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In this week’s Commercial Awareness update, we look back on the key stories from March. From tariff wars and data breaches to ball tampering, here’s what you need to know.
The Spring Statement
Chancellor Philip Hammond was positive as he delivered the spring statement in parliament, announcing GDP growth has been revised upwards for 2018 and hinting that increases in public spending could be announced in the Autumn budget.
Was this first Spring Statement (since the budget was moved to Autumn) really as positive as Hammond makes out? Here’s the key points:
- The forecast for GDP has been revised up in 2018 by 0.1%, as the Chancellor now believes the the UK economy will grow by 1.5% this year. In 2019 and 2020 forecasts remain unchanged, but the longer term picture doesn’t look as strong - forecasts for both 2021 and 2022 have been revised down
- On Brexit, the Office for Budget Responsibility (ORB) predicts the UK will pay into the EU budget until 2064 and the total “withdrawal bill” will equal £37.1 billion
- Hammond has suggested he will increase public spending in his Autumn budget later this year, especially highlighting the need to increase expenditure on the NHS
- Inflation has been a big worry for the Chancellor, with it consistently standing above 3% for much of the last 12 months. The OBR believes it will fall back to the Bank of England target of 2% by the end of 2018
- Hammond has called for measures on both single use plastic bottles and the taxation of tech giants. He hinted at a new tax on plastic bottles with the aim of reducing litter. He will also look into how big tech companies are being taxed in the UK.
Tariffs between China and America
Global stock markets had a rocky month in March, after tariff talks in both America and China show the potential to turn into a trade war. Two weeks ago America introduced a 25% tariff on Steel and Aluminium imports from abroad, heavily impacting China’s trade. Trump also announced a wider plan to introduce tariffs on Chinese imports worth $60 billion. This Sunday, in retaliation, China announced they would be implementing a 25% tariff on approximately $3 billion worth of food imported from America, including pork and wine. This has caused many experts to speculate that a full-scale trade war could start between the two richest economies which would impact global trade and mark a continued shift by both countries in the direction of protectionism.
It is worth noting that China’s reaction isn’t as strong as it could have been, suggesting they are keen to avoid further escalation with America. This didn’t, however, stop American markets dropping after the news reached New York, with the Dow Jones and S&P 500 losing 3% and 2.3% respectively. Food exporters, like Tyson Foods, were worst hit by the announcement, but the nervousness amongst investors spread across all sectors. There are worries that global recovery could be halted or even regress if governments across the world respond by increasing import barriers.
How will this affect Britain?
As Britain import more than they export, the economy isn’t affected as much by tariff changes in other countries. However, Britain aim to negotiate free trade deals after Brexit and the current climate isn’t exactly conducive for this. If there is a full blown trade war between America and China, the rest of the world stands to lose out, including Britain.
Companies to watch
March was a poor month for Facebook, after it was revealed that data from over 50 million of the social media giant’s users were improperly harvested by Cambridge Analytica - an analytics firm used by the Donald Trump’s election campaign. The revelations question how well Facebook protects its users data and whether people are fully aware of how their data is being used. Cambridge Analytica were able to utilise this data against Facebook’s rules to target people with political messages and “fake news”. The Federal Trade Commission (FTC) is looking into Facebook’s behaviour, which could result in fines for the firm if they are found to be in violation of their agreement.
As a result of the allegations, shares in both Facebook and Twitter were down, with Facebook losing 7% in a single day. The worry for Facebook is that government’s clamp down on the usage of the data they collect, making it more difficult for Facebook to make money through their targeted advertising. The #DeleteFacebook movement also could have caused worries for the firm’s investors, but it appears to have had very little effect on user numbers.
In response, Facebook CEO Mark Zuckerberg has apologised to users and said the firm will be reviewing its data policy. They have also taken full page adverts in newspapers in both the USA and UK to apologise for the data breach. However, it isn’t all bad news for Facebook, as a separate report suggests social media advertising will overtake television in 2 years despite this scandal.
Barclays became the first bank in the UK to separate their investment bank from their retail bank as part of the “ring-fencing” operation. The £1 billion transformation was completed over the Easter bank holiday weekend and is the biggest transformation the firm has ever done. The project means Barclays UK will run on its own, with their 24 million customers and £250 billion of assets. The transformation was required to comply with the new rules the government imposed on the five biggest banks after the 2007/8 financial crisis. By separating the two parts of the bank, customers of the retail bank are completely separate from the riskier investment bank.
However, the ring-fencing has had its controversies, especially as Barclays’ retail pension obligations will sit in their investment bank, rather than the retail bank. The bank has said it is impossible to split the pension scheme into two and the regulators have rubber stamped this move. Barclays has also increased its capital buffers since 2008 to prevent serious problems in the event of another crash.
In March, cloud storage company Dropbox launched its IPO, with shares soaring on its first day of trading. At a $7.5 billion valuation, the company offered shares at $21 dollars, which closed 36% higher ($28.48) at the end of its first day of trading. Set up 11 years ago as a free app for storing files across multiple devices, the surge meant the company’s valuation went above $10 billion - greater than its valuation when it did a round of private funding back in 2014. This is an encouraging start for Dropbox, which also saw a 7% rise in the share price on its second day of trading.
The success of this IPO could fill other tech companies with more confidence about a future IPO. Both Spotify and Docusign are set for their debut on Wall Street and will be encouraged by how Dropbox performed.
Whether Snapchat can become a profitable company has been high on the agenda in the business news in March, especially when a tweet from popstar Rihanna caused $1 billion to be wiped off Snap Inc. share price. Rihanna responded to an add on Snapchat which appeared to mock her experience of domestic violence with Chris Brown, saying she would not be using the app. This resulted in a 5% drop in the companies share price, and it added to investors worries about the continued popularity of the app. This follows a tweet from Kylie Jenner earlier this year saying she wasn’t using the app anymore, which resulted in a $1.3 billion drop in its share price.
Snapchat has been struggling with user growth and the signs don’t look promising for the future profitability of the company right now, as they heavily rely on key celebrity users to continue their growth. Many of Snapchat’s new features have drawn criticism from their user base, which could drive people away from the app - if this happens, they will struggle to be profitable.
Gender Pay Gap
Britain’s biggest companies have until 4th April (today) to report on their gender pay gaps, but as it stands many are yet to release their figures. For the companies that have already reported, 78% of companies pay men more, with the Finance sector appearing to have the biggest gender pay gap - the likes of Virgin Money, Santander UK and Barclays Bank UK have already reported. So far, only three sectors have a gender pay gap in favour of women, which are water and waste, household employers and mining.
The pay gap is calculated on an hourly wage basis and includes both full time and part-time workers. All firms with more than 250 employees have to report on their gender pay gap, with a number expected to report today (the deadline). The UK has a higher gender pay gap than the average for EU countries, so it will be interesting to see how the government reacts when all firms have declared their pay gap.
Australian ball tampering
The back pages of the papers have been dominated over the last couple of weeks by the ball tampering scandal in South Africa. Playing against the hosts, Australian cricketer Cameron Bancroft used sandpaper in an attempt to alter the condition of the ball and gain an advantage. Both the captain Steven Smith and vice-captain David Warner were aware of the plan, with the latter being accused of instigating it. Smith and Warner have been handed year-long bans, while Bancroft got a nine-month ban.
There’s also a business impact to the scandal, which Cricket Australia are very conscious of. Investment firm Magellan, has torn up their three year naming rights sponsorship deal while footwear company Asics has moved away from individual sponsorship deals with some of the players. Cricket Australia earned £184 million in sponsorship last year, with airline Qantas being their major sponsor - keeping their big backers will be a huge challenge for the body as the backlash continues.