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In this week’s Commercial Awareness update, we discuss the Brexit delay, worries of a global recession, John Lewis’ struggles, the UK Supreme Court ruling over Lehman Brothers and Coca-Cola’s packaging problem.
The papers this week have been dominated by the news of a series of votes in the House of Commons which has resulted in the government seeking a delay on leaving the EU. After May’s amended Brexit deal didn’t alleviate Parliament’s concerns, especially over the Irish backstop, and was voted down, Parliament voted again on whether leaving on the 29th March without a deal should be taken off the table as an option. In a close vote, MPs supported this. The final vote on Thursday saw the MPs vote in favour of seeking an extension of the two-year leaving period from the EU. The current prediction is that May will ask for Brexit to be delayed until 30th June, but that relies on her getting a Brexit deal through Parliament in the next ten days. If not, the extension could be significantly longer.
It’s been quite a week, but how have the markets reacted? On news of Theresa May’s deal being rejected by parliament, the pound dipped as uncertainty spread across the country. However, this wasn’t to last long; the pound rose against both the euro and dollar on Wednesday and Thursday night as a no-deal Brexit was taken off the table and a delay became more probable. The pound surged to a two-year high against both currencies and at time of writing this, it has held these gains. Businesses are broadly positive of this outcome, but the CBI warns that any confidence is fragile as nothing has been clarified in relation to Brexit.
Questions to ask yourself... What does Theresa May need to do to reassure business over Brexit? Could a no-deal Brexit ever me a positive thing for Britain?
Economic Growth Targets
The Organisation for Economic Co-operation and Development (OECD) has slashed 2019 growth forecasts for some of the biggest economies, with the Eurozone fairing particularly badly. The organisation predicts that the eurozone’s gross domestic product will grow just 1% in 2019, compared to the 1.8% they forecast back in November 2018. One of the biggest downgrades is Germany, whose GDP is expected to grow 0.7% this year. Despite uncertainty over Brexit, Britain is expected to grow faster than this.
There’s been talk of a global recession in the business press in recent weeks, with commentators giving different opinions about the state of the global economy. That speculation was fuelled by talk of the Chinese economy slowing this year. In 2018, its growth declined to 6.6% and this year it is forecasted at 6.5%. With the trade war continuing with America, speculators are worried about China’s prosperity. In response to this slowdown, the Chinese government has announced $298 billion worth of tax cuts. These include planned cuts to VAT to help small businesses and manufacturers. The government is also increasing spending and easing restrictions on foreign trading.
Questions to ask yourself... What are the signs of an upcoming recession? What is more important for the global economy - American or Chinese prosperity?
Companies to watch
Earlier this month, the owner of John Lewis and Waitrose announced that profits had nearly halved and consequently outlined a plan to slash hundreds of jobs. Overall profits fell by 45.5%, down from £292.8 million to £160 million in December. However, Waitrose’s profit rose by 18% to £203.2 million. The John Lewis Partnership has reduced its debt by £400 million in 2018, leaving £1.5 billion on its balance sheet, and consequently 440 jobs are now at risk. You may remember that earlier this month, Marks and Spencer announced a new joint venture with Ocado, ending the online retailer’s 20-year partnership with Waitrose. However, the Chairman, Sir Charlie Mayfield, stated that the company had “been expecting this outcome for years” but that they were “going to be there for customers” and are “feeling very positive about it”. The John Lewis Partnership is planning to double the sales it makes via Waitrose.com over the next five years.
HMRC may be expecting a £1 billion windfall as a result of the Lehman Brothers infamous collapse in 2008. The UK Supreme court ruled earlier this week that administrators overseeing the closure of the bank must pay 20% tax on the assets which have been left over from their collapse. This amounts to £1 billion from the £5 billion that was left over.
While the American investment bank became insolvent in 2008 in cash terms, the firm still retained value assets amounting to over £40 billion. After paying former employees, creditors and suppliers, a surplus of £7 billion was left over. However, roughly £5 billion of the surplus would be liable for tax. A partner for PwC who led the Lehman administration, Russell Downs, stated the company is “pleased that the supreme court has handed down this important decision on a technical tax issue” and for providing clarification in this rare exception.
Beverage giant, Coca-Cola, has revealed for the first time that it produces over 3 million tonnes of plastic packaging each year - the equivalent of 200,000 bottles a minute. The company has previously refused to disclose the amount of plastic packaging it produces. However, due to mounting pressure on companies to reveal their environmental footprint, and a report from the environmental charity, The Ellen MacArthur Foundation, some of the biggest household names have come together in a drive for environmental transparency.
The figures revealed the amount of plastic packaging Coca-Cola produced in 2017, which, when calculated, translated to about 108 billion bottles a year - more than a fifth of the world’s annual plastic bottle output of 500 billion bottles. Coca-Cola was one of 31 companies, including Mars, Nestle and Unilever that have also revealed the amount of plastic packaging they create. However, the majority of the 150 companies including Pepsico, H&M and L’Oreal, who have pledged their commitment to MacArthur's reduction on plastic pollution are still refusing to disclose their own figures. The MacArthur Foundation’s global commitment to reducing plastic waste aims to eliminate unnecessary plastic packaging, ensuring that 100% of plastic packaging can be safely reused, recycled or composted by 2025.
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