In this week's Commercial Awareness Update, we discuss the pound rising on May's Brexit promise, the record government surplus, Permisson's huge profit, Ocado's new alliance and how long you'll be working for.
Pound jumps on May’s Brexit promise
On Monday, the pound rose to a 21-month high against the euro as Theresa May promised that Britain wouldn’t leave the EU without a deal, unless the House of Commons voted for it. Previously, May had said there wouldn’t be a vote on her deal before 12th March, but now she is saying if no deal is reached by this point, MPs will vote on whether Britain leaves the EU without a deal. Given the views of a majority of MPs up to this point, it is highly unlikely a no-deal Brexit would pass Parliament and it is probable there will be a ‘short’ extension to the leave date. However, May didn’t completely rule out leaving the EU without a deal following the extension.
On the surface, this was good news for businesses that have been increasingly worried about the impact of a no-deal Brexit, and consequently the pound rose on the news to above €1.16 - its highest level since May 2017. The markets believes that May’s concessions on a potential extension increase the likelihood of a soft Brexit or even Brexit not happening at all. However, many investors thought May could have gone further and been stronger on her commitment to preventing a no-deal.
The gains against the euro may not be just a result of May’s announcements on Brexit. Disappointing data in Germany (see last week’s update), and the eurozone as a whole, has caused worry about the future growth within the area. This week, speculators will be watching with interest as Germany announces its latest inflation figures.
Record government surplus
There was a boost for the British government, and more specifically Chancellor Philip Hammond, as they recorded its largest monthly surplus ever in January. The government brought in £14.9 billion more than it spent last month, amid an increase in self-assessed income tax and capital gains tax (a tax when you sell property, shares, personal possessions and business assets). The figures eclipsed the £10 billion surplus economists had predicted, which gives Hammond more freedom to increase spending when he gives the spring statement. With uncertainty surrounding Brexit weighing on the economy, the Chancellor has a lot to think about - should he be committing to extra spending? If so, what can he do to boost the economy and steer Britain through a tricky time? It is likely he will also be announcing downgraded growth forecasts for the next financial year, which may impact his ability to keep public finances in surplus.
Public finance data wasn’t the only boost for the government in the last week, with employment figures from the Office of National Statistics (ONS) showing that there was a record 32.6 million people in work. The jobless rate also remained low, at 4%. The best news for employees was the weekly wage growth over the last year, which was at its highest level since May 2011. Average earnings went up 3.4% in 2018 to £494.50.
Companies to watch
Housebuilder, Persimmon made more than £1bn in profit last year, largely through the Government’s help-to-buy scheme, where almost half of its homes were sold. Annual profits jumped by 13% to £1.09bn from £966m in 2017, as the firm sold 7,970 homes under the scheme out of a total of 16,449 in 2018. It was also announced that Persimmon was set to make the biggest annual profit ever made by a UK housebuilder, having earned more than £66,000 profit on every house sold last year. The Help-to-buy scheme is a government intiative introduced to help first-time buyers purchase their first homes with a government subsidy.
The company’s gains from the help-to-buy scheme have prompted a ministerial review, with the housing minister, James Brokenshire, stating that he is “increasingly concerned by the behaviour of Persimmon.” David Jenkinson, who has recently been appointed to permanent chief executive, stated that Persimmon’s large profits reflects the company’s “successful focus on offering attractively priced new homes primarily to first time buyers”. The company recently sparked public debate when attempting to pay its former chief executive a £110m bonus.
Question to ask yourself - is it right that a private company is able to generate such profits from a Government initiative?
Marks and Spencer has confirmed that they are entering into a joint venture in UK retail with Ocado. M&S will be buying a 50% stake of Ocado’s business for £750 million. Before this agreement, the premium food retailer did not have a food delivery service. This decision represents a unique opportunity for the supermarket to compete with their rivals and increase their market share. There had been concerns that M&S would not have enough products for online shopping to be viable - the basket size at M&S is roughly £13 per basket which is extremely small compared to other larger supermarkets, and significantly below the Ocado minimum delivery spend of £40. However forming an alliance with Ocado will allow Marks and Spencer to tap into a customer base that the food delivery service already has. 10% of the products on sale at Ocado will be M&S branded goods. The venture is not due to start until September 2020, when Ocado’s current deal in delivering Waitrose products expires. On the announcement of the news, M&S shares fell 7% while Ocado’s shares rose 6%.
The latest ING International survey has suggested that nearly two thirds of people are concerned that they will not be able to afford to retire. It has highlighted this is a real concern for people all across the globe from Europe and the US but also notably in Spain, France and Poland. 61% of people living in 13 European countries worry about having enough money in retirement and similar results have come across the globe too. The survey revealed important discoveries about current lifestyles and how this will translate into retirement. Savings are a fundamental way of being able to prepare for retirement, but the survey revealed that 27% of Europeans had no current savings, with 66% of those individuals stating they simply do not earn enough to put anything aside for the future.
The survey highlights concerns that not only are people struggling to prepare for the future, but also finding it difficult to keep their heads above water currently. Additionally, nearly two in five Europeans who have not retired yet, do not expect to enjoy the same quality of living they have today than when they retire, with many projected to retire later than they expect. This means they will have fewer years in which to support themselves. The results from the survey state the mean expected age of retirement in Europe is 63.4.
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