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In this week's commercial awareness update we discuss the pounds four month low, Japan's growing your economy, Deliveroo's latest funding and how railways are costing the British customer their time.
Pound sinks to four-month low
The pound has dropped 2% against the dollar in the last ten days, as cross-party talks over Brexit between the Conservatives and Labour have collapsed. The dips reflects a worry by analysts that there’s a greater chance Britain will leave the EU without a deal. Prime Minister, Theresa May was hoping to work with Labour to find a solution which suited both parties, so a deal could be passed through Parliament and Britain could start its process of leaving the EU. With the talks collapsing, May is going to bring her own deal to Parliament for a fourth time with the aim of getting popular support for it. However, many commentators believe this to be unlikely.
The vote will take place during the first week of June and whatever the result, May has said that she will set out her timetable for leaving as leader of Conservatives after. The likelihood is that May will be replaced by someone more pro-Brexit, therefore increasing the chance of a no-deal, which many businesses see as the worst possible option. This worry was reflected in the value of the pound which was trading at $1.273 at the end of last week.
Questions to ask yourself... What are the other signs that there are Brexit worries across the business world? Is there any way Theresa May can get her deal through parliament?
Japan defies expectation
The third largest economy in the world grew by 0.5% in the first quarter of 2019, despite analysts expecting a slowdown. Despite the growth, there are still worries about consumption, with imports falling by 4.6%. Exports also dropped but much slower at 2.4%.
The Japanese government plans to increase consumption tax (a tax on sales of goods and services, similar to VAT) from 8% to 10% in autumn in an attempt to lower debt. Japan’s debt-to-GDP ratio is 236% (the value of their debt is over double that of the value of the economy), which is significantly higher than other developed countries. The UK’s stands around 112% in comparison, according to the Organisation for Economic Cooperation and Development (OECD). In the euro area, they are supposed to keep their debt to 60% of GDP (Gross Domestic Product). The tax hike has been delayed twice already, but these signs of economic strength could encourage them to push on with the increase later in the year.
Questions to ask yourself... What downsides could come of raising consumption tax? Should more to be done to stop countries racking up huge levels of debt?
Companies to watch
Google has blocked Huawei, the world’s second biggest smartphone maker, from some updates to the Android operating system. This means that new designs of Huawei’s smartphones will not have access to some Google apps including Google Play Store, Maps, the Gmail app and YouTube - but for now, they would continue on existing devices. This news comes after Trump’s administration added Huawei to a list of companies that American firms cannot trade with without a licence. These restrictions are likely to have an impact on Huawei’s business in Europe, its second-biggest market, as it licenses many of its mobile phone services from Google in Europe.
This move by Google will undoubtedly have large implications for Huawei’s consumer business, but it is likely that even more American companies will be following suit and this will make production of Huawei technology extremely difficult. Importantly, this will also affect a proportion of Google’s customers too, which the internet giant is unlikely to be pleased with. Long term this could mean that smartphone vendors will start to consider an alternative to Google’s operating system. Huawei appear to have already considered that they will be outsided by America and have since reported that “we have prepared our own operating system - that’s our plan B”.
Online food delivery service, Deliveroo, is cycling into international expansion after its latest rounding of fund-raising. After this latest round, Amazon has become the biggest investor in the food courier service, where they managed to raise a total £450m. The firm is one of Europe’s fastest growing tech companies and since its inception in 2013, it has managed to raise more than $1.5bn. Deliveroo has declared that they would be using the newly invested capital to expand its reach outside of the UK, offer a wider choice of restaurants on the menu and to grow their new delivery-only kitchens business. The major investment from Amazon has increased the heat in the race against online food rivals including Uber Eats and Just Eat, with the latter’s shares falling by 8%.
This investment marks Amazon’s second attempt to join in the UK’s food online delivery service. In 2016, Amazon started “Amazon Restaurants” which closed shortly after. Although the online giant could not compete in the market, they do have the money to buy into the market. Deliveroo is a very attractive firm for Amazon to invest in as is not just a food delivery company, but a tech company. They have a predictive growth as they expand into new areas, observe how people’s tastes are evolving and predict what stores will be successful.
The world’s oldest travel company, Thomas Cook, saw its shares fall by 40% to below 12p on Friday. This has been the biggest drop in the firm since they nearly collapsed in 2011. Thomas Cook had reported a £1.5bn loss and has attributed this loss to Brexit uncertainty leading to a drop in UK holiday bookings and a growing environmental movement against flying. Investors have been advised to sell shares in the tour operator after this reported news. The company is currently in the process of selling its airline business, which is still profitable, which should raise cash in order to reduce their debt. Lufthansa and Virgin Atlantic are reported to be interested, but it will likely take some time to reach an acceptable deal. However, on a wider point - the airline industry as a whole is struggling, and future mergers are seeming more and more likely.
Railways lose UK passengers 3.9 million hours
As the new summer timetable is introduced across the UK rail network, a report by Which? found that UK rail passengers lost nearly 4 million hours in delays and cancelled trains. It found that 80 trains were significantly delayed (30 minutes or more) and an average of 660 were cancelled each day. There was a particularly bad spell in January and February, where weather issues and other problems led to calls for Transport Secretary, Chris Grayling, to resign his position. The research also found that 36% of customers don’t claim compensation for late running trains, furthering the argument that a system of automatic compensation should be introduced.
The number of hours passengers lose is likely to have significant impact on productivity with people arriving late into work. There’s also likely to be implications for the tourism industry.
Question to ask yourself... Would re-nationalising the railways provide passengers a better service?