As we did at the end of January, we are now taking a look back at the main economic and political news from February. What happened in the UK and around the world? And what were our political masters up to? And most importantly, as the Beast from the East holds us in its icy grip, was there anything to lighten the gloom?
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
What was the big story in February?
January’s big story – which we wrote about extensively – was the collapse of Carillion. Fortunately, there was no story on that scale in February: Boris Johnson made a speech about the EU, Jeremy Corbyn followed it with a speech on the Customs Union and the British people switched to the other channel in ever-increasing numbers. In Germany Angela Merkel finally cobbled together a coalition to stay in power and in America – despite yet another school tragedy – Donald Trump’s approval ratings climbed above 50%.
But perhaps the biggest story – and the one with the most far-reaching implications for most of us – happened at Tesco. The arguments over the gender pay gap first hit the headlines when large disparities at the BBC were revealed. Most of us, though, do not need to compare our pay to John Humphreys or Jeremy Paxman: what is happening at Tesco is much more relevant. And the company is facing its first equal pay claim, which is also the largest ever in UK employment history.
Claimants are seeking £4bn from the company, arguing that staff in (male-dominated distribution) are paid significantly more than staff in (female-dominated) retail. We are talking about an average wage of £11 per hour versus one of £8 per hour, which could add up to a disparity of around £5,000 per year.
The debate over equal pay is not going to go away and far more companies than Tesco will be facing claims – last week the BBC was reporting that female staff earn up to 43% less than their male counterparts at Barclays, for example. You would suspect that many more countries will follow Iceland in forcing companies to prove that they comply with equal pay. Both claims and – ultimately – penalties are likely to be retrospective and very costly. If you are an employee, check how your pay compares now: if you are an employer, you need to get your house in order, and quickly.
What happened in the UK?
February in the UK was a month when the glass was either half full or half empty, depending on your outlook on life (unless you were Tesco’s Head of HR of course…)
The gloom-mongers will point to Artificial Intelligence taking its scythe to 1,500 middle managers at Morrisons, with the same likely to happen at Sainsbury’s. Growth in the UK’s service sector was the slowest since September 2016 and overall growth in the economy for the fourth quarter of 2017 was revised down to 0.4%.
More pertinently, the UK’s trade gap widened as our exports to the EU slowed down, with the gap between what we import and what we export reaching £13.6bn in December of last year. On top of that unemployment rose in the three months to December, inching up to 4.4%.
…But hand in hand with the rise in unemployment went a rise in wage growth. UK productivity growth was the strongest since the financial crisis of 2008; manufacturing grew by 0.3% in December and, again, is doing better than at any time since 2008. First-time buyers were at their highest level for 11 years and ten years after being bailed out by the taxpayer, Royal Bank of Scotland finally recorded a profit, albeit what its boss called a “symbolic” one of £752m.
So you pays your money and you takes your choice. The FTSE-100 index of leading shares (in which so many of us will have some of our pensions and savings invested) chose to see the glass as half-empty and – at the time of writing – is down around 3% for the month at 7,300. The pound has also slipped back against the dollar and is currently trading at just under $1.40.
What happened in the rest of the world?
Politically there were three stories worth reporting on. As we mentioned above, Angela Merkel finally stitched-up a coalition with Germany’s Social Democrats, allowing her to remain as Chancellor for another four years. This does, though, mean that the anti-immigration party Alternative fur Deutschland becomes the official opposition to the coalition. With anti-immigration sentiment already strong in EU member states like Poland, Slovakia, Hungary and the Czech Republic there may well be increased tensions in the EU in the months ahead.
In the USA, the President’s approval ratings passed 50% for the first time in eight months, despite the Florida school shooting. Whatever we may think on this side of the Atlantic, middle America – and American business – loves its President and with the Federal Reserve bank increasingly optimistic about the US economy (where wage growth has recently been the best for eight years), the love is likely to increase.
There was an interesting development in China at the end of the month, when the government suddenly took control of insurance and financial giant, Anbang and launched legal proceedings against the company’s boss. Anbang is one of China’s ‘grey rhinos’ – giant conglomerates that trample everything in their path – and there have long been rumours that Beijing wanted to rein in their power. We will look at this story in much more detail on Friday: what makes it interesting is that the conglomerates have fingers in a lot of pies, including English football teams…
I still think that five years from now there will be a crypto-currency operating alongside the traditional currencies. It may or not be Bitcoin, but for now, Bitcoin is unquestionably leading the pack. So how did it perform in February?
Bitcoin finished January hovering around the $11,000 mark (£7,780), down from an all-time high of very nearly $20,000 and with plenty of experts predicting that it would ‘slide, crash or implode’ in 2018. At the beginning of the month, it looked like the experts would be right, as the crypto-currency fell 30% in one day and went below $6,000.
This was in the same week that global stock markets were seeing widespread selling, and as the world’s stock markets have gradually sorted themselves out this month so Bitcoin has recovered. As I am writing this article the price on Coindesk is $10,669 (£7,640) – so a roller-coaster month for Bitcoin but, at the end of it, very little change.
Did anything happen to make the world smile in February? Absolutely – unless you were waiting in the queue at KFC where, sadly, the bargain bucket was replaced by the empty bucket. Early in February KFC switched from specialist food distributor Bidvest to DHL for its deliveries but thanks to what were described as ‘operational issues’ (that is ‘we didn’t deliver the chicken’) more than half of KFC’s 900 outlets found themselves without any chicken. DHL’s managing director of retail said, “The reasons for this unforeseen interruption of this complex service are being worked on.” But the Great British Public was knocked sideways by ‘Chickengate’ – so much so that Tower Hamlets police were forced to take to Twitter to ask hungry, distressed people to stop contacting them.
Please do not contact us about the #KFCCrisis – it is not a police matter if your favourite eatery is not serving the menu that you desire.
— Tower Hamlets MPS (@MPSTowerHam) February 20, 2018
There were problems of a more pressing kind for Iceland and its small population of just 340,000 people. The country has impressive green credentials, with virtually all of its energy coming from renewable sources: because of this, many firms have set up data centres there, keen to tick the ‘renewable sources’ box in their annual report. Now, it seems, many of these data centres have turned to mining Bitcoin to generate extra revenue. Unfortunately, mining Bitcoin – via computers solving complex mathematical problems – uses a lot of power. So much that energy expert Johann Snorri Sigurbergsson is warning that the country simply will not have enough energy. The Law of Unintended Consequences strikes again: Iceland creates green energy for its citizens: the lure of green energy attracts data centres: the data centres use all the electricity: ordinary Icelandic citizens wonder why the lights have gone out…
Let us see what unintended consequences March brings us…