By Mark Richards.
As we do at the end of every month, MoneyGap looks back over the month just ended. January was a month that brought us plenty of excitement on Brexit – but no real progress. It was a month that brought the World Economic Forum in Davos and signs of a thaw in the trade war between the US and China. Back at home, there was gloomy news for the high street, and the month ended with snow in the UK and a polar vortex bringing record low temperatures to the US. Let us have a look at all the detail…
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
In reality, the big story in January was Brexit and the votes in Parliament, but that is covered in our special section below. So let us content ourselves with the possible thaw in the now-long running trade dispute between the US and China. January – to the relief of stock markets around the world – brought some good news.
The story of the US/China trade dispute was a thread running through much of last year. Some progress was made in resolving the dispute at December’s G20 summit and that appeared to continue in January with China saying it is “ready to work” with the US. Donald Trump confirmed this, describing a telephone conversation with Xi Jinping as leading to “big progress.”
So despite a rocky start to the month over fears of an economic slowdown in China, this helped world stock markets to enjoy a good month, with all the major markets going up – which is good news for your pensions, savings and investments. That said, many of them have a way to go to make up the ground they lost last year, with 2018 the worst year in a decade for global markets.
So what happened in the UK?
If the lack of progress on Brexit depressed you in January, then the news coming out of the UK high street would have depressed you even more.
Marks and Spencer’s and Debenhams both reported disappointing Christmas trading figures. WH Smith reported trading down 2% in the high street but up in its travel division, covering airports and train stations.
The Christmas winners were, once again, Aldi and Lidl, with two-thirds of British shoppers visiting one of the discounters over the holiday period. You might add Sports Direct boss Mike Ashley to that list, with HMV looking set to become the latest piece of the national high street that he rescues from administration.
With the UK construction sector slowing to a three-month low, house price growth at a six-year low, car sales seeing their biggest fall for eight years and Jaguar Land Rover threatening to cut 5,000 jobs, you might think that the economic numbers for the UK would be unremittingly gloomy.
In fact, the numbers from the bean counters look reasonably good. Figures for the last nine months (from the Office for National Statistics) show that our Government overspent by £35.9bn for the period, £13.1bn less than in the previous year. The latest figures for wages showed them growing at an annual rate of 3.4% – well ahead of the 2.1% rate of inflation – and there are 328,000 more people in work compared to a year ago. So there is some good news: it is just not on the high street.
In common with other major stock markets, the FT-SE 100 index of leading shares bounced cheerfully upwards in January: it rose by 4% to end the month at 6,969. The pound was also up, rising 3% against the dollar to close at $1.3105.
Countdown to Brexit
As so often with the Brexit section of the Round-Up, all the main news was reserved for the last few days of the month.
Having postponed the Parliamentary vote on her Withdrawal Agreement in December – fearing a heavy defeat – the Prime Minister finally brought it before the Commons on January 15th. She duly suffered the heaviest ever defeat inflicted on a governing party, losing the vote by 432 votes to 202.
Theresa May returned to the Commons with ‘Plan B’ – which looked remarkably like ‘Plan A’ – on January 29th. The difference this time was that the Commons was now voting on two crucial amendments. The first – tabled by Labour MP Yvette Cooper – would have effectively taken the option of leaving the EU with ‘no deal’ off the table. The second, from Conservative Sir Graham Brady, sought to give the Prime Minister a mandate to go back to Brussels and re-open the Withdrawal Agreement, specifically with regard to the Irish Backstop. Effectively, it would allow Theresa May to say, ‘If you agree to these concessions, I can get a deal through Parliament.’
To the surprise of many commentators – given that the Commons contains a clear majority of members who supported ‘Remain’ in the Referendum – MPs defeated the Cooper amendment by 321 votes to 298, but passed Brady’s amendment by 317 to 301.
So where does that leave us? It leaves Theresa May having to go back to Brussels to try and re-negotiate a deal which, only a few weeks ago, she was hailing as not just the best deal but the “only possible deal.”
She is – initially at first – likely to get a frosty reception. All the leading European players were quick to line up and say that no negotiation of the Agreement was possible. In addition, arch-federalist Martin Selmayr, the controversial Secretary-General of the European Commission, now appears to be in charge of the EU negotiations.
Has all of this made a ‘no deal’ Brexit more likely? The odds against it have certainly shortened, and the bookmakers will currently give you 2/1 against it happening. But let us remember that the EU has plenty of previous form for negotiating deals at the 11th hour and that a ‘no deal’ Brexit would be bad news for many European economies.
Irish Minister for Finance Paschal Donohoe, for example, openly acknowledges that the Irish economy would get a “sharp shock” from a no-deal Brexit, with the economy slowing down, unemployment rising and agriculture particularly badly hit.
Another month has therefore been and gone and we are no nearer a resolution – with, as I am writing, exactly 54 days until the UK is due to leave the European Union. Four weeks today I will take a look back at February: I suspect that little in this section will have changed…
What happened in the rest of the world?
We report below on a month that saw embarrassing news for German politicians. Rather more seriously, Merrill Lynch said that Germany was heading towards a recession, as their GDP tracker showed a 0.1% quarter on quarter decline.
Overall growth for the wider Eurozone was just 0.2% in the final quarter of last year. Figures for November did show that inflation in the bloc had fallen to 1.6% (the lowest for eight months) helped by lower energy prices.
So much for economic data: on to spying. Germany became the latest country to start considering ways to ban Chinese telecoms company Huawei from playing any part in its 5G network, joining a growing list of countries worrying about security implications.
Meanwhile, the gilets jaunes (yellow vests) protests against President Macron continued, but are now being countered by the foulards rouge (red scarves) – seemingly a middle-class movement supporting the French Republic and its institutions.
Across the Atlantic US jobs growth for December was well ahead of expectations, with the economy adding 312,000 jobs. Normally this would lead to inflationary pressures, but December saw the first fall in US inflation since March 2018, as it dropped to 1.9% thanks to cheaper fuel prices.
What of activity in the US Government? For most of January, there wasn’t any, as the deadlock between the President and the Democrats led to the longest Government shutdown on record. It was finally resolved at the end of the month, just as a polar vortex brought some of the worst weather and lowest temperatures “in a generation” to the US. That will, inevitably, impact on economic activity.
In the Far East, Chinese growth for 2018 was confirmed at 6.6%. Looking ahead to 2019, Chinese Premier Li Keqiang spoke of growth being in an “appropriate range” with most commentators taking this to mean a figure of around 6.3%. This would give China its lowest annual growth for 25 years, but it was always inevitable that the rate of growth would slow. And what would the Eurozone give for growth that was even a tenth of China’s?
The month ended with the World Economic Forum in Davos, which the editor of City AM described it as a ‘festival of irrelevance and hypocrisy.’ It is hard to argue with that last point, as the great and the good took 1,500 private jet flights so they could lecture the rest of us on climate change.
World stock markets have given us their share of dramatic days over the years – ‘Black Monday’ and ‘Black Thursday,’ for example. But now virtual currency Bitcoin has an entire season to itself. Welcome to the Crypto Winter, as falls in January marked the sixth consecutive month of falls for the virtual currency.
Having started the year at £2,891 the price of Bitcoin had fallen to £2,597 when I checked the price on January 31st, giving a fall of 10% in the month. Could Bitcoin fall still further? Here we enter the realms of speculation, but not only is the price of Bitcoin down, so is the volume of trades as more and more governments around the world look to clamp down on trading in virtual currencies. Six months ago Bitcoin was at £5,876 meaning that it has fallen by more than 50% since July 2018. You suspect that 2019 is going to be a bumpy ride for the crypto-currency.
Was there a more irritating piece of legislation passed last year than the GDPR rules which now force you to click ‘I accept’ about four times a week on the same website?
Revenge was meted out to German politicians in January with hundreds of politicians from all the leading parties – including Chancellor Angela Merkel – having their personal data hacked and published online. Justice Minister Katarina Barley said,
“the people behind this want to damage confidence in our democracy.”
No, Katarina, they are simply fed up with clicking Ich nehme an a hundred times a week…
Over in the UK Transport Minister Chris Grayling – who basked in triumphs such as Carillion and the revised railway timetable last year – has been doing his planning for the possibility of a ‘no deal’ Brexit. He has awarded the £13.8m contract for ferry services between Ramsgate and Ostend to a company that has never run a ferry before and owns no ships. What could possibly go wrong?
‘Nothing’ is the answer to that question, at least as far as Gregg’s, Britain’s biggest chain of bakers, is concerned. January saw them report bumper Christmas trading and lift their profit forecast for the third time in a year, helped by the launch of the vegan sausage roll.
…But bad news from the chain for those of us who come into work early and start writing Economic Round-Ups. Gregg’s famous ‘bacon sandwich and a coffee for two quid’ is no more: the price has gone up to £2.10. Not that I have any personal knowledge: a friend told me…
Finally some good news in the war for jobs. We have written previously in MoneyGap about the threat to jobs caused by AI and robotics. But great news from Japan, where January saw a hotel sack half of its 243 robots because they created too much work. The Siri-like virtual assistants could not answer any questions, the automated luggage carriers kept getting stuck and the robo-receptionists could not even photocopy passports.
So there is hope for us humans yet. Let us see what February brings: I am sure a month that started with Go to Work Naked Day will behave itself…