By Mark Richards.
As we do at the beginning of every month, MoneyGap looks back over the month just ended. So what did February bring us? A second meeting between Donald Trump and Kim Jong-un, this time in Vietnam. It also brought us the usual shenanigans over Brexit – but absolutely no progress and, as I write, there are exactly 20 working days until the UK is due to leave the EU. The month also brought some gloomy news for Europe and the usual slew of bad news from the UK high street. And ever wondered how to spend that £268 you find down the back of the sofa? In February you found out…
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
The meeting between President Trump and Kim Jong-un? The ever more tangled web that is Brexit? The moves towards ending the US/China trade dispute? In truth there was not one single big story that dominated February’s news: but there were plenty of signs of what I think will become a very big story.
In the UK, the news that Nissan will move production of the X-Trail away from Sunderland and back to Japan was quickly followed by Honda’s announcement that it will close its car plant in Swindon in 2022, with the direct loss of 3,500 jobs.
The immediate reaction was – whatever the companies said – to blame both decisions on Brexit. In truth, the decisions have little to do with Brexit and far more to do with fundamental changes in the car industry. As long as I have been alive – and I suspect for the lifetimes of the vast majority of people reading this article – there have been three fundamental truths about cars. They were owned by people: they were driven by people, and they were powered by the internal combustion engine.
Suddenly the rise of ride-hailing apps, self-driving cars and the development of electric cars and the hydrogen fuel cells means that all of that is under threat. It is a subject we will look at in more depth in the future but the implications for a country like Germany are enormous.
Germany is home to four brands – BMW, Mercedes, Audi and Porsche – which account for 80% of global sales of luxury vehicles. The car industry in the country employs nearly a million people and is responsible for 20% of Germany’s exports. If people decide they can do without a car – as is already happening in cities with ride-hailing apps – or they start buying their cars from Google or Tesla – then the implications for Europe’s largest economy are a lot more than serious. And as we shall see below, there is already plenty of bad news for Europe…
So what happened in the UK?
The month began with Oddbins calling in the receivers, Debenhams bringing forward its programme of store closures and Thomas Cook revealing £60m of losses. True, retail sales did bounce back in January thanks to widespread sales but by the middle of the month an article on the BBC was openly speculating on whether our high streets would become ‘ghost towns.’
Would an online sales tax save the high street? That seems to be the route the Chancellor is determined to go down, and I suspect we will get further confirmation when he delivers his Spring Statement next week. But I doubt that it will be effective – any more than a tax on the Model T Ford would have saved the horse and buggy economy. The simple fact is that shopping online is simpler, quicker, more convenient and very often cheaper than the high street.
But if January brought bad news for the high street it brought even worse news for the UK car industry. As above, Nissan moved production of the X-Trail back to Japan, and Honda confirmed that its Swindon plant would close in 2022.
Was there any good news amid the gloom? Yes there was. UK growth was forecast to be 1.4% in the coming year: yes, that is the lowest for six years, but it is well ahead of Germany and the rest of the Eurozone. Inflation in January fell to a two year low of 1.8% and figures from the Office for National Statistics showed that 2018 ended with 444,000 more people in work than a year previously, and 60,000 fewer people reliant on zero-hours contracts. And with inflation falling, real wages were up again.
If you want more good news then Government borrowing fell to its lowest level since 2001 as income from taxes beat spending by £14.9bn in January. And investment in the UK’s artificial intelligence sector was equal to AI investment in the rest of Europe combined.
The FT-SE 100 index of leading shares decided to side with the optimists, and ended February up 2% at 7,075. The pound was also up against the dollar, rising by 1% to close February at $1.3262.
Countdown to Brexit
‘Four weeks today I will take a look back at February: I suspect that little in this section will have changed…’
That is what I wrote in the Brexit section of the Round Up at the end of January and – with less than four weeks to go to March 29th – that turned out to be a depressingly accurate prediction.
So what is likely to happen? According to the bookmakers, who seem to be at least as well informed as the politicians, it is likely that Article 50 will be extended beyond March 29th but that the UK will eventually leave the EU with some sort of deal.
Of course, extending Article 50 needs the consent of the other members of the EU. Contrary to what the media might suggest, it is not simply reliant on our politicians eventually finding some cobbled-together compromise they can all agree on.
But it is by no means certain that Europe will agree to an extension. There are plenty of suggestions that Europe is as poorly prepared for ‘no deal’ as the UK is, but could a country like Holland – which clearly wants to attract British business post-Brexit – block an extension? And then President Macron has spoken of refusing to grant an extension unless the UK has some ‘clearly different’ proposals. Over the weekend, it emerged that there were even suggestions made to the German parliament that a Brexit delay could be illegal…
Meanwhile Labour has committed itself to backing a second referendum and Theresa May has yet again kicked the can down the road, delaying any further meaningful vote in the Commons to a week tomorrow, March 12th. She is presumably hoping to use the time pressure and the threat of a long delay to win enough support from staunch Brexiteers to get her Withdrawal Agreement through parliament.
By the next Round Up it will all be settled. Will there be a short delay to Brexit or will the UK have left the EU with no deal almost by accident? Given the incompetence of the people making the decisions, the latter is by no means impossible.
What happened in the rest of the world?
Not for the first time, Donald Trump happened. Having given his State of the Union address at the beginning of the month and announced a second meeting with Kim Jong-un, that meeting duly took place in Vietnam.
But the two leaders failed to reach an agreement on ending sanctions on North Korea so – unlike another well-known politician – Trump decided that no deal was better than a bad deal, shook hands and went home.
One set of negotiations which seem to be making rather more progress are those aimed at ending the long-running US/China trade dispute. Donald Trump even appeared to take a more conciliatory tone with regard to Chinese telecoms company Huawei, having previously signed an order prohibiting the purchase of their equipment for 5G networks in the US.
Back at home February got off to a good start as figures showed that the US economy had added 304,000 jobs in January, way ahead of economists’ expectations of 165,000 jobs. And Google was certainly doing its bit for employment, as it announced a total investment of $13bn (just under £10bn) as it builds data centres and offices across the US, which will ultimately create 10,000 jobs. Amazon, though, changed its mind, cancelling its planned headquarters building in New York in the face of opposition from local residents.
As we mentioned above there was bad news in Europe. Investor confidence in the Eurozone fell to a four year low and the EU downgraded its forecast for German growth. In fact, Germany narrowly avoided a recession (defined as two consecutive quarters of negative growth) when figures from the Federal Statistics Office showed growth of 0% in the fourth quarter of 2018.
But with Eurozone industrial production in December falling by 0.9% there was little to cheer European finance ministers, especially as speculation continues to mount that several ‘zombie banks’ (look no further than Italy) are being saved from collapse only thanks to the continued intervention of the European Central Bank.
Goodness me, the virtual currency Bitcoin almost behaved like a mature adult in February. Having started 2019 at £2,891 the virtual currency fell 10% in January, ending the month at £2,597 and prompting predictions of further sharp falls this year. Not so: in February it made up all the lost ground, climbing back up to £2,867 where it is down just £24 for the year as a whole – a little less than 1%.
We have had some vintage months for the ‘And finally’ section of the Round Up of late, but in February the world was a depressingly sensible place. Even the British Government came to its senses, as it cancelled the ferry contract it had awarded to a company which didn’t own any ships. You are right, it is so easy to overlook these minor details…
…And also quite easy to trip over your laces if you are wearing the new Nike self-tying shoes. I am struggling to believe this is necessary, but apparently Nike have made a trainer (billed as the ‘footwear of the future’) which is both self-lacing and self-tying. The Adapt BB – far too cheap at $350 (£268) – launched in February and is controlled by an Android app.
But users were quick to point out that the app only synced with one shoe. One reviewer expressed his frustration on Google: ‘The software update had an error and now my right shoe won’t charge or turn on!!! To spend $350 on a pair of shoes and have it not work is embarrassing.’ Did I hear someone mutter ‘snowflake?’
Of course one of the things you really do have to work at is marriage. And one couple in Kuwait did work at it, for a full three minutes.
As the couple were leaving the courthouse after the wedding the bride tripped over (although there are no reports that she was wearing self-tying trainers…) At this her loving husband called her ‘stupid.’ Not surprisingly, the bride instantly demanded that the wedding be called off and – after considering what he’d seen – the judge issued an annulment just three minutes after he’d married them.
I wonder what happened to all the vol-au-vents at the wedding reception…