In this week’s Commercial Awareness update, we discuss high levels of public borrowing in the UK, WeWork’s challenges, Morgan Stanley’s good news for 2020, Tesla’s new Cybertruck, Uber having their license revoked and university staff pay.
Borrowing in the UK
The UK borrowing reached a five year high in October, new figures from the Office of National Statistics revealed. Last month the government borrowed £11.2 billion, which was £2.3 billion higher than October last year. The UK’s debt now stands at 1,798.5 billion or 80% of gross domestic product (GDP). The EU guidelines suggest countries should aim for a ratio of 60% of gross domestic, and Italy (132% of GDP) and Greece (181% of GDP) have been warned about the levels they have risen to. If the level of debt is bigger than the value of the economy, doubts increase about a country’s ability to pay off their debt - this in turn leads to institutions charging more interest when they want to borrow more.
Spending does tend to rise around a general election and this is unlikely to change after Britain goes to the polls in December. Both PM Boris Johnson and Labour leader Jeremy Corbyn have committed to public sector and infrastructure spending, with the latter especially committing to vast increases in spending - wanting to renationalise railways, increase welfare and offer free university tuition. All of this costs significant money, which can only be funded in two ways - increase tax receipts or borrow more. Labour has said they would raise taxation for top earners, whereas the Conservatives wouldn’t. Either way, under both main parties’ plans, borrowing would have to rise.
Questions to ask yourself… Should the UK have a tighter control on borrowing at this time? Should taxation be increased for the highest earners?
Companies to watch
It’s been a tricky time for flexible office space company WeWork, as poor quarterly results, staff layoffs and doubts about its ability to continue operating have all hit the firm. Earlier this month, it announced that in the third quarter net losses rose by 150% year on year to $1.25 billion. Revenues did jump by 94% but this means that the amount of cash they have in reserve continues to dwindle. Earlier this year, WeWork looked on the verge of collapse after they were unable to raise extra funds from an IPO. SoftBank, the Japanese conglomerate did provide a rescue package of $9.5 billion which gave them control of the company. However, things haven’t gotten better since as they cut WeWork’s valuation from nearly $30 billion last quarter to just $4.9 billion now.
WeWork have struggled with their business model, which doesn’t bring them the returns expected. They own a lot of expensive office space and they struggle to secure long term revenue from many of their customers, who utilise the flexibility of WeWork’s offering. Also, other co-working spaces tend to have cheaper deals slightly outside the city centre, which undercut pricing offered by WeWork.
Markets news has tended to paint a worrying picture recently with talk of a global slowdown on the horizon, but last week there was some good news from Morgan Stanley. When reporting on their outlook for 2020, they forecast global growth will recover early next year. During the last seven quarters the global economy has been declining, but Morgan Stanley believe conditions are ripe for this to reverse.
Firstly, there are signs that the trade tension between China and the US are easing. The bank thinking that the growth will be highest in emerging economies and think that America’s growth will actually decline. However, these trade tensions will help this and have an effect across the world, so it’s good for everyone if they ease. Secondly, many of the key economies are lowering interest rates to stimulate growth, which will encourage money to flow in the system as borrowing is much cheaper.
It’s been an exciting couple of weeks for electric car maker Tesla, with the announcement of a new factory – the first within Europe, as well as the launch of a new vehicle, the Tesla Cybertruck.
There’s been a lot of speculation about Tesla’s expansion into manufacturing within Europe, bringing with it 5,000 jobs, as well as cheaper cars for the European market. Tesla CEO, Elon Musk, has stoked speculation about the location of the new ‘Gigafactory’ with locations in the UK and Czech Republic considered, however Berlin has been confirmed, with uncertainty around Brexit counting against the UK.
There was also the launch of the futuristic pick-up truck – the Tesla Cybertruck. With pick-ups the most sold vehicles within the US, Musk has targeted an electric alternative as key to a clean energy transition. Despite the garish looks, as well as a couple of issues in the launch causing a 6% drop in Tesla share value, with over 200,000 pre-ordered in the first week, it certainly seems to be off to a strong start.
Ride-hailing service, Uber, has lost its license to operate in London from Monday, following Transport for London finding the ride sharing service have violated public safety. The ruling comes after Uber previously lost their license in 2017 but continued to operate under two extensions, the most recent of which expires on the 2nd December. The safety concerns arise from over 14,000 fraudulent trips, as well as instances of suspended drivers being able to continue operating under different accounts.
With London one of the five key cities Uber rely on for over 25% of their revenue, the loss in income, as well as reputational damage could be huge for the business. Uber CEO Dara Khosrowshahi claims the business have ‘fundamentally changed’ how they operate in London to address previous concerns and has indicated they will be appealing the decision. Uber is very popular with customers as they offer a cheaper alternative to black cabs and many commentators question the move by the TfL to remove them from the streets of London.
Questions to ask yourself… Should the government go above the consumer to ban a popular service? What can WeWork do to turn around its fortunes? Why are emerging economies expected to do well next year?
University staff pay
Lecturers and support staff at over 60 universities have started an eight-day strike over pensions and pay conditions. The University and Colleges Union (UCU) have confirmed approximately 43,000 members will be taking action, looking to address decreases in real term pay, a 15% gender pay gap, as well as required increases to their pension contributions. This follows an increasing number of strikes in recent years, with students last experiencing this as recently as March 2018. With students investing so heavily in their education, many have called the continuing strikes disappointing.
Questions to ask yourself… Should university education be free? Who’s at fault for these strikes?