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After a couple of weeks’ break over the exam period, the Commercial Awareness update is back. This week we summarise the key business and political stories from the last three weeks, including the markets, BA’s IT woes and the state of the UK economy. Plus, we look ahead to Thursday’s General Election and discuss the key factors which could decide the outcome.
1. Market watch
The FTSE 100 and 250 have hit record highs in the last week, as the markets continue to show strong performance in 2017. The FTSE 250 climbed over 20,000 points and is up 34% since the aftermath of the EU Referendum. The improving global economy and a positive outlook for the future has lifted markets across the world, with the greatest stock rises happening in European and Asian markets.
The biggest winners
Airlines (other than British Airways) have seen strong performance in recent weeks. The last week of May saw budget airline Wizz Air’s shares jump 13% in a day after reporting a 10% increase in revenue. Easyjet’s share price also continued to rise, as HSBC lifted its valuation of the company. The airline had a tough 2016 and posted a pre-tax loss of £236 million for the six months to 31st March – the weak sterling largely responsible for lower profits. However, their share price has gained 38% this year and the markets are more hopeful about the current quarter.
In banking, Barclays’ share price rose last week as they sold off 34% of their African business. This is part of chief executive Jes Stanley’s strategy to cut non-core assets and focus on their American and UK banks. The announcement led to a 3% hike in the share price, before settling at a more moderate 1.5% gain.
International Airlines Group (IAG) lose 2.8% after BA Tech meltdown
Last weekend, thousands of travellers at London’s Heathrow and Gatwick airports had their flights disrupted by a global IT crash on British Airways’ systems. After the airline had sanctioned a number of cost-cutting measures, this IT crash couldn’t have come at a worse time for the airline. It’s too early to value the cost of continuing disruptions, but there are suggestions it could top £100 million in compensation payments. After the IT troubles, shares in British Airways’ owner IAG were down over 3%. This drop could be set to continue, as the airline struggles to handle negative press over the handling of the crisis.
Pound falters due to possible hung Parliament
Last week the pound dipped to $1.28 against the dollar on the back of a YouGov poll suggesting Britain is set for a hung Parliament in the upcoming General Election. Every other poll suggests the Conservatives are set for a majority, but their lead has been cut after a surge in popularity for Labour leader Jeremy Corbyn. The YouGov poll predicted the Conservatives will lose 20 seats, while Labour are set to gain 30. Many have described the poll as ‘brave’, but it has caused some worry in the markets – a hung Parliament brings uncertainty and a potential lack of stability. The pound was down 0.3% against the dollar and euro on the news, recording an eight-week low.
Questions to ask yourself… How should BA respond to this tech disaster to maintain customer loyalty? Is a hung Parliament a big problem for business and/or markets?
2. How is the UK economy doing?
How you answer this question largely depends on which reports or research you read. After the UK voted to leave the EU in June last year, most predicted a significant downturn and a probable recession. This is yet to materialise, but with worries about the deal the UK will be able to strike with the rest of the EU and rising inflation, many see this as the start of the slowdown. There have been two major reports in the last week which show differing opinions on the state of the economy.
In the first quarter of this year, Britain has fallen from the fastest growing nation of any advanced economy in late 2016 to bottom of the league table. Britain recorded growth of just 0.2% last quarter, which matched joint worst performer Italy. Victoria Clarke, an economist at Investec, said: “This was a genuinely weak quarter for the UK, not helped by the 1.4 per cent drop in retail sales over the quarter”. In contrast Canada performed best with 0.9% growth for the quarter.
In the same week, the World Bank has upgraded its forecast for UK growth over the next three years. Economists now expect the UK economy to grow by 1.7% this year, up from the 1.2% they predicted in January. Growth for 2018 was also upgraded to 1.5%, from 1.3%. Despite Brexit-related uncertainties, the stronger growth in advanced and emerging economies as well as increased global output is expected to have a positive impact on the UK.
Questions to ask yourself… Is the UK economy heading for a downturn? What key strengths in the UK economy will make it resistant to the changes after Brexit?
3. Election week
Yes, it’s election week and things are getting quite tight in the race to Number 10. The last two weeks has seen Labour leader Jeremy Corbyn gain significantly in the polls, as controversy surrounded Theresa May over the ‘dementia tax’ and more U-turns. After holding a 19-point lead in mid-April, the Conservative lead has been cut to around 10 points – and it’s even narrower in some polls.
While May has come under criticism for her performance during the election campaign, Corbyn has looked more confident - will this lead to Labour constituency gains come Thursday? Here’s a few issues which could sway the election.
Experts are predicting a low turnout in this election due to voter apathy caused by the feeling there have been too many votes in recent years. The polls suggest the youth vote is more likely to go to Corbyn (some predict around 68%), but there is usually a low turnout in the 18 to 24 age group. If the youth vote does turn out in greater numbers than expected, Labour could be in for a good result.
The key issues
Theresa May has tried and largely failed to make this election about Brexit and the economy – areas she feels the Conservatives have the edge over a largely inexperienced Labour shadow cabinet. However, the Conservatives have spent much of the election campaign defending their welfare policies and issues surrounding policing. The perceived U-turn on the so-called ‘dementia tax’ and proposals for policing cuts have not been popular with the electorate. If the Conservatives can bring the debate back to the economy in the next few days, they are likely to score political points over Labour.
The silent Tory voter
In recent years, the polls have been unable to adequately predict the results of elections and referendums. One possible reason for this is the centre-left tend to make more noise in the build-up to a vote. On social media in this election, voters have seen more Labour messaging and are more likely to share posts supporting Labour. However, in 2015 this didn’t convert to seat gains, as the Conservatives won a surprise majority. Could it be the less vocal Tory supporters will turn out in numbers and sway this election firmly for May?
Questions to ask yourself… Will Jeremy Corbyn’s economic policy be detrimental to businesses? Should Brexit be the key issue surrounding this election?