By Mark Richards.
As we do at the end of every month, CLNews looks back over the month just ended. October brought us the Budget in the UK, political upheaval in Germany, Italy and Brazil and the dog that did not bark in the night. But Tesla finally made a profit and Royal Bank of Scotland finally paid a dividend. And a small boy in Utah decided to help his mommy…
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
The big story
Chancellor of the Exchequer Philip Hammond delivered his Budget speech on Monday 29th October and it was hard not to feel some sympathy for him. So many of his announcements – the ‘end of austerity’ and the extra cash for the NHS to name but two – had already been announced by Theresa May in previous speeches. Almost as if she wanted to publicly tie her Chancellor’s hands…
But then the Chancellor told some jokes, and your sympathy evaporated. As one sketch-writer put it, he delivered them with “all the aplomb of a sedated undertaker.”
Nevertheless, the Budget generally received a positive reaction from the press as he increased the personal allowance to £12,500 and lifted the level at which people pay higher rate tax to £50,000. ‘Phil-Good Factor,’ said the Mail – but the Guardian may have been closer to the mark with, ‘A Budget of tax cuts and spending to shore up May.’
The Budget also saw the proposed introduction of a Digital Services Tax. Not, stressed the Chancellor, an online sales tax, but an attempt to get digital giants such as Amazon and Google “to pay their fair share.” The move has been widely condemned in the US and will not, in truth, raise that much money. I have my doubts on this one: a great many UK start-ups owe their existence to Google and Amazon.
There was gloom for contractors as Hammond – as expected – tightened up the IR35 regulations, with large players in the building industry complaining that HMRC had recruited “thousands of unpaid tax collectors.”
What else happened in the UK?
In his Budget speech, the Chancellor did take steps to alleviate the gloom on the nation’s high streets, introducing business rate reliefs that, he said, would help 90% of small businesses. But there was more gloom as Patisserie Valerie came close to collapse and Boots produced final quarter results that could only be described as lacklustre. You do worry that disappointing results over Christmas might well be the final straw for some chains.
More optimistically Rolls Royce created 200 more jobs and Spanish train maker TALGO shortlisted six sites in the UK for a new manufacturing capability that will create 1,000 new jobs.
More good news? Royal Bank of Scotland announced that it will pay a dividend – to astonished shareholders presumably – for the first time since 2008. However, bank branches continue to close, with 6,000 having disappeared since 2010.
In wider economic news inflation was down to 2.4% in September and unemployment fell by 47,000 in the three months to August. Unemployment is now down to 4% and youth unemployment is at its lowest level in history. Wage growth in the UK is now at its fastest for a decade, a point the Chancellor hammered home in his speech. The Office for Budget Responsibility is confidently predicting “real wage growth” for each of the next five years.
Despite the Chancellor’s optimism, the FT-SE 100 index of leading shares ended the month down: given the global sell-off it could do little else. It was down 5% in the month (and is down 7% for the year as a whole) at 7,128. The pound also fell by 2% against the dollar, ending October at $1.2772.
Countdown to Brexit
Some of you may know the story of Silver Blaze. Sherlock Holmes is investigating the disappearance of a famous racehorse.
“I would draw your attention to the curious incident of the dog in the night,” he says.
“But,” says the police officer, “The dog did nothing.”
“That,” says Holmes, “Is the curious incident.”
In October there were plenty of Conservative MPs who reminded you of the dog…
The month started with Boris Johnson demanding “Chuck Chequers” at the Conservative Conference and receiving a rapturous reception. Theresa May spoke a day later and received the obligatory standing ovation – but there were plenty of empty seats.
And then the ritual dance with Europe started – and ended with the Prime Minister suggesting that the UK’s transition period for leaving the EU could be extended. That was surely it. She was summoned to a meeting of the backbench 1922 committee, with one MP apparently muttering, “Bring your own noose.” Surely a leadership contest was only days away?
No, the dog rolled over, Theresa May tickled its tummy and left the meeting with her position strengthened and no visible stab wounds. So it is back to negotiating with Europe. As I write – on the evening of November 1st – Brexit Secretary Dominic Raab says he is “confident of a deal by the end of November.” The Irish Government has basically said “This is it!” and demanded a solution to the Irish border question within a week and an unnamed EU official has said there is “no chance of a deal before December.”
So there you have it. The caravan rolls on. Next month I will let you know if it reached anywhere…
What happened in the rest of the world?
Angela Merkel has been Chancellor of Germany since November 2005 and de facto leader of Europe for just about as long. All that may be about to change.
In the middle of the month the Christian Socialists – Merkel’s allies in the ‘grand coalition’ – lost their long-held majority in Bavaria as German voters swung sharply to the Greens and the far-right Alternative fur Deutschland (AfD).
That was clearly a warning shot and when the coalition suffered losses in Hesse at the end of October – again to the Greens and AfD – Merkel announced her decision to stand down as Chair of the Christian Democrats. She will – at the moment – serve out her term as Chancellor, but she is clearly a weakened figure.
Meanwhile, there was chaos in Italy as the country’s populist leaders went into battle with the EU over their proposed budget. The Italian economy is now no bigger than it was in 2008 and grew by just 0.1% in the third quarter of the year. Consequently, Deputy Prime Ministers Matteo Salvini and Luigi Di Maio want an expansionist budget – borrowing money to kick-start the Italian economy.
The EU has effectively rejected the budget, believing that the country cannot add more borrowing to already high levels of debt.
“This is the first Italian budget that the EU doesn’t like,” wrote Di Maio on Facebook. “No surprise. This is the first Italian budget written in Rome and not Brussels.”
Ultimately this may prove to be as big a problem for the EU as Brexit.
October also brought us the ‘Trump of the Tropics.’ Brazil has a new president in the shape of the confrontational and often controversial Jair Bolsonaro.
He is a 63-year-old former military officer and will assume office on January 1st 2019. Bolsonaro has promised to stamp out corruption and be tough on crime. He is unashamedly right-wing in both social and economic policies: critics worry that his close ties to the agribusiness lobby may lead to yet more deforestation in Brazil, with its consequent impact on the world’s climate.
…And yes, after recording some of the biggest losses in US corporate history, car maker Tesla finally made a profit. In the third quarter of the year, it made $312m – roughly equal to £244m.
With worries about the continuing China/US trade war and the threat of higher interest rates in the States, world stock markets had a torrid month in October. It was not just the UK: America’s Dow Jones index was down by 5%, Germany’s DAX index by 7% and China’s Shanghai Composite by 8%. Leading the way – if that is the right phrase – was the South Korean stock market, which fell by 13%.
So how investors must have longed for something as stable – and frankly, as dull – as Bitcoin. It may not yet be the ideal investment vehicle for the proverbial widows and orphans, but the virtual currency turned in a performance many traditional investors must have viewed enviously. It was only down by 1% during October, opening the month at £4,985 and closing it at £4,945.
I have already commented on the Chancellor’s rib-tickling performance in the Budget – more than a minute devoted to jokes about lavatories. ‘What a time to be alive’ as The Simpsons so frequently remind us.
October got off to a bad start for Ben and Jackee Belnap of Utah. The couple had carefully saved a thousand bucks (around £780) which were to pay back Ben’s parents, who had kindly bought them season tickets for the University of Utah’s American football games. Sadly the money went missing. Jackee eventually found it in the trash – but the cash had been shredded. Well, what do you expect when you have a two-year-old son? Jackee told the local TV station that she “often got Leo to help with the shredding.”
And now the little fella had wanted to help mummy…
Never mind. The Utah Utes are having a good season and recently beat Arizona 42-10. So some small consolation for Ben and Jackee…
Closer to home MPs on the Education Select Committee interviewed a four-foot robot called Pepper, as they sought to learn about AI and robotics. Unfortunately reports indicated that the MPs struggled to understand what Pepper was saying, as he gave short, truthful and easy-to-understand answers to all the questions.
Finally, we must report on a crisis in the English wine industry where – thanks to the record-breaking summer – there has been a bumper harvest. That’s the good news: the bad news is that the winemakers do not have enough storage space to cope with what’s been dubbed, ‘the vintage of a lifetime.’
I think I know a few people who’d be willing to help out…