As we do at the end of every month, MoneyGap looks back over July, a month that brought more uncertainty over Brexit, an escalation in the US/China trade war, a disaster for Facebook and – most importantly of all – the brief hope that England might win the World Cup. July was also a stellar month for Bitcoin, but a disastrous one for anyone who likes peas…
By Mark Richards.
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
I am tempted to write that it finally rained…
As we will see below, the long, hot, dry spell was not entirely good news but – along with the World Cup – the sun did its very best to boost the British economy.
Some of you may remember the last World Cup when England failed to make it out of the group stages. That was not good news for the UK economy, but Russia2018 has been entirely different, with the Centre for Retail Research (CRR) estimating that England reaching the final would have been worth £2.7bn to the economy.
We know now that it sadly did not happen, but England’s progress to the semi-finals still gave the economy a significant shot in the arm, with Professor Joshua Barnfield, the CRR director estimating that every goal England scored, “could be worth £165.3m to England’s retailers and an extra £33.2m to pubs, hotels and restaurants.”
It is tempting to think that the retail boost was wholly down to people buying Gareth Southgate waistcoats – in reality it was largely spent at supermarkets. With 80% of people watching the games at home, food and drink sales in the 12 weeks to 15th July were up by 3.6% on the same period in 2017. In the week that England played Colombia and Sweden alcohol sales had a record week, excluding the Christmas and Easter holidays.
Back to Professor Barnfield, who makes an interesting point and one that the UK’s beleaguered high street should probably note:
“The spending pattern [through the World Cup] fits in with the current retail theme of ‘experience.’ People want to spend their money experiencing the match with friends, not simply watching it.”
As we will see below, July also brought good news for the UK’s service and manufacturing sectors. So it may have rained over the weekend, but there are still plenty of reasons to be cheerful.
What else happened in the UK?
As above, there was promising news for both the service and manufacturing sectors. The service was another beneficiary of the World Cup as people watched the Three Lions on brand new widescreen TVs and grandparents up and down the land bought replica kit for their grandchildren. Andy Haldane, the Bank of England’s chief economist, said, “The underlying picture does now appear to be one of gradually rising household spending.”
Perhaps more significantly in the long run a CBI survey pointed to the best news for manufacturing for 12 months, with 41% of firms reporting that output was up – although concerns over the final shape of Brexit were making some firms delay investment.
There was the inevitable retail gloom as both Poundworld and Mothercare announced plans to close stores, but overall July was a good month for the UK. Governor of the Bank of England Mark Carney echoed the sentiments about rising household spending, and said that he had “greater confidence” that the poor performance in the first quarter of the year was down to the weather. The flip side, of course, is that an interest rate rise in August or September now looks increasingly likely.
The FTSE-100 index of leading shares was up slightly in the month. Having closed June at 7,637 it started this week at 7,701 – but the pound went in the opposite direction, falling by roughly a cent to (as I write) $1.3103.
Countdown to Brexit
Well, we are now just eight months away from the date on which the UK will – in theory – leave the EU. Are we any further forward, as firms increasingly say that they are “running out of patience” with the Government’s delays?
The answer could be yes, but whether anyone is pleased with that is open to doubt. Having convened her Cabinet at Chequers, Theresa May presented her vision of Brexit – only to see Brexit Minister David Davis and Foreign Secretary Boris Johnson resign in the immediate aftermath. May has now taken charge of the negotiations herself and has jetted off to Europe to discuss her plans with various heads of state (having supposedly cleared them with German Chancellor Angela Merkel before she presented them to the Cabinet).
The Prime Minister of Austria – a country which, according to the International Monetary Fund, would be one of the least affected by Brexit – has told Theresa May to go for the softest possible Brexit. Meanwhile the finance minister of Italy – a country which would be hit by ‘no deal’ – has said that the EU is out to “swindle” the UK.
Every month I write this section and think it cannot get any more chaotic than the previous month. So let me make a prediction: I do not think the UK will leave the EU in March of next year. I am beginning to think that ‘extra time will be allowed to negotiate a deal that is in everyone’s best interests.’ When Theresa May eventually triggered Article 50 there was “no way” that the two year period allowed for negotiation could be extended. Well, I would not bet against it. Ireland’s deputy prime minister has already spoken of a willingness to extend the date – which would be very much in Ireland’s interests as – according to the IMF – its economy would suffer a 4% hit from a ‘no deal’ Brexit.
As I say, it is only a hunch. But the EU does not want the UK to leave. Theresa May campaigned for Remain and her de facto Brexit secretary, civil servant Olly Robbins, clearly wants the UK to stay in the EU. Meanwhile Tory activists up and down the land are telling their MPs how unhappy they are: maybe the Autumn will see a new Prime Minister and the negotiations starting again from scratch…
What happened in the rest of the world?
As usual, Donald Trump happened. And he was busy announcing good news, firstly with the news that the US had added another 213,000 jobs in June as the economy’s long-running growth streak continued. Then came the news that the economy had grown at an annualised rate of 4.1% in the second quarter of the year, helped by strong consumer spending and a surge in exports. President Trump was quick to seize on the news as proof that his policies were working as the economy recorded its fastest rate of growth since 2014.
There was significantly less good news for Facebook, which set a record of entirely the wrong kind. Hit by a backlash over its handling of fake news and its users’ data, Facebook warned of slower revenue growth and increased costs – and promptly saw its shares fall by 19%, wiping nearly $120bn (£92bn) off the value of the company.
Perhaps the main news, though, was the escalation of the US/China trade war, with the US listing a further $200bn (£150bn) of Chinese imports for tariffs from September. China denounced the move as “completely unacceptable,” saying it would harm the world, and promptly announced some “tit-for-tat” tariffs of its own.
Chinese Premier Xi Jinping spent part of July at the BRICS conference of the major emerging nations – that’s Brazil, Russia, India, China and South Africa. The five countries pledged themselves to an “open and inclusive” multilateral trading system under the World Trade Organisation rules.
“The price [of Bitcoin] has been in steady decline over the last two months and, over the weekend, stood at $6,369 (£4,822).”
That is what I wrote in the June Economic Round Up, but July saw a complete reversal, with the price of Bitcoin rising sharply in the second half of the month to reach $8,229 (£6,282) – to give a rise of 30% in the month. ‘Volatile’ does not even begin to describe it. But the message is clear – whatever the dire warnings issued by central bankers, people clearly want a virtual currency. I would suggest that in five to ten years everyone will be as comfortable with a virtual currency as they are with the ‘real’ currency they now use.
We mentioned in the introduction that July was a bad month for anyone who likes peas. Last month brought you the news that the heatwave could lead to a shortage of iceberg lettuce and now it is threatening the same with peas, as growers report that hot weather and the lack of rain mean that peas are struggling to form in their pods and the crop could be as much as 30% below normal.
With plenty of stories also making the news suggesting a ‘no deal’ Brexit could lead to a shortage of sandwiches in the UK – your BLT, for example, could go back to being just a B – July was a very bad month for the nation’s foodies…
…As it was for Fiat workers in Italy. Both Fiat and Juventus football club are controlled by the Agnelli family, and you would have thought that many Fiat workers would be Juve supporters and therefore overjoyed when the club stumped up €112m (£99.2bn) to buy Cristiano Ronaldo from Real Madrid. Far from it, with the USB union leading the workers out on strike, declaring that the transfer meant Fiat was “missing out on investment.” Woe betide CR7 if he puts his first shot at goal into Row Z.