By Richard Pickering, Head of Futures Strategy
Tiger in the tank One of the first phrases that I learned on entering the world of real estate was ‘Agency is Urgency’. Otherwise put, the cost of delay is often greater than the benefit of perfection. The same maxim might be applied to the Brexit discussions as, with each passing day, the benefits that the UK would seek to secure from negotiations and transition arrangements ebb away. Good news therefore that Jean-Claude Juncker appears willing to ‘accelerate’ the discussions, in contrast to Michel Barnier’s position last week that the parties appeared to have reached ‘deadlock’. Whether this is part of a good cop / bad cop routine, or whether Juncker is heeding Boris’s call to ‘put a tiger in the tank’ is currently a matter for debate. However, we shouldn’t have long to wait, as EU leaders meet later this week to discuss next steps. Watch out for a currency swing either way.
Dear Philip… September’s inflation (CPI) figures have topped 3% pa, according to the latest release from the ONS. This is an important threshold in that it is greater than the 1% tolerance on either side of the 2% target that the Bank of England (BoE) is obliged to maintain. It also triggers the requirement for Mark Carney to write to Philip Hammond explaining why it has failed to do so. Although that letter is unlikely to be either surprising or written with any genuine contrition, it does pile the pressure back on the BoE to review its position on interest rates. Taken at a more granular level, the ONS release shows the increase in the rate comes from food, alcohol, recreation and transportation (particularly airfares), whereas women’s clothes actually cost less than this time last year. Inflation can, of course, be good for retailers, so long as the amount demanded at the new price does not fall. With real wages falling however, that remains a key risk, especially for discretionary spend where demand is relatively elastic.
Counting the cost …speaking of which, The Deloitte CFO Survey released this week suggests that inflation in operating costs remains a key concern for financial officers. Whilst most UK finance chiefs anticipate a growth in the top line over the next 12 months, a greater number (net 71%) also predict an increase in operating costs over the same period. The result? Most anticipate a fall in operating margin. In spite of this, the group generally expressed a greater optimism around Brexit. Whilst 60% still believed that the outcome would adversely affect them, this represents a 12% fall from the Q2 report. This coincides with a larger percentage of the sampled group reporting uncertainty as ‘high’.
Cars and questions A new study by Boston Consulting Group highlights the potential impact of autonomous vehicles on our cities. On the positive side, the BCG scenarios show the potential for decreased congestion, falling emissions and a reduction in on-street parking. The flip side of the coin shows the potential for AVs to become a ‘victim of their own success’. This could include greater car use for trips that people currently walk, ‘zero-occupancy’ trips where AV taxis crawl the streets looking for punters and an increase in urban sprawl as people take advantage of the tech to live further out. The truth is surely that there are still many unanswered practical questions and dubious assumptions. For instance, why does the ability of a car to drive itself necessarily mean that we won’t own one? How will free flow intersections work during the period when half of cars are not autonomous? And fundamentally, where do all of these cars go when they’re not in use? Don’t ditch the car parking in your scheme designs just yet.
Branching out Although summer is now a distant memory, the human desire to engage with the great outdoors persists. For most of us who are office-bound, this typically involves a once-a-year summer drinks party on the company roof terrace. However, if you’re lucky enough to work at Microsoft’s forested campus in Seattle, you now have the choice to work from decks and meeting rooms in purpose built tree-houses. Working outside has been shown to improve creativity, whereas a study by Mind suggests that engaging with nature can reduce anxiety. The recent trend towards biophilic design in the workplace is driven by productivity and wellbeing gains. A study of call centre workers showed that productivity increased by 7% among those with a view of an outdoor environment. Meanwhile, the design of new buildings using cross laminated timber has both cost and environmental benefits. A potential rewriting of the three little pigs story might see the timber house come out on top.