economy?