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Fails, Freeholds and Fruits

By Richard Pickering, Head of Futures Strategy

Happy New Year? The year seems to be off to a good start. The pound is at a high since the referendum ($1.37); economists are more optimistic about GDP growth (1.8%); and inflation may have peaked (3.0%). Although the ONS cautions against premature conclusions, the Bank of England believes that the worst inflation is behind us, easing some of the pressure on another rate rise. The jury is still out on what this means for the UK consumer (if anything). Any slowdown in price rises and the benefit from the stronger currency needs to be looked at in the context of flat wage growth. However, even in this long-troubled area, there may be cause for hope. In a speech this week BoE MPC member Silvana Tenreyro points to productivity improvements as banks deleverage and manufacturers invest.

Too big to fail? It seems not in the case of construction and outsourcing giant Carillion, which has gone into liquidation this week. With no Government bailout, nor even an attempt to sell the business through administration proceedings, the fallout is likely to be significant. What went wrong? In a largely commoditised monopsonist industry run on tight margins, cash is king and the impact of project delays and cost inflation can be severe. Subcontractors have been vocal about Carillion’s extended payment terms, and this maybe should have been an early warning sign – that and three profit warnings. Corbyn has used the collapse to call for an end to PFI deals. This doesn’t feel like the answer. However, the review to come will doubtless address issues about how large public contracts are procured, putting all of the public eggs into relatively few large baskets, and the focus on winning new revenue streams at the expense of sustainable profits.

Wetail The high street has a habit of reinventing itself. When traditional demand has slackened previously, there have been new uses willing to stand in place, including banks, coffee shops and estate agents. So where might the next wave come from? If rumours are to be believed, it could be from the likes of serviced office operator WeWork. And, of course, this would be no surprise given the rate of diversification of their offer, having already done a deal with Lord & Taylor to acquire and lease back part of their Fifth Avenue store. The appeal to under-pressure UK department store operators, left with otherwise challenging upper floor space, is surely compelling. Flexible offices (more permeable than traditional offices) and retail are also good bedfellows. The former provides a ready stock of shoppers, whereas the latter provides day-round activity. The combination might feasibly become a new use class.

Hush! The continuing shift from cellular offices to open plan or activity-based environments feels inevitable. Generally, this is a good thing. In the modern age, information transfer between employees trumps privacy and peace in many roles. However, there are always going to be times when you need to make a confidential call and there are no meeting rooms available. Ukrainian based start-up Hushme has a solution in the form of a mask connected to your smartphone that muffles your voice whilst playing discordant electronic sounds. Fine for the user, but what about everyone sat nearby? Most millennials will simply put on their headphones, or switch to IM conversations; which in turn will irritate most baby boomers. Perhaps all of this can be solved by Microsoft, which has just patented mind-control for apps, including the potential for use in word-processors. Soon, it seems you won’t have to be told to shut up, albeit you may be requested to think more quietly.

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