25 January 2019

Stuart Taylor

25 January 2019

Good morning,

Peeking in people’s shopping baskets. It’s a habit I’m sure we’ve all been guilty of. You’re at the supermarket and you can’t help but clock the young family beside you with a trolley filled with enough packets of Pampers to keep their newborn in nappies until Christmas, or the student buying the essentials for their 5:2 Pot Noodle diet.
 
The Office for National Statistics has been at it too, having a nosey in the name of research. And it’s a good job they have as they’ve discovered some really interesting insights into what households in the UK have been spending.
 
The headline figure from the Family Expenditure Survey showed that average weekly outlay for families last year was £572.60, £18 higher than the previous year and the largest total since 2005. There’s little surprise in terms of the factors driving the biggest share of expenditure. At an average of £80.80 and accounting for 14% of the total, transport was the biggest weekly spend, closely followed by housing, power and fuel, which swallowed up £76.10 a week.
 
There are no prizes for working out that average weekly household spending was the highest in London and the South East at over £650, while spending in the North East was the lowest, approximately £200 less. Scottish, Northern Irish and Welsh households all place just below the £500 mark.
 
It’s not until you dive into the detail of the report, now in its 61st year, do you find some intriguing, as well as some alarming themes.
 
Take age group for example. The data revealed that for households aged 50 to 74 years, almost a quarter of their housing spending went on home improvements and alterations. At the other end of the spectrum, the struggle for people under 30 to get onto the property ladder - as well as the reliance on Pot Noodles - was evident, with a whopping 60% of total spend going on rent. That’s not to say young people aren’t enjoying the odd takeaway, topping the list at £7.60 per week.
 
So we see household spending higher than it was before the financial crisis, underlining increased consumer confidence encouraged by rising wages and lower inflation. So far, so good.
 
However, this masks a trend that offers cause for concern. The households' saving ratio fell to 3.9%, the lowest seen since records of that measure started in 1963, meaning spending has been fuelled by borrowing or people dipping into their savings. This leaves many families turning to loans to cover basic, everyday living expenses, making them extremely vulnerable to changes in their financial situation.
 
The good news is that market predictions indicate households will get steadily richer this year so here’s hoping the headline of next year’s survey is a drift towards building up long-term financial resilience.

News

The Queen has entered the Brexit fray to urge warring MPs to “seek out the common ground” and “never losing sight of the bigger picture”. In a sign that the Royal Family is nervous about the divisions caused by Brexit, her intervention is expected to be followed by other members of the royal family with a similar tone and message.

Two bills designed to end the government shutdown have been rejected by the US Senate. The Republican measure would have provided the $5.7bn (£4.4bn) that President Donald Trump wants to build a southern border wall, but was rejected. As was the Democratic bill that would have seen some US residents who entered the country without documentation as children temporarily shielded from deportation, despite attracting the support of six Republican defectors, including former US presidential candidate Mitt Romney.
 
Alex Salmond, the former first minister of Scotland, was in court yesterday after being charged with 14 crimes, including two attempted rapes and multiple sexual offences. The former SNP leader made no plea and said afterwards that he refuted “absolutely the allegation of criminality and I will defend myself to the utmost in court”. (£)

Business & Economy

The chair of the Commons Treasury select committee has backed plans for the UK to strike financial services “passporting” deals beyond Europe, meaning the City of London can offset its lost access to the EU single market after Brexit. Nicky Morgan will outline the plans – which have been welcomed by City figures – at today’s Treasury committee launch into an inquiry on the future of the UK’s financial services industry after Brexit. (£)
 
A leading accountancy body has said the decisions taken by banks regarding how much risk they should assign to loans should be subject to independent scrutiny by external auditors. The Institute of Chartered Accountants in England and Wales called for an overhaul of the way lenders assess their loan books after Metro Bank saw more than £800 million wiped off their value after a blunder saw it assign risk weightings that were too low on some commercial property and buy-to-let loans. (£)
 
AG Barr, the maker of Irn-Bru, has this morning predicted a 5% rise in full-year revenue this year to £277m, though echoed the sentiments of many in the industry by warning of concern over future regulations and the current uncertainty surrounding Britain’s imminent departure of the EU.
 
Vodafone has reported a seven per cent fall in revenue to €11bn in the third quarter, with the telecoms giant struggling for growth in a number of key markets. The company blamed difficulty in markets such as Spain, Italy and South Africa, along with the sale of its Qatari business and the adoption of new accounting standards for the drop. (£)

Markets

What happened yesterday?

The FTSE 100 closed down at the bell yesterday after a day characterised by an inability to find direction. London’s premier index shed 23.93 points, or 0.35%, to close on 6,618.95. A dovish statement by Mario Draghi, the head of the European Central Bank, after the bank met expectations by maintaining monetary policy, and a mixed statement by US commerce secretary Wilbur Ross on trade relations with China held investors back.
 
The day’s biggest risers were Centrica, up 3.25p at 134.4p, while the biggest fallers were Vodafone, dropping 5.22p at 144.04p, and Reckitt Benckiser which was down 191p at 5,593p.
 
News that airline IAG had ended its interest in low-cost carrier Norwegian and will sell its remaining stake in the firm nudged shares up slightly to 633p. Last year, IAG took a 4.61% stake in Norwegian, bought with the intention of launching a full bid.
 
On the currency markets, Draghi’s comments on deeper risks posed to eurozone economic growth sent the euro as low as $1.1305, down 0.7% to a level last touched on December 17. It did recover later in the day to stand less than 0.1% lower at $1.370 by the close of trade.

Trading Announcements
Barr (A.G.)
Vodafone Group

AGMs
Altona Energy
NU-Oil And Gas
Regency Mines
Treatt

UK Economic Announcements
(09:30) Mortgage Approvals
(11:00) CBI Distributive Trades Surveys
 
Int. Economic Announcements
(09:00) IFO Business Climate (GER)
(09:00) IFO Current Assessment (GER)
(09:00) IFO Expectations (GER)

Columns of Note

What is going to happen with Brexit is a question that has been posed countless times in the two and a half years since the vote, and the answer remains elusive. However, Martin Wolf knows what should happen and that is a second referendum. Writing in the Financial Times, he concedes he is unenthusiastic about another vote but says the promises of an orderly exit have failed to come to fruition and it is unacceptable to leave on terms that will be “hugely disruptive in the short run and costly in the long run”.
 
Writing in The Times, Iain Martin says that, away from the shenanigans that have taken place in Westminster in recent week, the EU has the key to resolving our constitutional crisis and it is time they stepped up and gave ground on some elements of the deal in order to make it happen. (£)

Did you know?

Queen Elizabeth I ordered an archbishop to take out a tooth of his own not once but twice just to prove that the procedure of extracting a tooth was safe and bearable.

Parliamentary highlights

TODAY

House of Commons
No business scheduled

House of Lords
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Scottish Parliament
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