In this week’s Commercial Awareness update, we discuss the state of the British economy, Qatar’s cash injection into Turkey, checkout-less supermarkets, Mulberry’s profit warning, PepsiCo’s takeover of SodaStream and which is the world’s most liveable city?
State of the British Economy
There are key indicators in the economy which experts look to when making judgements on the state of the economy. Currently for the British economy, the impact of Brexit and the unknown factors associated with a deal or no-deal scenario has made it difficult to deduce how strong the economy actually is. The markets and speculators don’t like uncertainty and with the increasing belief that Britain won’t be able to strike a deal with the EU on exit, this is a time of deep uncertainty. Here are the factors you should be looking out for.
The job market in the UK is in a strong position, currently with the lowest level of unemployment since 1975. The unemployment rate recently dropped from 4.2% to 4% as 65,000 more people were in work in the three months from April to June. The data also showed that 12% less people were on zero-hour contracts than a year before, which is a healthy decrease. There was a slight dip in pay growth, but this didn’t stop real time pay (wage increases with inflation factored in) rising slightly. Commentators did however point to a worrying trend about EU nationals working in the UK, which has been declining. In the same period as above there was an 86,000 fall in the number of EU nationals working in the UK, despite 829,000 vacancies going unfilled.
Inflation rose in July to 2.5% for the first time since November, with transport costs rising well above the target rate in recent months. The figures showed that transport costs were up 5.6% in the last year, with the increasing price of oil and rail fares being cited as the key reasons for this. The increasing prices in transport were partially offset by clothing rising less than the benchmark rate for inflation, but this wasn’t enough to stop inflation rising 0.1% last month. There are worries that with only modest wage growth and increasing inflation, household spending would be squeezed and therefore cause more problems for already struggling retailers.
Markets and the pound
The pound fell for 12 consecutive days against the dollar, as worries about a no-deal Brexit impacted on the currency market. In the middle of last week, the pound fell as low as $1.26 to reach a 14-month low. In recent years, a dip in the pound’s value has caused a spike in the FTSE 100, but this wasn’t the case last week. The FTSE stayed fairly level, with commodity price falls (e.g. Brent Crude, gold and copper) sending it towards 7,550 points early in the week.
The pound recovered late last week, but speculators believe the pound will sink lower in the coming weeks, with no clear signs of a breakthrough in the future trade deal with the EU. There are still hopes for some that Brexit can be reversed, with Superdry’s co-founder Julian Dunkerton donating £1 million to The People’s Vote, who are pushing for a public vote on the final Brexit deal.
Questions to ask yourself… What is the best indicator of economic performance? What are the potential problems of a weak pound?
Companies to watch
The Sainsbury’s in Clapham North, London, will be the first supermarket in the UK to trial checkout-less shopping. Many supermarkets have been looking into and even trialling new technologies which allows customers to do their shopping without having to queue for tills. In this trial, the customer can download an app and scan their shopping as they go around the store. When they leave the store, there will be a barcode to scan confirming the purchase of items in their basket and then they can pay for their shopping using Apple Pay. Many have raised concerns about how easy it would be to shoplift with the technology, but with so many supermarkets trialing new technology, this potential problem is likely to ironed out over time.
If you’re in the Clapham area and have used the software - how is it? Let us know by getting in touch on Twitter.
PepsiCo has announced it will be acquiring the home fizzy drink dispenser, SodaStream, in a deal worth $3.2 billion. The soda maker is considered healthier than many shop bought fizzy drinks, potentially illustrating the new direction PepsiCo is aiming to go in. There has been a number of media stories in recent years about the health impact of some fizzy drinks, which could be detrimental to profits of the big soft drink manufacturers if they don’t adapt. PepsiCo agreed to pay $144 per share, which is above SodaStream’s current share price of $130. The deal comes after rival Coca-Cola agreed to acquire a minority stake in BodyArmor - a sports drink company that Kobe Bryant is invested in. SodaStream is an Israeli company, with strong market traction in Asia and Europe - however, the American market hasn’t taken to fizzy drink dispensers up to this point.
Luxury handbag company, Mulberry has issued a profit warning and claimed they are setting aside £3 million to cover the potential losses from the collapse of House of Fraser. In 21 of their stores, Mulberry have a stand employing 88 people - they are owed £2.4 million from House of Fraser and new owner Mike Ashley has said he will not pay any suppliers before his takeover. On the news of this profit warning, Mulberry’s share price dropped 30%. Also last week, the department store pulled the plug on their website after a row with their warehouse operator, XPO Logistics. It is believed they are owed millions by House of Fraser.
Questions to ask yourself… Is this new supermarket technology going to lead to job losses? How can soft drink manufacturers distance themselves from the health warnings around fizzy drinks? Should Mike Ashley pay House of Fraser suppliers who are out of pocket?
Continued from last week - the Turkish economy
Last week in this update, we discussed the economic troubles Turkey is currently facing and the sharp fall in the lira. Since then, the lira has continued to fall and now has lost around 40% against the dollar in this year alone. The continuing decline has led to increased worries about the state of the economy - with ratings agency Standard & Poor forecasting they will be in recession within a year. America has also doubled tariffs on Turkish steel and aluminium after Mr Erdogan (the Turkish President) refused to release an arrested American Pastor. It wasn’t all bad news for Turkey last week and the lira did rally for a time after Qatar promised to invest $15 billion into Turkey to help it ride out their current economic woes. This investment wasn’t enough to stop markets falling around Europe, but could provide a crucial lifeline for Turkey.
Question to ask yourself… Is America unfairly pressurising the Turkish economy?
The world’s most liveable city
After seven years at the top, Melbourne lost their title as the world’s most liveable city to Vienna. It’s the first time the Austrian capital city has topped the charts, which is based on education, social factors, politics, healthcare and other factors. The low crime rates in Western Europe and the increased stability in Austria led to Vienna taking over from Melbourne this year. In terms of the UK, Manchester was a big climber, rising to 35th; while London lagged behind in 48th place.
Question to ask yourself… Why are UK cities not at the top of this list?